-----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, H6BIuCj19Z2TjZ3tBptmwJCxNzkS4bkxaBDzXIdMlKvm+SGP4WttaomvJi0t0fdE TNCcZ8hrSy2cYYt4cKAcDA== 0000898430-01-000998.txt : 20010323 0000898430-01-000998.hdr.sgml : 20010323 ACCESSION NUMBER: 0000898430-01-000998 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE HEALTH PROPERTIES INC CENTRAL INDEX KEY: 0000780053 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 953997619 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09028 FILM NUMBER: 1576680 BUSINESS ADDRESS: STREET 1: 610 NEWPORT CENTER DR STREET 2: STE 1150 CITY: NEWPORT BEACH STATE: CA ZIP: 92660-6429 BUSINESS PHONE: 9497184400 MAIL ADDRESS: STREET 1: 610 NEWPORT CENTER DR STREET 2: STE 1150 CITY: NEWPORT BEACH STATE: CA ZIP: 92660-6429 FORMER COMPANY: FORMER CONFORMED NAME: BEVERLY INVESTMENT PROPERTIES INC DATE OF NAME CHANGE: 19890515 10-K 1 0001.txt NATIONWIDE HEALTH PROPERTIES, INC. FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-9028 ---------------- NATIONWIDE HEALTH PROPERTIES, INC. (Exact name of registrant as specified in its charter) Maryland 95-3997619 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 610 Newport Center Drive, Suite 1150 Newport Beach, California 92660 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 718-4400 ---------------- Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock, $.10 Par Value New York Stock Exchange 7.677% Series A Cumulative Preferred None
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the Company is approximately $677,122,000 as of February 28, 2001. 46,236,484 (Number of shares of common stock outstanding as of February 28, 2001) Part III is incorporated by reference from the registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 20, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I Item 1. Business. Nationwide Health Properties, Inc., a Maryland corporation organized in October 1985, is a real estate investment trust ("REIT") which invests primarily in health care related facilities and provides financing to health care providers. Whenever we refer herein to "the Company" or to "us" or use the terms "we" or "our," we are referring to Nationwide Health Properties, Inc. As of December 31, 2000, we had investments in 328 facilities located in 37 states and operated by 57 healthcare providers. The facilities include 182 skilled nursing facilities, 127 assisted living facilities, 14 continuing care retirement communities, 2 residential care facilities for the elderly, 2 rehabilitation hospitals and 1 medical clinic. As of December 31, 2000, we had direct ownership of 146 skilled nursing facilities, 120 assisted living facilities, 10 continuing care retirement communities, 2 residential care facilities for the elderly, 2 rehabilitation hospitals and 1 medical clinic. Substantially all of our owned facilities are leased under "net" leases, which are accounted for as operating leases, to 44 healthcare providers. Of our lessees, only Alterra Healthcare Corporation ("Alterra") is expected to account for more than 10% of the Company's revenues in 2001. The leases generally have initial terms ranging from 5 to 19 years, and generally have two or more multiple-year renewal options. We earn fixed monthly minimum rents and may earn periodic additional rents. The additional rent payments are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rents are generally calculated and payable monthly or quarterly. While the calculations and payments are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements ("SAB No. 101"), which we adopted during the fourth quarter of 2000 does not allow for the recognition of such revenue until all possible contingencies have been eliminated. Most of our leases contain provisions such that the total rent cannot decrease from one year to the next. In addition, most of our leases contain cross collateralization and cross default provisions tied to other leases with the same lessee, as well as grouped lease renewals and grouped purchase options. Obligations under our leases have corporate guarantees, and leases covering 197 facilities are backed by irrevocable letters of credit or security deposits that cover 1 to 12 months of monthly minimum rents. Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties. During 2000, we completed the construction of 5 assisted living facilities in which our total aggregate investment was approximately $44,384,000. Additionally, we funded approximately $2,350,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. These capital improvements result in an increase in the minimum rents earned by the Company on these facilities. As of December 31, 2000, we held 35 mortgage loans secured by 36 skilled nursing facilities, 7 assisted living facilities, 4 continuing care retirement communities and 4 parcels of land. These loans had an aggregate outstanding principal balance of approximately $191,020,000 and a net book value of approximately $185,623,000 at December 31, 2000, net of an aggregate discount of approximately $5,397,000. The mortgage loans have individual outstanding balances ranging from approximately $304,000 to $15,821,000 and have maturities ranging from 2001 to 2025. 1 Our facilities are operated by 57 healthcare providers. The following table summarizes our major operators, the number of facilities each operates and the percentage of our annualized revenues received from each operator:
Number of Percentage of Facilities Annualized Operator Operated Revenue -------- ---------- ------------- Alterra Healthcare Corporation...................... 54 12% Beverly Enterprises, Inc............................ 34 9% American Retirement Corporation..................... 12 8% ARV Assisted Living, Inc............................ 16 8% Mariner Post-Acute Network, Inc. ................... 21 6% Liberty Healthcare.................................. 17 5% Laureate Group...................................... 4 4% Epoch Senior Living................................. 8 4% Balanced Care Corporation........................... 10 4% Sun Healthcare Group, Inc........................... 19 4% Integrated Health Services, Inc. ................... 11 4% Life Care Centers of America........................ 7 3% National Assisted Living, LP........................ 8 3% American Health Centers, Inc. ...................... 12 3%
We have historically provided lease or mortgage financing for healthcare facilities to qualified operators and acquired additional healthcare related facilities, including skilled nursing facilities, assisted living facilities, acute care hospitals and medical office buildings. Financing for such investments was provided by borrowings under our bank line of credit, private placements or public offerings of debt or equity, and the assumption of secured indebtedness. Taxation of the Company We believe we have operated in such a manner as to qualify for taxation as a "real estate investment trust" under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with our taxable year ending December 31, 1985, and we intend to continue to operate in such a manner. If the Company qualifies for taxation as a real estate investment trust, we will generally not be subject to federal corporate income taxes on our net income that is currently distributed to stockholders. This treatment substantially eliminates the "double taxation" (e.g. at the corporate and stockholder levels) that generally results from investment in the stock of a corporation. Properties Of the 328 facilities in which we have investments, we have direct ownership of 146 skilled nursing facilities, 120 assisted living facilities, 10 continuing care retirement communities, 2 residential care facilities for the elderly, 2 rehabilitation hospitals and 1 medical clinic. Substantially all of the properties are leased to other parties under terms which require the lessee, in addition to paying rent, to pay all additional charges, taxes, assessments, levies and fees incurred in the operation of the leased properties. Skilled Nursing Facilities Skilled nursing facilities provide rehabilitative, restorative, skilled nursing and medical treatment for patients and residents who do not require the high-technology, care-intensive, high-cost setting of an acute-care or rehabilitative hospital. Treatment programs include physical, occupational, speech, respiratory and other therapeutic programs, including sub-acute clinical protocols such as wound care and intravenous drug treatment. 2 Assisted Living Facilities Assisted living facilities provide services to aid in everyday living, such as bathing, routine or special meals, security, transportation, recreation, medication supervision and limited therapeutic programs. More intensive medical needs of the residents are often met within the Company's assisted living facilities by home health providers, close coordination with the individual's physician and skilled nursing facilities. Assisted living facilities are increasingly successful as lower cost, less institutional alternatives to the health problems of the elderly or medically frail. Continuing Care Retirement Communities Continuing care retirement communities provide a broad continuum of care. At the most basic level, services are provided which aid in everyday living, much like in an assisted living facility. At the other end of the spectrum, skilled nursing, rehabilitation and medical treatment is provided to residents who need those services. This type of facility offers residents the ability to have the most independent lifestyle possible while providing a wide range of social, health and nursing services tailored to meet individual needs. Residential Care Facilities for the Elderly Residential care facilities for the elderly offer similar services to an assisted living facility, except they are provided in a residential home setting. These facilities are generally three to four bedroom houses in residential neighborhoods, which are slightly modified to enable adequate access and care for the residents. There is generally one 24-hour caregiver at each location to provide meals and assistance with activities such as bathing, dressing, laundry and cleaning. Rehabilitation Hospitals Rehabilitation hospitals provide inpatient and outpatient medical care to patients requiring high intensity physical, respiratory, neurological, orthopedic and other treatment protocols and for intermediate periods in their recovery. These programs are often the most effective in treating severe skeletal or neurological injuries and traumatic diseases such as stroke or acute arthritis. The following table sets forth certain information regarding our owned facilities as of December 31, 2000.
Number Annual 2000 Number of of Beds/ Gross Minimum Additional Facility Location Facilities Units(1) Investment Rent(2) Rent(2) - ----------------- ---------- -------- ---------- ------- ---------- (Dollars in Thousands) Skilled Nursing Facilities: Arizona..................... 1 130 $ 3,540 $ 481 $144 Arkansas.................... 9 918 35,932 3,218 104 California.................. 8 963 26,481 3,082 835 Connecticut................. 2 239 6,192 922 96 Florida..................... 8 1,098 29,296 3,063 188 Georgia..................... 2 263 11,685 1,257 -- Idaho....................... 1 64 792 81 -- Illinois.................... 2 210 5,549 701 215 Indiana..................... 7 886 27,334 3,335 707 Kansas...................... 9 685 13,919 1,408 127 Maryland.................... 4 749 22,233 2,933 371 Massachusetts............... 17 1,754 75,092 7,600 680 Minnesota................... 7 890 28,152 2,042 31 Mississippi................. 1 120 4,345 388 19 Missouri.................... 1 108 2,740 517 --
3
Number Annual 2000 Number of of Beds/ Gross Minimum Additional Facility Location Facilities Units(1) Investment Rent(2) Rent(2) - ----------------- ---------- -------- ---------- ------- ---------- (Dollars in Thousands) Skilled Nursing Facilities (continued): Nevada..................... 1 140 $ 4,034 $ 480 $ 77 New Jersey................. 1 180 6,808 391 45 North Carolina............. 1 150 2,360 333 -- Ohio....................... 6 811 29,551 3,304 242 Oklahoma................... 3 253 3,939 404 130 Oregon..................... 1 85 1,215 175 -- Tennessee.................. 10 1,111 35,506 3,627 575 Texas...................... 25 2,791 60,559 6,586 1,636 Virginia................... 4 604 18,568 2,910 -- Washington................. 7 697 29,377 2,656 228 Wisconsin.................. 8 773 19,692 2,893 104 --- ------ -------- ------- ------ Subtotals................. 146 16,672 504,891 54,787 6,554 --- ------ -------- ------- ------ Assisted Living Facilities: Alabama.................... 2 166 5,953 515 35 Arizona.................... 2 142 7,868 743 58 Arkansas................... 1 32 2,150 144 5 California................. 13 1,590 79,578 8,191 1,579 Colorado................... 6 607 45,615 4,294 108 Delaware................... 1 54 5,301 572 8 Florida.................... 20 1,400 92,900 8,902 429 Idaho...................... 1 158 11,800 1,176 86 Illinois................... 1 178 11,076 1,037 81 Indiana.................... 1 50 4,666 458 17 Kansas..................... 4 231 13,470 1,196 20 Kentucky................... 1 44 2,657 273 14 Louisiana.................. 1 104 7,384 883 -- Maryland................... 1 56 5,162 517 -- Massachusetts.............. 1 118 11,007 992 33 Michigan................... 1 143 7,306 816 128 Nevada..................... 2 155 13,616 1,254 13 New Jersey................. 1 52 4,085 353 15 North Carolina............. 1 42 2,916 257 12 Ohio....................... 11 635 38,594 3,769 164 Oklahoma................... 3 188 8,100 771 42 Oregon..................... 6 536 28,831 2,851 132 Pennsylvania............... 2 163 14,628 1,486 -- Rhode Island............... 3 274 29,920 3,182 -- South Carolina............. 4 162 11,041 943 49 Tennessee.................. 5 278 24,534 2,462 29 Texas...................... 16 915 75,245 6,671 245 Virginia................... 2 153 12,969 1,684 -- Washington................. 4 341 22,935 2,267 101 West Virginia.............. 1 60 6,010 602 -- Wisconsin.................. 2 422 29,061 2,181 110 --- ------ -------- ------- ------ Subtotals................. 120 9,449 636,378 61,442 3,513 --- ------ -------- ------- ------
4
Number Annual 2000 Number of of Beds/ Gross Minimum Additional Facility Location Facilities Units(1) Investment Rent(2) Rent(2) - ----------------- ---------- -------- ---------- -------- ---------- (Dollars in Thousands) Continuing Care Retirement Communities: California................ 1 279 $ 12,427 $ 1,222 $ 270 Colorado.................. 1 119 3,115 307 59 Georgia................... 1 190 11,492 909 27 Kansas.................... 1 200 13,204 1,267 75 Massachusetts............. 1 178 14,292 561 18 Tennessee................. 1 80 3,178 330 5 Texas..................... 2 550 37,336 3,289 48 Wisconsin................. 2 942 64,351 6,015 239 --- ------ ---------- -------- ------- Subtotals................. 10 2,538 159,395 13,900 741 --- ------ ---------- -------- ------- Residential Care Facilities for the Elderly: California................ 2 12 325 -- -- --- ------ ---------- -------- ------- Rehabilitation Hospitals: Arizona.................. 2 116 16,826 1,770 230 --- ------ ---------- -------- ------- Medical Clinics: Alabama.................. 1 -- 2,433 -- -- --- ------ ---------- -------- ------- Construction in Progress... -- -- 9,478 -- -- --- ------ ---------- -------- ------- Land Parcels: Kentucky................. -- -- 578 -- -- New Hampshire............ -- -- 736 -- -- Ohio..................... -- -- 1,759 -- -- Texas.................... -- -- 810 -- -- --- ------ ---------- -------- ------- Subtotals.............. -- -- 3,883 -- -- --- ------ ---------- -------- ------- Total All Owned Facilities................ 281 28,787 $1,333,609 $131,899 $11,038 === ====== ========== ======== =======
- -------- (1) Assisted living facilities are measured in units, continuing care retirement communities are measured in beds and units and all other facilities are measured by bed count. (2) Annual Minimum Rent (as defined in the leases) for each of our owned properties. Additional rent, generally contingent upon increases in the facility net patient revenues in excess of a base amount or increases in the Consumer Price Index, may also be paid. The 2000 additional rent amounts reflect additional rent earned in 2000. As of December 31, 2000, 29 of our 281 owned facilities were being leased to and operated by subsidiaries of Beverly Enterprises, Inc. ("Beverly"). We expect that as new facilities are acquired, an increasing percentage of our facilities will be leased to operators unaffiliated with Beverly. For additional financial information regarding Beverly, see Appendix 1 attached as part of this Annual Report on Form 10-K. As of December 31, 2000, 53 of the owned facilities are leased to and operated by subsidiaries of Alterra. Competition We generally compete with other REITs, real estate partnerships, health care providers and other investors, including, but not limited to, banks and insurance companies, in the acquisition, leasing and financing of health care facilities. The operators of the health care facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for patients based on quality of care, reputation, physical appearance of facilities, services offered, family preferences, physicians, staff and price. 5 Regulation Payments for health care services provided by the operators of our facilities are received principally from four sources: private funds; Medicaid, a medical assistance program for the indigent, operated by individual states with the financial participation of the federal government; Medicare, a federal health insurance program for the aged and certain chronically disabled individuals; and health and other insurance plans. Government revenue sources, particularly Medicaid programs, are subject to statutory and regulatory changes, administrative rulings, and government funding restrictions, all of which may materially increase or decrease the rates of payment to nursing facilities and the amount of additional rents payable to the Company under the Leases. Effective for cost reporting years beginning after July 1, 1998, the payment methodology for nursing homes under the Medicare program was changed. Under the new methodology, Medicare reimburses nursing home operators for nursing care, ancillary services and capital costs at a flat per diem rate. In the past, a cost-based system of reimbursement was used. This new reimbursement methodology is being phased in over four years. Payments under the new methodology are generally lower than the payments the facilities had historically received, however there has been some relief during 2000 as a portion of the reduction in payments was reversed. There is no assurance that payments under such programs will remain at levels comparable to the present levels or be sufficient to cover all the operating and fixed costs allocable to Medicaid and Medicare patients. Any changes in reimbursement levels could have an adverse impact on the revenues of the operators of our facilities, which could in turn adversely impact their ability to make their monthly lease or debt payments to us. Health care facilities in which we invest are also generally subject to state licensure statutes and regulations and statutes which may require regulatory approval, in the form of a certificate of need ("CON"), prior to the addition or construction of new beds, the addition of services or certain capital expenditures. CON requirements generally do not apply to assisted living facilities. CON requirements are not uniform throughout the United States and are subject to change. We cannot predict the impact of regulatory changes with respect to licensure and CONs on the operations of our lessees and mortgagees. Executive Officers of the Company The table below sets forth the name, position and age of each executive officer of the Company. Each executive officer is appointed by our Board of Directors, serves at their pleasure and holds office until a successor is appointed, or until the earliest of death, resignation or removal. There is no "family relationship" between any of the named executive officers or any director of the Company. All information is given as of February 28, 2001.
Name Position Age ---- -------- --- R. Bruce Andrews........ President and Chief Executive Officer 60 Mark L. Desmond......... Senior Vice President and Chief Financial Officer 42 T. Andrew Stokes........ Senior Vice President of Corporate Development 53 Steven J. Insoft........ Vice President of Development 37 John J. Sheehan, Jr. ... Vice President of Development 43
R. Bruce Andrews--President and Chief Executive Officer since September 1989 and a director of the Company since October 1989. Mr. Andrews had previously served as a director of American Medical International, Inc., a hospital management company, and served as its Chief Financial Officer from 1970 to 1985 and its Chief Operating Officer in 1985 and 1986. From 1986 through 1989, Mr. Andrews was engaged in various private investments. Mr. Andrews is also a director of CenterTrust Retail Properties, Inc. Mark L. Desmond--Senior Vice President and Chief Financial Officer since January 1996. Mr. Desmond was Vice President and Treasurer of the Company from May 1990 to December 1995 and Controller, Chief Accounting Officer and Assistant Treasurer of the Company from June 1988 to April 1990. From 1986 until joining the Company, Mr. Desmond held various accounting positions with Beverly, an operator of nursing facilities, pharmacies and pharmacy related outlets. 6 T. Andrew Stokes--Senior Vice President of Corporate Development since January 1996. Mr. Stokes was Vice President of Development of the Company from August 1992 to December 1995. From 1984 to 1988, Mr. Stokes served as Vice President, Corporate Development for American Medical International, Inc., a hospital management company. From 1989 until joining the Company, Mr. Stokes was Healthcare Group Director of Houlihan, Lokey, Howard & Zukin, a national financial advisory firm. Steven J. Insoft--Vice President of Development since February 1998. From 1991 to 1997, Mr. Insoft served as President of CMI Senior Housing & Healthcare, Inc., an operator of nursing facilities. From 1988 to 1991, Mr. Insoft was an Associate in the Capital Markets Group of Prudential Insurance Company of America. John J. Sheehan, Jr.--Vice President of Development since February 1996. From September 1987 through April 1990, Mr. Sheehan served as Director of Asset Management for Southmark Corporation, a real estate syndication company. From April 1990 until joining the Company, Mr. Sheehan was Vice President, Mortgage Finance for Life Care Centers of America, an operator and manager of nursing facilities. Employees As of February 28, 2001, the Company had fourteen employees. 7 RISK FACTORS You should carefully consider the risks described below before making an investment decision about the Company. The risks and uncertainties described below are not the only ones facing the Company and there may be additional risks that we do not presently know of or that we currently consider immaterial. All of these risks could adversely affect our business, financial condition, results of operations and cash flows. As a result, our ability to pay distributions on, and the market price of, our common stock may be adversely affected if any of such risks are realized. Operator Obligations Our income would be adversely affected if a significant number of our operators were unable to meet their obligations to us or if we were unable to lease our facilities or make mortgage loans on economically favorable terms. There can be no assurance that any lessee will exercise its option to renew its lease upon the expiration of the initial term or that if such failure to renew were to occur, we could lease the facility to others on favorable terms. Operator Governmental Regulations Our operators are subject to significant regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on our operators' costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any of our operators to comply with such laws, requirements and regulations could adversely affect such operator's ability to meet their obligations to the Company. Operator Reimbursement Rates The ability of our operators to generate revenue and profit affects the underlying value of our facilities. Revenues of our operators are generally derived from payments for patient care from the federal Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers, as well as the patients themselves. A significant portion of our operators' revenue is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Both federal and state governments have adopted and continue to consider various health care reform proposals to control health care costs. In recent years, there have been fundamental changes in the Medicare program that resulted in reduced levels of payment for a substantial portion of health care services. In many instances, revenues from Medicaid programs are already insufficient to cover the actual costs incurred in providing care to those patients. In addition, reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors. Governmental and public concern regarding health care costs may result in significant reductions in payment to health care facilities, and there can be no assurance that future reimbursement rates for either governmental or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies that reduce reimbursement to levels that are insufficient to cover the cost of providing patient care could adversely affect revenues of our operators and thereby adversely affect their ability to meet their obligations to the Company. Operator Financial Difficulties Our facilities are operated by 57 health care providers including Alterra Healthcare Corporation, American Retirement Corporation, ARV Assisted Living, Beverly Enterprises, Inc., Harborside Healthcare Corporation, 8 HEALTHSOUTH Corporation, Integrated Health Services, Inc. ("Integrated"), Mariner Post-Acute Network, Inc. ("Mariner") and Sun Healthcare Group, Inc. ("Sun"). As of December 31, 2000, Alterra operated 54 facilities representing approximately 12% of our revenues. Other than Alterra, no health care provider operated facilities representing over 10% of our revenues. As of December 31, 2000, three operators, Sun, Mariner and Integrated, have filed for bankruptcy protection. See "Management's Discussion and Analysis-- Information Regarding Certain Operators" for a more comprehensive discussion of our relationship with these operators and a discussion regarding termination of the Company's leases with Balanced Care Corporation following their default in December 2000. In addition, in February 2001, Alterra announced that it commenced discussion with its principal lenders and lessors regarding the restructuring of its debt and lease obligations. While we expect to be able to accommodate Alterra's restructuring efforts without any adverse effect to the Company, there can be no guarantee that the restructuring will not have a negative impact on our earnings or cash flow. Our financial position and our ability to make distributions may be adversely affected by financial difficulties experienced by any of our major operators, including bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us as it expires. Operators Seeking Bankruptcy Protection The Company is exposed to the risk that our operators may not be able to meet their obligations, which may result in bankruptcy or insolvency of our operators. Although our leases and loans provide the Company the right to terminate an investment, evict an operator, demand immediate repayment, and other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. An operator in bankruptcy may be able to restrict the Company's ability to collect unpaid rent and interest during the bankruptcy proceeding. If one of our lessees seeks bankruptcy protection, the lessee can either assume or reject the lease. If the lessee assumes the lease, the court cannot change the rental amount or any other lease provision which could financially impact the Company. However, if the lessee rejects the lease, the facility would be returned to the Company. If the facility is returned to the Company, our financial condition could be adversely affected by delays in leasing the facility to a new operator. In the event of a default by our operators under mortgage loans, we may have to foreclose the mortgage or protect our interest by acquiring title to a property and thereafter making substantial improvements or repairs in order to maximize the facility's investment potential. Operators may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce mortgage obligations. If an operator seeks bankruptcy protection, the automatic stay of the Bankruptcy Code would preclude us from enforcing foreclosure or other remedies against the operator unless relief is obtained from the court. High "loan to value" ratios or declines in the value of the facility may prevent us from realizing an amount equal to our mortgage loan upon foreclosure. The receipt of liquidation proceeds or the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the replacement of the operator licensed to manage the facility. In some instances, the Company may take possession of a property that may expose the Company to successor liabilities. If any of these events occur, the Company's revenue and operating cash flow could be adversely affected. See "Management's Discussion and Analysis--Information Regarding Certain Operators" for a discussion regarding three of our operators that have filed for bankruptcy protection. Fraud and Abuse Regulations There are various federal and state laws prohibiting fraud by health care providers, including criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, or failing to refund overpayments or improper payments. 9 There are also laws that govern referrals and financial relationships. A wide array of relationships and arrangements, including ownership interests in a company by persons who refer or who are in a position to refer patients, as well as personal services agreements, have under certain circumstances, been alleged or been found to violate these provisions. State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against health care providers. Based upon information we have periodically received from our operators, we believe that the facilities in which we have investments are in substantial compliance with the various regulatory requirements applicable to them, although there can be no assurance that the operators are in compliance or will remain in compliance in the future. Licensing, Certification and Accreditation Our operators and facilities are subject to regulatory and licensing requirements of federal, state and local authorities. In granting and renewing licenses, regulatory agencies consider, among other things, the physical buildings and equipment, the qualifications of the administrative personnel and nursing staff, the quality of care and continuing compliance with the laws and regulations relating to the operation of the facilities. In the ordinary course of business, the operators receive notices of deficiencies for failure to comply with various regulatory requirements and take appropriate corrective and preventive actions. Failure to obtain licensure or loss of licensure would prevent a facility from operating. Failure to maintain certification in the Medicare and Medicaid programs would result in a loss of funding from those programs. Although accreditation is generally voluntary, loss of accreditation could result in a facility failing to meet eligibility requirements to participate in various reimbursement programs. These events could adversely affect the facility operator's ability to meet its obligations to the Company. Competition The health care industry is highly competitive and we expect that it may become more competitive in the future. We generally compete with other REITs, real estate partnerships, health care providers and other investors, including, but not limited to, banks and insurance companies, in the acquisition, leasing and financing of health care facilities. Our operators are competing with numerous other companies providing similar health care services or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. There can be no assurance that our operators will not encounter increased competition in the future that could limit their ability to attract residents or expand their businesses and therefore affect their ability to meet their obligations to the Company. Debt Obligations We are subject to risks normally associated with debt financing, including the risks that our cash flow will be insufficient to make distributions to our stockholders, that we will be unable to refinance existing indebtedness and that the terms of refinancing will not be as favorable as the terms of existing indebtedness. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, our cash flow may not be sufficient in all years to pay distributions to our stockholders and to repay all maturing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to that refinanced indebtedness would increase. This increased interest expense would adversely affect our financial condition and results of operations. See "Management's Discussion and Analysis--Market Risk Exposure" for a more comprehensive discussion regarding the impact of rising interest rates on our results of operations and financial condition. Leverage Financing for our future investments may be provided by borrowings under our bank line of credit, private or public offerings of debt and the assumption of secured indebtedness. Accordingly, we could become more highly leveraged. The degree of leverage could have important consequences to stockholders, including affecting our ability to obtain additional financing in the future for working capital, capital expenditures, 10 acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in business or the economy generally. See "Management's Discussion and Analysis--Liquidity and Capital Resources" for a discussion regarding our indebtedness. External Sources of Capital In order to qualify as a REIT under the Internal Revenue Code, we are required each year to distribute to our stockholders at least 95% (90% for years ending after December 31, 2000) of our REIT taxable income. Because of this distribution requirement, we may not be able to fund all future capital needs, including capital needs in connection with acquisitions, from cash retained from operations. As a result, we rely on other sources of capital, which we may not be able to obtain on favorable terms or at all. Our access to capital depends upon a number of factors, including general market conditions and the market's perception of our growth potential and our current and potential future earnings and cash distributions and the market price of the shares of our capital stock. Additional debt financing may substantially increase our leverage. Investment Level Difficult capital market conditions in our industry have limited our access to capital. As a result, the level of our new investments has decreased and we do not anticipate making additional investments beyond our current commitments until such time as equity capital is available under more favorable terms. In the event that there are mortgage repayments or facility sales in excess of new investments, our revenues may decrease. Change of Control Provisions Our charter and bylaws contain provisions that may delay, defer or prevent a change in control or other transaction that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for our common stock. In order to protect us against the risk of losing our REIT status for federal income tax purposes, our charter prohibits the ownership by any single person of more than 9.9% of the issued and outstanding shares of our voting stock. We will redeem shares acquired or held in excess of the ownership limit. In addition, any acquisition of our common stock or preferred stock that would result in our disqualification as a REIT is null and void. The ownership limit may have the effect of delaying, deferring or preventing a change in control and, therefore, could adversely affect our stockholders' ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with such transaction. The Board of Directors has increased to 20% the ownership limit applicable to our voting stock with respect to Cohen & Steers Capital Management, Inc. As of December 31, 2000, Cohen & Steers Capital Management, Inc. held 18.60% of our common stock. Our charter authorizes us to issue additional shares of common stock and one or more series of preferred stock and to establish the preferences, rights and other terms of any series of preferred stock that we issue. Although our Board of Directors has no intention to do so at the present time, it could establish a series of preferred stock that could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders. Maryland law also contains other provisions that may delay, defer or prevent a transaction, including a change in control, that might involve payment of a premium price for our common stock or otherwise be in the best interests of our stockholders. Those provisions include the following: . The requirement of Maryland law that a proposed consolidation, merger, share exchange or transfer must be approved by two-thirds of the votes entitled to be cast on the matter; and . the requirement of Maryland law that stockholders may only take action by written consent with the unanimous approval of all stockholders entitled to vote on the matter in question. These provisions may impede various actions by stockholders without approval of our Board of Directors, which in turn may delay, defer or prevent a transaction involving a change of control. 11 Stock Price As with other publicly-traded equity securities, the market price of our common stock will depend upon various market conditions, which may change from time to time. Among the market conditions that may affect the market price of our common stock are the following: . the extent of investor interest; . the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies); . our financial performance and that of our operators; . the contents of analyst reports regarding the Company and the REIT industry; and . general stock and bond market conditions, including changes in interest rates on fixed income securities which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions. Such an increase in the required yield from distributions may adversely affect the market price of our common stock. Other factors such as governmental regulatory action and changes in tax laws could also have a significant impact on the future market price of our common stock. The market value of the equity securities of a REIT is generally based upon the market's perception of the REIT's growth potential and its current and potential future earnings and cash distributions. For that reason, shares of our common stock may trade at prices that are higher or lower than the net asset value per share. Our failure to meet the market's expectation with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock. Another factor that may influence the price of our common stock will be the distribution yield on our common stock (as a percentage of the price of our common stock) relative to market interest rates. An increase in market interest rates might lead prospective purchasers of our common stock to expect a higher distribution yield, which would adversely affect the market price of our common stock. REIT Status We intend to operate in a manner to qualify as a REIT under the Internal Revenue Code. We believe that we have been organized and have operated in a manner, which would allow us to qualify as a REIT under the Internal Revenue Code. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify. Qualification as a REIT requires us to satisfy numerous requirements established under highly technical and complex Internal Revenue Code provisions. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must pay dividends to stockholders aggregating annually at least 95% (90% for taxable years beginning after December 31, 2000) of our REIT taxable income. Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a REIT. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. Unless we are entitled to relief under statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification. If we lose our REIT status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to stockholders. 12 Key Personnel We depend on the efforts of our executive officers, particularly Mr. R. Bruce Andrews, Mr. T. Andrew Stokes and Mr. Mark L. Desmond. While we believe that we could find suitable replacements for these key personnel, the loss of their services or the limitation of their availability could have an adverse impact on our operations. Although we have entered into employment agreements with these executive officers, these employment agreements may not assure their continued service. Item 2. Properties. See Item 1 for details. Item 3. Legal Proceedings. There are various legal proceedings pending to which the Company is a party or to which some of its properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these proceedings will have a material adverse effect on the Company's consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. None. 13 PART II Item 5. Market For The Company's Common Equity and Related Stockholder Matters. The Company's common stock is listed on the New York Stock Exchange. It has been our policy to declare quarterly dividends to holders of the Company's common stock in order to comply with applicable sections of the Internal Revenue Code governing real estate investment trusts. Set forth below are the high and low sales prices of our common stock from January 1, 1999 to December 31, 2000 as reported by the New York Stock Exchange and the cash dividends per share paid with respect to such periods:
High Low Dividend ---- ---- -------- 2000 First quarter................................. $14 13/16 $ 9 9/16 $.46 Second quarter................................ 15 9 5/8 .46 Third quarter................................. 16 3/8 13 7/8 .46 Fourth quarter................................ 16 1/4 12 .46 1999 First quarter................................. $22 1/4 $16 3/4 $.45 Second quarter................................ 21 17 3/4 .45 Third quarter................................. 19 3/16 14 15/16 .45 Fourth quarter................................ 17 1/16 11 3/4 .45
As of February 28, 2001 there were approximately 1,000 holders of record of the Company's common stock. 14 Item 6. Selected Financial Data. The following table presents selected financial data with respect to the Company. Certain of this financial data has been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with those financial statements and accompanying notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations." Reference is made to Note 4 of Notes to Consolidated Financial Statements for information regarding our acquisitions and divestitures.
Years ended December 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- -------- (In thousands, except per share data) Operating Data: Total revenues.......... $ 171,396 $ 163,865 $ 142,584 $ 115,705 $ 95,776 Income from operations.. 70,013 71,148 67,427 62,988 54,944 Gain (loss) on sale of facilities............. 1,149 (335) 2,321 829 -- Net income.............. 71,162 70,813 69,748 63,817 54,944 Preferred stock dividends.............. (7,677) (7,677) (7,677) (1,962) -- Net income available to common stockholders.... 63,485 63,136 62,071 61,855 54,944 Dividends paid on common stock.................. 85,889 83,480 75,128 65,734 59,581 Per Share Data: Basic/diluted income from continuing operations available to common stockholders(1)........ $ 1.35 $ 1.37 $ 1.34 $ 1.45 $ 1.36 Basic/diluted net income available to common stockholders........... 1.37 1.37 1.39 1.47 1.36 Dividends paid on common stock.................. 1.84 1.80 1.68 1.56 1.48 Balance Sheet Data: Investments in real estate, net............ $1,333,026 $1,372,064 $1,316,685 $1,053,273 $722,506 Total assets............ 1,381,007 1,430,056 1,357,303 1,077,394 744,984 Senior unsecured notes due 2001-2038.......... 627,900 657,900 545,150 355,000 190,000 Bank borrowings......... 79,000 75,300 42,000 19,600 32,300 Convertible debentures.. -- -- 57,431 64,512 64,920 Notes and bonds payable................ 62,857 64,048 64,623 58,297 9,229 Stockholders' equity.... 563,472 585,590 605,558 553,046 428,588 Other Data: Net cash provided by operating activities... $ 99,940 $ 94,659 $ 106,067 $ 86,010 $ 74,129 Net cash provided by (used in) investing activities............. 11,258 (89,753) (282,968) (267,302) (85,034) Net cash provided by (used in) financing activities............. (121,188) (4,949) 182,891 179,775 14,677 Funds from operations available to common stockholders(2)........ $ 99,632 $ 99,602 $ 92,726 $ 80,851 $ 71,667 Weighted average shares outstanding............ 46,226 46,216 44,637 42,164 40,373
- -------- (1) For per share purposes, income from continuing operations is defined as income before the effect of any gains or losses on sales of properties. (2) Industry analysts generally consider funds from operations to be an alternative measure of the performance of an equity REIT. We therefore disclose funds from operations, although it is a measurement that is not defined by generally accepted accounting principles. We use the NAREIT measure of funds from operations, which is generally defined as income before extraordinary items adjusted for certain non-cash items, primarily real estate depreciation, less gains/losses on sales of facilities. The NAREIT measure may not be comparable to similarly titled measures used by other REITs. Consequently, our funds from operations may not provide a meaningful measure of our performance as compared to that of other REITs. Funds from operations does not represent cash generated from operating activities as defined by generally accepted accounting principles (funds from operations does not include changes in operating assets and liabilities) and, therefore, should not be considered as an alternative to net income as the primary indicator of operating performance or to cash flow as a measure of liquidity. 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Statement Regarding Forward Looking Disclosure Certain information contained in this report includes forward looking statements. Forward looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. These statements may be identified, without limitation, by the use of forward looking terminology such as "may", "will", "anticipates", "expects", "believes", "intends", "should" or comparable terms or the negative thereof. All forward looking statements included in this report are based on information available to us on the date hereof. Such statements speak only as of the date hereof and we assume no obligation to update such forward looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include (without limitation) the following: the effect of economic and market conditions and changes in interest rates; the general distress of the healthcare industry; government regulations, including changes in the reimbursement levels under the Medicare and Medicaid programs; continued deterioration of the operating results or financial condition, including bankruptcies, of the Company's tenants; the ability of the Company to attract new operators for certain facilities; occupancy levels at certain facilities; the ability of the Company to sell certain facilities for their book value; the amount and yield of any additional investments; changes in tax laws and regulations affecting real estate investment trusts; access to the capital markets and the cost of capital; changes in the ratings of the Company's debt securities; and the risk factors set forth under the caption "Risk Factors" in Item 1. Operating Results Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Minimum rent increased $6,974,000 or 6% in 2000 as compared to 1999. The increase was primarily a result of the 5 developments completed during 2000, combined with a full year of revenues earned by investments in additional facilities in 1999 and a shift in the characterization of rent from additional rent to minimum rent as a result of the new lease negotiated with Beverly Enterprises, Inc. ("Beverly") discussed below. Interest and other income decreased by $195,000 or 1% in 2000 as compared to 1999. The decrease was primarily due to the payoff of a mortgage loan and the partial payoff of another mortgage loan during the year partially offset by the interest on the note receivable from Beverly discussed below. Additional rent and additional interest increased by $752,000 or 5% in 2000 as compared to 1999. The increase was attributable to increased additional rent and additional interest based on increases in the facility revenues or the Consumer Price Index pursuant to the Company's existing leases and mortgage loans receivable, partially offset by the shift in the characterization of additional rent to minimum rent discussed above. Interest and amortization of deferred financing costs increased $6,770,000 or 13% in 2000 as compared to 1999. The increase was primarily due to the issuance of $112,750,000 in fixed rate medium-term notes during 1999, the interest on which is now included for a full year, increases in the average interest rates on the Company's $100,000,000 bank line of credit and a reduction in interest capitalized on construction projects, partially offset by the repayment of $30,000,000 of fixed rate medium term notes during the year. Depreciation and non-cash charges increased $1,165,000 or 3% in 2000 as compared to 1999. The increase was attributable to increased depreciation on the developments completed in 2000, a full year of depreciation related to facilities acquired in 1999 and depreciation adjustments, partially offset by the disposal of 17 facilities during 2000. General and administrative costs increased $731,000 or 15% in 2000 as compared to 1999 due to increases in legal fees related to three operators in bankruptcy, general cost increases and additional costs associated with the Company's larger asset base. Effective January 1, 2000, the Company negotiated a new lease and settlement with Beverly that incorporates 38 of its 47 facilities leased to Beverly, most of which were up for renewal in 2000. The other 9 facilities leased to Beverly are on a separate lease that does not expire until 2010. The new lease provides for 16 an initial five-year lease term for 18 of the 38 facilities. As part of the renewal settlement, 2 of the 38 facilities as well as 3 other facilities that Beverly had previously subleased to other operators were returned to Beverly. The renewal settlement included a promissory note of approximately $16,208,000 that bears interest at 9.0% and requires Beverly to make quarterly payments through its final maturity on December 31, 2004. The future revenues related to the promissory note will decrease as the Company receives the quarterly principal payments. Pursuant to the settlement, Beverly was to operate the remaining 18 facilities at reduced rentals until the earlier of January 1, 2001 or the date the Company was able to lease the facilities to new operators. As of December 31, 2000, the Company has leased 15 of these facilities to new operators, has decided to sell 2 for which it expects to receive approximately book value and anticipates having a new operator in place at the remaining facility by March 31, 2001 at a rental rate approximately equal to that currently being paid by Beverly; however, there is no guarantee that a new operator will be in place by that date, that the Company will receive a rental rate equal to the rental currently being paid by Beverly, or that the Company will actually receive book value for the facilities it intends to sell. The Company expects increased rental revenues and interest income due to the addition of facilities to its property base and mortgage loans receivable over the last twelve months. The Company also expects increased additional rent and additional interest at individual facilities because the Company's leases and mortgages generally contain provisions under which additional rents or interest income increase with increases in facility revenues and/or increases in the Consumer Price Index. Historically, revenues at the Company's facilities and the Consumer Price Index generally have increased, although there are no assurances that they will continue to increase in the future. Sales of facilities or repayments of mortgages would serve to offset the aforementioned revenue increases, and if sales and repayments exceed additional investments this would actually reduce revenues. The Company expects that additional rent and additional interest may decrease due to lease renewals that may result in a shift in the characterization of revenue from additional rent to minimum rent. There is no assurance that leases will renew at the aggregate existing rent level, so the impact of lease renewals may be a decrease in the total rent received by the Company. Additional investments in health care facilities would also increase rental and/or interest income. As additional investments in facilities are made, depreciation and/or interest expense would also increase. Any such increases, however, are expected to be at least partially offset by rents or interest income associated with the investments. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Minimum rent increased $19,721,000 or 19% in 1999 as compared to 1998. The increase was primarily due to minimum rent resulting from the 19 developments completed during 1999, combined with a full year of revenues earned by investments in additional facilities in 1998. Interest and other income increased by $518,000 or 2% in 1999 as compared to 1998. The increase was primarily due to approximately $7,617,000 of working capital loans provided during 1999. Additional rent and additional interest increased by $1,042,000 or 7% in 1999 as compared to 1998. The increase was attributable to increased additional rent and additional interest as provided in the Company's existing leases and mortgage loans receivable based on increases in the facility revenues or the Consumer Price Index. Interest and amortization of deferred financing costs increased $14,090,000 or 38% in 1999 as compared to 1998. The increase was primarily due to the issuance of $112,750,000 in medium-term notes during 1999, a full year of interest expense related to the issuance of $190,150,000 of medium-term notes in 1998 and a rise in interest rates during 1999. Depreciation and non-cash charges increased $8,155,000 or 29% in 1999 as compared to 1998. The increase was attributable to increased depreciation due to the developments completed in 1999 and a full year of depreciation related to facilities acquired in 1998. General and administrative costs increased $315,000 or 7% in 1999 as compared to 1998 due to general cost increases and additional costs associated with the Company's larger asset base. 17 Information Regarding Certain Operators Over-leveraging and changes in reimbursement levels during 1999 have had an adverse impact on the financial performance of some of the companies that operate nursing homes owned by the Company. Three operators have filed for protection under the United States bankruptcy laws. The table below summarizes the filing dates of the bankruptcies, the number of the Company's owned facilities operated by each operator, the Company's investment in facilities subject to the bankruptcies, the percentage of the Company's revenue for 2000 relating to the facilities operated by each operator and cash deposits and letters of credit currently held by the Company as security for each operator:
Number of Percentage Bankruptcy Facilities Investment of 2000 Security Operator Filing Date Operated in Facilities Revenue Deposits -------- ---------------- ---------- ------------- ---------- ---------- Mariner Post-Acute Network................ January 18, 2000 20 $ 60,354,000 6% $2,655,000 Sun Healthcare Group, Inc.................... October 14, 1999 19 65,082,000 4% 1,844,000 Integrated Health Services, Inc.......... February 2, 2000 7 35,109,000 3% 643,000 --- ------------ --- ---------- Totals................ 46 $160,545,000 13% $5,142,000 === ============ === ==========
Under bankruptcy statutes, the tenant must either assume the Company's leases or reject them and return the properties to the Company. If the tenant assumes the leases, it is required to assume the leases under the existing terms; the court cannot change the rental amount or other lease provisions that could financially impact the Company. The tenant's decision whether to assume leases usually is based primarily on whether the properties that are operated by the tenant are providing positive cash flows. Only a few of the 46 facilities leased to and operated by these three companies are not providing adequate cash flows on their own to cover the rent under the leases. The Company's rent has been paid each month on a timely basis. While there is a possibility that the tenants may decide to reject the leases on these properties, the Company has identified parties interested in leasing these facilities, however such leases may be at a lower rental rate. In addition to the above, the Company has one mortgage loan directly with Mariner Post-Acute Network in the amount of $7,497,000 that is secured by one facility. The revenues from this mortgage loan represent approximately 1% of the Company's revenues for the year ended December 31, 2000 and the mortgage loan is secured by a cash deposit in the amount of $400,000. The Company has not received any payments on this mortgage loan subsequent to March 2000. Under bankruptcy statutes, the court imposes an automatic stay with respect to the Company's actions to collect or pursue remedies with respect to mortgage loans and the Company is precluded from exercising foreclosure or other remedies against the borrower. Unlike a lease, a mortgage loan is not subject to assumption or rejection. The mortgage loan may be divided into (i) a secured loan for the portion of the mortgage loan that does not exceed the value of the property and (ii) an unsecured loan for the portion of the mortgage loan that exceeds the value of the property, which unsecured portion would be treated like general unsecured claims in the bankruptcy estate. The Company would only be entitled to the recovery of interest and costs if and to the extent that the value of the collateral exceeds the amount owed. In addition, the courts may modify the terms of a mortgage, including the rate of interest and timing of principal payments. In December 2000, Balanced Care Corporation ("BCC") notified the Company that it would only be making a partial payment of its December rent. The Company leased 10 facilities, in which its investment was approximately $68,712,000, located in 6 states in the eastern United States that were all constructed and opened during 1999 and 2000 to BCC under two master leases. The Company immediately declared BCC in default under its master leases and initiated steps to terminate the leases. BCC agreed to return the facilities to the Company and the leases were terminated effective as of January 1, 2001. The Company has identified a new operator who it anticipates will take over the operations of the facilities effective as of January 1, 2001 at lease rates essentially the same as those previously paid by BCC of approximately $580,000 per month. BCC is managing the facilities on an interim basis on the Company's behalf until the facility licenses can be transferred to the name of the new operator. The Company will avail itself of cash security deposits totaling approximately 18 $2,035,000 to cover the December rent and other costs incurred related to the default. The replacement of operators that have defaulted on lease or loan obligations could be delayed by the approval process of any regulatory agency necessary for the transfer of the property or the replacement of the operator licensed to operate the facility. Liquidity and Capital Resources During 2000, the Company provided new construction financing of approximately $16,793,000. Construction of five assisted living facilities was completed in 2000, in which the Company's total aggregate investment was approximately $44,384,000; $10,816,000 of this amount was a current year investment included in the new construction financing amount above. Upon completion of construction, the facilities were concurrently leased under terms generally similar to the Company's existing leases. During 2000, the Company also funded approximately $2,350,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. Such capital improvements result in an increase in the minimum rents the Company earns on these facilities. The Company funded the construction advances and capital improvement advances with borrowings on the Company's bank line of credit and cash on hand. During 2000, the Company sold six skilled nursing facilities, two assisted living facilities and one residential care facility for the elderly in six separate transactions for aggregate proceeds of approximately $20,294,000. The Company recognized an aggregate gain of $1,149,000 related to the disposal of these facilities. The Company used the proceeds to repay borrowings on the Company's bank line of credit. During 2000, a loan with a net book value of approximately $7,509,000 secured by three skilled nursing facilities was repaid. In addition, a $3,666,000 portion of one of the mortgage loans secured by one skilled nursing facility was also repaid. The Company used the proceeds to repay borrowings on the Company's bank line of credit. During 2000, the Company repaid $30,000,000 in aggregate principal amount of medium-term notes. The notes bore fixed interest at a weighted average interest rate of 7.43%. The Company funded the repayment with borrowings on the Company's bank line of credit and cash on hand. The Company has $78,150,000 of medium-term notes maturing in 2001 that it anticipates repaying with a combination of cash on hand, cash from operations, borrowings on the Company's bank line of credit and potentially with any mortgage loans receivable payoffs received or the issuance of additional medium-term notes under the shelf registrations discussed below. At December 31, 2000, the Company had $21,000,000 available under its $100,000,000 unsecured bank line of credit. During the second quarter, the bank line of credit was amended, resulting in an extension of the maturity by one year to March 31, 2003. The amendment also modified the rates and covenants under the bank line of credit. At the option of the Company, borrowings under the bank line of credit bear interest at prime or LIBOR plus 1.275%. The Company pays a facility fee of .35% per annum on the total commitment under the bank line of credit. Under covenants contained in the credit agreement, the Company is required to maintain, among other things: (i) a minimum net worth of $475,000,000; (ii) a ratio of cash flow before interest expense and non-cash expenses to regularly scheduled debt service payments on all debt of at least 2.5 to 1.0; (iii) a ratio of total liabilities to net worth of not more than 1.6 to 1.0; and (iv) a gross asset value coverage ratio of at least 1.45 to 1.0. The Company has shelf registrations on file with the Securities and Exchange Commission under which the Company may issue (a) up to $442,100,000 in aggregate principal amount of medium-term notes and (b) up to $178,247,000 of securities including debt, convertible debt, common and preferred stock. The Company may make additional investments in healthcare related facilities. However, the level of the Company's new investments has decreased and the Company does not anticipate making additional investments beyond its current commitments until such time as access to equity capital is under more favorable terms. 19 Financing for future investments by the Company may be provided by borrowings under the Company's bank line of credit, private placements or public offerings of debt or equity, and the assumption of secured indebtedness. The Company anticipates the repayment of certain mortgages and the possible sale of certain facilities during 2001. In the event that there are mortgage repayments or facility sales in excess of new investments, revenues may decrease. The Company anticipates using the proceeds from any mortgage repayments or facility sales to reduce the outstanding balance on the Company's bank line of credit. Any such reduction would result in reduced interest expense that the Company believes would partially offset any decrease in revenues. The Company believes it has sufficient liquidity and financing capability to finance anticipated future investments, maintain its current dividend level and repay borrowings at or prior to their maturity. Impact of New Accounting Pronouncements During the fourth quarter of 2000, the Company was required to adopt SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements ("SAB No. 101"). The SEC considers this pronouncement to be a clarification of existing authoritative literature regarding revenue recognition, specifically regarding when revenue becomes earned and realizable. SAB No. 101 provides guidance on revenue recognition in various situations, however the portion that is relevant to the Company relates to the recognition of contingent rental income. The pronouncement states that contingent rental income should be recognized as revenue when the change in the factor on which the contingent lease payment is based actually occurs. Many of the Company's leases are structured so that the factor on which the contingent lease payments in the Company's leases are based is patient revenues in excess of base revenues. SAB No. 101 requires that additional rent not be recognized in the Company's financial statements until the customer's patient revenues for the lease year exceed the total base revenue amount. This differs from the Company's historical method of recognizing a portion of the contingent lease payments as they became calculable and payable on a quarterly basis in accordance with the Company's lease provisions based on a percentage of revenues in excess of base amounts for the prorated portion of the lease year completed. The impact of this pronouncement is mitigated in part by the fact that most of the Company's leases contain provisions that do not allow total rent to decrease from one year to the next. SAB No. 101 requires that the Company adopt its provisions retroactively to January 1, 2000 and show a cumulative effect of a change in accounting principle as of that date. The adoption of this pronouncement did not have a material impact on the Company's financial statements for the year ended December 31, 2000, and did not result in a cumulative effect of a change in accounting principle being recorded as of January 1, 2000. While the impact was immaterial for the year ended December 31, 2000, SAB No. 101 does cause a change in the additional rent amounts reported in the Company's quarterly reports on Form 10-Q for the first, second and third quarters of 2000. These differences are reconciled in Note 16 to the Company's financial statements for the year ended December 31, 2000. The Company expects that the timing of the recognition of additional rent and interest in future quarterly periods may fluctuate due to the provisions of SAB No. 101. Market Risk Exposure The Company is exposed to market risks related to fluctuations in interest rates on its mortgage loans receivable and debt. The Company does not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. The purpose of the following analyses is to provide a framework to understand the Company's sensitivity to hypothetical changes in interest rates as of December 31, 2000. Readers are cautioned that many of the statements contained in the "Market Risk Exposure" paragraphs are forward looking and should be read in conjunction with the Company's disclosures under the heading "Statement Regarding Forward Looking Disclosure" set forth above. The Company provides mortgage loans to operators of healthcare facilities as part of its normal operations. The majority of the loans have fixed rates. Four of the mortgage loans have adjustable rates; however, the rates 20 adjust only once or twice over the term of the loans and the minimum adjusted rate is equal to the current rate. Therefore, all mortgage loans receivable are treated as fixed rate notes in the table and analysis below. The Company utilizes debt financing primarily for the purpose of making additional investments in healthcare facilities. Historically, the Company has made short-term borrowings on its bank line of credit to fund its acquisitions and construction projects until market conditions were appropriate, based on management's judgment, to issue stock or fixed rate debt to provide long-term financing. A portion of the Company's secured debt is variable rate debt in the form of housing revenue bonds, which were assumed in connection with the acquisition of certain healthcare facilities. Pursuant to the associated lease arrangements, increases or decreases in the interest rates on the housing revenue bonds would be substantially offset by increases or decreases in the rent received by the Company on the properties securing this debt. Therefore, there is substantially no market risk associated with the Company's variable rate secured debt. For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair market value, but do affect the future earnings and cash flows. The Company generally cannot prepay fixed rate debt prior to maturity, therefore, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until the Company would be required to refinance such debt. Holding the variable rate debt balance constant, and including the bank borrowings as variable rate debt due to its nature, each one percentage point increase in interest rates would result in an increase in interest expense for the coming year of approximately $912,000. The table below details the principal amount and the average interest rates for the mortgage loans receivable and debt for each category based on the final maturity dates. Certain of the mortgage loans receivable and certain items in the various categories of debt require periodic principal payments prior to the final maturity date. The fair value estimates for the mortgage loans receivable are based on the estimates of management and on rates currently prevailing for comparable loans. The fair market value estimates for debt securities are based on discounting future cash flows utilizing current rates offered to the Company for debt of the same type and remaining maturity.
Maturity Date -------------------------------------------------------------------------- Fair 2001 2002 2003 2004 2005 Thereafter Total Value ------- ------- ------- ------- ------- ---------- -------- -------- (Dollars in thousands) Assets Mortgage loans receivable............. $ 4,704 -- $ 3,189 $ 4,698 $ 5,012 $168,020 $185,623 $185,671 Average interest rate... 10.00% -- 9.94% 9.00% 11.30% 10.14% 10.15% Liabilities Debt Fixed rate.............. $78,150 $50,000 $66,000 $67,750 $18,000 $398,613 $678,513 $618,204 Average interest rate... 6.89% 7.35% 7.49% 9.08% 8.66% 7.30% 7.50% Variable rate........... -- -- -- -- -- $ 12,244 $ 12,244 $ 12,244 Average interest rate... -- -- -- -- -- 5.23% 5.23% Bank borrowings......... -- -- $79,000 -- -- -- $ 79,000 $ 79,000 Average interest rate... -- -- 8.13% -- -- -- 8.13%
Increases in interest rates during 1999 resulted in an increase in interest expense for the Company primarily related to the bank line of credit and medium-term notes issued during the year at rates somewhat higher than in prior years. Increases in interest rates during 2000 have resulted in an additional increase in interest expense related to the Company's bank line of credit. These interest rate increases have made it more expensive for the Company to borrow on its bank line of credit and to access debt capital through its medium-term note program. Any future interest rate increases will further increase the cost of any borrowings to refinance current long-term debt as it matures or finance future acquisitions. 21 Item 8. Financial Statements and Supplementary Data. Report of Independent Public Accountants................................. 23 Consolidated Balance Sheets.............................................. 24 Consolidated Statements of Operations.................................... 25 Consolidated Statements of Stockholders' Equity.......................... 26 Consolidated Statements of Cash Flows.................................... 27 Notes to Consolidated Financial Statements............................... 28
22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Directors of Nationwide Health Properties, Inc.: We have audited the accompanying consolidated balance sheets of Nationwide Health Properties, Inc. (a Maryland corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Health Properties, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Orange County, California January 19, 2001 23 NATIONWIDE HEALTH PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, ---------------------- 2000 1999 ---------- ---------- A S S E T S ----------- Investments in real estate Real estate properties: Land................................................. $ 142,721 $ 146,712 Buildings and improvements........................... 1,182,410 1,146,921 Construction in progress............................. 8,478 37,740 ---------- ---------- 1,333,609 1,331,373 Less accumulated depreciation........................ (186,206) (162,671) ---------- ---------- 1,147,403 1,168,702 Mortgage loans receivable, net....................... 185,623 203,362 ---------- ---------- 1,333,026 1,372,064 Cash and cash equivalents.............................. 6,149 16,139 Receivables............................................ 7,607 7,614 Other assets........................................... 34,225 34,239 ---------- ---------- $1,381,007 $1,430,056 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Bank borrowings........................................ $ 79,000 $ 75,300 Senior notes due 2001-2038............................. 627,900 657,900 Notes and bonds payable................................ 62,857 64,048 Accounts payable and accrued liabilities............... 47,778 47,218 Commitments and contingencies Stockholders' equity: Preferred stock $1.00 par value; 5,000,000 shares authorized; issued and outstanding: 1,000,000 as of December 31, 2000 and 1999; stated at liquidation preference of $100 per share........................ 100,000 100,000 Common stock $.10 par value; 100,000,000 shares authorized; issued and outstanding: 46,226,484 and 46,216,484 as of December 31, 2000 and 1999, respectively........................................ 4,623 4,622 Capital in excess of par value....................... 556,658 556,373 Cumulative net income................................ 575,619 504,457 Cumulative dividends................................. (673,428) (579,862) ---------- ---------- Total stockholders' equity......................... 563,472 585,590 ---------- ---------- $1,381,007 $1,430,056 ========== ==========
See accompanying notes. 24 NATIONWIDE HEALTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts)
Years ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- Revenues: Minimum rent................................... $130,900 $123,926 $104,205 Interest and other income...................... 23,182 23,377 22,859 Additional rent and additional interest........ 17,314 16,562 15,520 -------- -------- -------- 171,396 163,865 142,584 -------- -------- -------- Expenses: Interest and amortization of deferred financing costs......................................... 58,391 51,621 37,531 Depreciation and non-cash charges.............. 37,296 36,131 27,976 General and administrative..................... 5,696 4,965 4,650 Impairment of long-lived assets................ -- -- 5,000 -------- -------- -------- 101,383 92,717 75,157 -------- -------- -------- Income before gain (loss) on sale of facilities.. 70,013 71,148 67,427 Gain (loss) on sale of facilities................ 1,149 (335) 2,321 -------- -------- -------- Net income....................................... 71,162 70,813 69,748 Preferred stock dividends........................ (7,677) (7,677) (7,677) -------- -------- -------- Net income available to common stockholders...... $ 63,485 $ 63,136 $ 62,071 ======== ======== ======== Per share amounts: Basic/diluted income from continuing operations available to common stockholders.............. $ 1.35 $ 1.37 $ 1.34 ======== ======== ======== Basic/diluted net income available to common stockholders.................................. $ 1.37 $ 1.37 $ 1.39 ======== ======== ======== Weighted average shares outstanding.............. 46,226 46,216 44,637 ======== ======== ========
See accompanying notes. 25 NATIONWIDE HEALTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Common stock Preferred Stock Capital in Total ------------- --------------- excess of Cumulative Cumulative stockholders' Shares Amount Shares Amount par value net income dividends equity ------ ------ ------ -------- ---------- ---------- ---------- ------------- Balances at December 31, 1997.. 43,129 $4,313 1,000 $100,000 $490,737 $363,896 $(405,900) $553,046 Issuance of common stock...... 2,761 276 -- -- 58,248 -- -- 58,524 Conversion of debentures...... 316 32 -- -- 7,013 -- -- 7,045 Net income.................... -- -- -- -- -- 69,748 -- 69,748 Preferred dividends........... -- -- -- -- -- -- (7,677) (7,677) Common dividends.............. -- -- -- -- -- -- (75,128) (75,128) ------ ------ ----- -------- -------- -------- --------- -------- Balances at December 31, 1998.. 46,206 4,621 1,000 100,000 555,998 433,644 (488,705) 605,558 Issuance of common stock...... 10 1 -- -- 327 -- -- 328 Conversion of debentures...... -- -- -- -- 8 -- -- 8 Stock options................. -- -- -- -- 40 -- -- 40 Net income.................... -- -- -- -- -- 70,813 -- 70,813 Preferred dividends........... -- -- -- -- -- -- (7,677) (7,677) Common dividends.............. -- -- -- -- -- -- (83,480) (83,480) ------ ------ ----- -------- -------- -------- --------- -------- Balances at December 31, 1999.. 46,216 4,622 1,000 100,000 556,373 504,457 (579,862) 585,590 Issuance of common stock...... 10 1 -- -- 225 -- -- 226 Stock options................. -- -- -- -- 60 -- -- 60 Net income.................... -- -- -- -- -- 71,162 -- 71,162 Preferred dividends........... -- -- -- -- -- -- (7,677) (7,677) Common dividends.............. -- -- -- -- -- -- (85,889) (85,889) ------ ------ ----- -------- -------- -------- --------- -------- Balances at December 31, 2000.. 46,226 $4,623 1,000 $100,000 $556,658 $575,619 $(673,428) $563,472 ====== ====== ===== ======== ======== ======== ========= ========
See accompanying notes. 26 NATIONWIDE HEALTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years ended December 31, ------------------------------- 2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income.................................. $ 71,162 $ 70,813 $ 69,748 Depreciation and non-cash charges........... 37,296 36,131 27,976 (Gain) loss on sale of properties........... (1,149) 335 (2,321) Impairment of long-lived assets............. -- -- 5,000 Amortization of deferred financing costs.... 1,011 940 980 Net change in other assets and liabilities.. (8,380) (13,560) 4,684 --------- --------- --------- Net cash provided by operating activities............................... 99,940 94,659 106,067 --------- --------- --------- Cash flows from investing activities: Investment in real estate properties........ (20,843) (110,590) (279,384) Disposition of real estate properties....... 21,004 23,669 5,496 Investment in mortgage loans receivable..... (2,929) (5,011) (18,711) Principal payments on mortgage loans receivable................................. 14,026 2,179 9,631 --------- --------- --------- Net cash provided by (used in) investing activities............................... 11,258 (89,753) (282,968) --------- --------- --------- Cash flows from financing activities: Bank borrowings............................. 180,800 262,600 308,800 Repayment of bank borrowings................ (177,100) (229,300) (286,400) Issuance of common stock, net............... 53,062 Issuance of senior unsecured debt........... -- 112,750 190,150 Issuance of notes and bonds................. -- -- 4,507 Repayments of senior unsecured debt......... (30,000) -- -- Principal payments on convertible debentures, notes and bonds................ (1,082) (58,470) (2,729) Dividends paid.............................. (93,566) (91,157) (82,805) Deferred financing costs.................... (240) (1,372) (1,694) --------- --------- --------- Net cash provided by (used in) financing activities............................... (121,188) (4,949) 182,891 --------- --------- --------- Increase (decrease) in cash and cash equivalents.................................. (9,990) (43) 5,990 Cash and cash equivalents, beginning of period....................................... 16,139 16,182 10,192 --------- --------- --------- Cash and cash equivalents, end of period...... $ 6,149 $ 16,139 $ 16,182 ========= ========= ========= Supplemental schedule of cash flow information: Cash interest paid.......................... $ 57,995 $ 49,402 $ 38,402 ========= ========= =========
See accompanying notes. 27 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2000, 1999 and 1998 1. Organization Nationwide Health Properties, Inc. (the "Company") was incorporated on October 14, 1985 in the State of Maryland. The Company operates as a real estate investment trust specializing in investments in health care related properties and as of December 31, 2000 had investments in 328 health care facilities, including 182 skilled nursing facilities, 127 assisted living facilities, 14 continuing care retirement communities, 2 residential care facilities for the elderly, 2 rehabilitation hospitals and 1 medical clinic. At December 31, 2000, the Company owned 146 skilled nursing facilities, 120 assisted living facilities, 10 continuing care retirement communities, 2 residential care facilities for the elderly, 2 rehabilitation hospitals and 1 medical clinic. The Company also held 35 mortgage loans secured by 36 skilled nursing facilities, 7 assisted living facilities, 4 continuing care retirement communities and 4 parcels of land. In addition, at December 31, 2000, the Company had 1 assisted living facility under construction. The Company has no foreign facilities or operations. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its investment in its majority owned and controlled joint ventures. All material intercompany accounts and transactions have been eliminated. Land, Buildings and Improvements The Company records properties at cost and uses the straight-line method of depreciation for buildings and improvements over their estimated remaining useful lives of up to 40 years. The Company reviews and adjusts facility useful lives based on management's estimates. Cash and Cash Equivalents Cash in excess of daily requirements is invested in money market mutual funds, commercial paper and repurchase agreements with original maturities of three months or less. Such investments are deemed to be cash equivalents for purposes of presentation in the financial statements. Federal Income Taxes The Company qualifies as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. The Company intends to continue to qualify as such and therefore to distribute at least 95% of its real estate investment trust taxable income to its stockholders. Accordingly, the Company will not be subject to Federal income taxes on its income that is distributed to stockholders. Therefore, no provisions for Federal income taxes have been made in the Company's financial statements. The net difference in the tax basis and the reported amounts of the Company's assets and liabilities as of December 31, 2000 is approximately $19,087,000. Revenue Recognition Rental income from operating leases is accrued as earned over the life of the lease agreements in accordance with generally accepted accounting principles. There are generally no step rent provisions in the lease agreements. Interest income on real estate mortgages is recognized using the effective interest method based upon the expected payments over the lives of the mortgages. Additional rent and additional interest are 28 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rent and interest are generally calculated and payable monthly or quarterly, and most of the Company's leases contain provisions such that total rent cannot decrease from one year to the next. While the calculations and payments are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements ("SAB No. 101"), which the Company adopted during the fourth quarter of 2000, and which is discussed in detail below under the heading Impact of New Accounting Pronouncements, does not allow for the recognition of such revenue until all possible contingencies have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting for Stock-Based Compensation In 1999, the Company adopted the accounting provisions of SFAS No. 123 Accounting for Stock-Based Compensation. This Statement established a fair value based method of accounting for stock-based compensation. Accounting for stock-based compensation under this Statement causes the fair value of stock options granted to be amortized into expense over the vesting period of the stock and causes any dividend equivalents earned to be treated as dividends for financial reporting purposes. Previously, the Company provided footnote disclosure of the pro forma effect of options granted as calculated under the provisions of SFAS No. 123. Capitalization of Interest The Company capitalizes interest on facilities under construction. The capitalization rates used are based on rates for the Company's senior unsecured notes and bank line of credit, as applicable. Capitalized interest in 2000, 1999 and 1998 was $1,245,000, $4,190,000 and $4,693,000, respectively. Impact of New Accounting Pronouncements During the fourth quarter of 2000, the Company was required to adopt SAB No. 101. The SEC considers this pronouncement to be a clarification of existing authoritative literature regarding revenue recognition, specifically regarding when revenue becomes earned and realizable. SAB No. 101 provides guidance on revenue recognition in various situations, however the portion that is relevant to the Company relates to the recognition of contingent rental income. The pronouncement states that contingent rental income should be recognized as revenue when the change in the factor on which the contingent lease payment is based actually occurs. As discussed above, many of the Company's leases are structured so that the factor on which the contingent lease payments in the Company's leases are based is patient revenues in excess of base revenues. SAB No. 101 requires that additional rent not be recognized in the Company's financial statements until the customer's patient revenues for the lease year exceed the total base revenue amount. This differs from the Company's historical method of recognizing a portion of the contingent lease payments as they became calculable and payable on a quarterly basis in accordance with the Company's lease provisions based on a percentage of revenues in excess of base amounts for the prorated portion of the lease year completed. The impact of this pronouncement is mitigated in part by the fact that most of the Company's leases contain provisions that do not allow total rent to decrease from one year to the next. 29 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 SAB No. 101 requires that the Company adopt its provisions retroactively to January 1, 2000 and show a cumulative effect of a change in accounting principle as of that date. The adoption of this pronouncement did not have a material impact on the Company's financial statements for the year ended December 31, 2000, and did not result in a cumulative effect of a change in accounting principle being recorded as of January 1, 2000. While the impact was immaterial for the year ended December 31, 2000, SAB No. 101 does cause a change in the additional rent amounts reported in the Company's quarterly reports on Form 10-Q for the first, second and third quarters of 2000. These differences are reconciled in Note 16 "Quarterly Financial Data". The Company expects that the timing of the recognition of additional rent and interest in future quarterly periods may fluctuate due to the provisions of SAB No. 101. 3. Earnings Per Share Basic earnings per share is computed by dividing income from continuing operations available to common stockholders by the weighted average common shares outstanding. Income available to common stockholders is calculated by deducting dividends declared on preferred stock from income from continuing operations and net income. Diluted earnings per share includes the effect of the potential shares outstanding; dilutive stock options. The table below details the components of the basic and diluted earnings per share from continuing operations calculations:
Years Ended December 31, ----------------------------------------------- 2000 1999 1998 --------------- --------------- --------------- Income Shares Income Shares Income Shares ------- ------ ------- ------ ------- ------ (Amounts in thousands) Income before gain (loss) on sale of facilities........... $70,013 $71,148 $67,427 Less: preferred stock dividends.................... (7,677) (7,677) (7,677) ------- ------ ------- ------ ------- ------ Basic EPS..................... 62,336 46,226 63,471 46,216 59,750 44,637 Effect of dilutive securities: Stock options............... -- 2 -- -- -- 8 ------- ------ ------- ------ ------- ------ Amounts used to calculate Diluted EPS.................. $62,336 46,228 $63,471 46,216 $59,750 44,645 ======= ====== ======= ====== ======= ======
4. Real Estate Properties Substantially all of the Company's owned facilities are leased under "net" leases which are accounted for as operating leases. The leases generally have initial terms ranging from 5 to 19 years, and generally the leases have two or more multiple-year renewal options. The Company earns fixed monthly minimum rents and may earn periodic additional rents. The additional rent payments are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rents are generally calculated and payable monthly or quarterly, but are not recognized as revenue until any contingencies are resolved. Most leases contain provisions such that the total rent cannot decrease from one year to the next. In addition, most leases contain cross-collateralization and cross- default provisions tied to other leases with the same lessee, as well as grouped lease renewals and grouped purchase options. Obligations under the leases have corporate guarantees, and leases covering 197 facilities are backed by irrevocable letters of credit or cash security deposits that cover 1 to 12 months of monthly minimum rents. Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties. 30 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 Minimum future rentals on non-cancelable leases as of December 31, 2000 are as follows:
Minimum Minimum Year Rentals Year Rentals ---- -------------- ---- ------------- (In thousands) (In thousands) 2001............ $131,358 2007........ 83,323 2002............ 129,630 2008........ 73,489 2003............ 122,402 2009........ 60,816 2004............ 118,798 2010........ 42,359 2005............ 105,869 Thereafter.. 79,498 2006............ 97,189
During 2000, the Company provided new construction financing of approximately $16,793,000. Construction of five assisted living facilities was completed in 2000, in which the Company's total aggregate investment was $44,384,000; $10,816,000 of this amount was a current year investment included in the new construction financing amount above. Upon completion of construction, the facilities were concurrently leased under terms generally similar to the Company's existing leases. The Company also funded approximately $2,350,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. Such capital improvements result in an increase in the minimum rents earned by the Company on these facilities. During 2000, the Company sold six skilled nursing facilities, two assisted living facilities, and one residential care facility for the elderly in six separate transactions for aggregate proceeds of approximately $20,294,000. The Company recognized an aggregate gain of $1,149,000 related to the disposal of these facilities. The Company also sold 3 skilled nursing facilities during 2000 with an aggregate net book value of approximately $6,343,000 for which it provided mortgage financing in the amount of $6,080,000. In addition, the Company acquired two skilled nursing facilities and one continuing care retirement community for an aggregate amount of approximately $15,357,000, for which it had previously provided mortgage financing of $14,260,000. The following table lists the Company's real estate properties as of December 31, 2000:
Buildings Notes and Number of and Total Accumulated Bonds Facility Location Facilities Land Improvements Investment(1) Depreciation Payable ----------------- ---------- ------- ------------ ------------- ------------ --------- (Dollar amounts in thousands) Assisted Living Facilities: Alabama............... 2 $ 1,681 $ 4,272 $ 5,953 $ 487 $ -- Arizona............... 2 1,024 6,844 7,868 769 -- Arkansas.............. 1 182 1,968 2,150 109 -- California............ 13 15,105 64,473 79,578 9,866 -- Colorado.............. 6 3,465 42,150 45,615 3,538 -- Delaware.............. 1 345 4,956 5,301 217 -- Florida............... 20 12,581 80,319 92,900 5,816 -- Idaho................. 1 544 11,256 11,800 1,259 -- Illinois.............. 1 603 10,473 11,076 1,047 -- Indiana............... 1 805 3,861 4,666 257 -- Kansas................ 4 1,885 11,585 13,470 918 -- Kentucky.............. 1 110 2,547 2,657 200 -- Louisiana............. 1 831 6,553 7,384 191 --
31 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998
Buildings Notes and Number of and Total Accumulated Bonds Facility Location Facilities Land Improvements Investment(1) Depreciation Payable ----------------- ---------- ------- ------------ ------------- ------------ --------- (Dollar amounts in thousands) Assisted Living Facilities (Continued): Maryland............................. 1 $ 533 $ 4,629 $ 5,162 $ 155 $ -- Massachusetts........................ 1 1,758 9,249 11,007 573 -- Michigan............................. 1 300 7,006 7,306 1,161 -- Nevada............................... 2 1,219 12,397 13,616 985 6,630 New Jersey........................... 1 655 3,430 4,085 193 -- North Carolina....................... 1 385 2,531 2,916 174 -- Ohio................................. 11 3,623 34,971 38,594 2,604 -- Oklahoma............................. 3 745 7,355 8,100 1,249 -- Oregon............................... 6 2,078 26,753 28,831 3,705 8,843 Pennsylvania......................... 2 1,066 13,562 14,628 571 -- Rhode Island......................... 3 2,877 27,043 29,920 650 -- South Carolina....................... 4 779 10,262 11,041 615 -- Tennessee............................ 5 2,664 21,870 24,534 1,179 -- Texas................................ 16 7,283 67,962 75,245 4,702 -- Virginia............................. 2 1,651 11,318 12,969 195 -- Washington........................... 4 1,841 21,094 22,935 1,986 -- West Virginia........................ 1 705 5,305 6,010 152 -- Wisconsin............................ 2 4,843 24,218 29,061 2,064 18,521 --- ------- -------- -------- ------- ------- Subtotals.......................... 120 74,166 562,212 636,378 47,587 33,994 --- ------- -------- -------- ------- ------- Skilled Nursing Facilities: Arizona.............................. 1 650 2,890 3,540 906 -- Arkansas............................. 9 2,745 33,187 35,932 3,186 2,185 California........................... 8 7,053 19,428 26,481 5,397 -- Connecticut.......................... 2 810 5,382 6,192 1,483 -- Florida.............................. 8 3,640 25,656 29,296 6,724 -- Georgia.............................. 2 1,363 10,322 11,685 1,520 -- Idaho................................ 1 15 777 792 272 -- Illinois............................. 2 157 5,392 5,549 1,692 -- Indiana.............................. 7 751 26,583 27,334 8,339 -- Kansas............................... 9 760 13,159 13,919 3,266 -- Maryland............................. 4 845 21,388 22,233 8,692 -- Massachusetts........................ 17 7,488 67,604 75,092 11,971 -- Minnesota............................ 7 1,973 26,179 28,152 9,315 -- Mississippi.......................... 1 750 3,595 4,345 231 -- Missouri............................. 1 51 2,689 2,740 1,153 -- Nevada............................... 1 740 3,294 4,034 762 -- New Jersey........................... 1 360 6,448 6,808 4,176 -- North Carolina....................... 1 116 2,244 2,360 962 -- Ohio................................. 6 1,316 28,235 29,551 9,271 -- Oklahoma............................. 3 98 3,841 3,939 1,422 -- Oregon............................... 1 100 1,115 1,215 534 -- Tennessee............................ 10 2,354 33,152 35,506 5,980 --
32 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998
Buildings Notes and Number of and Total Accumulated Bonds Facility Location Facilities Land Improvements Investment(1) Depreciation Payable ----------------- ---------- -------- ------------ ------------- ------------ --------- (Dollar amounts in thousands) Skilled Nursing Facilities (Continued): Texas................................ 25 $ 5,270 $ 55,289 $ 60,559 $ 13,299 $ -- Virginia............................. 4 1,036 17,532 18,568 7,516 -- Washington........................... 7 2,973 26,404 29,377 4,721 -- Wisconsin............................ 8 1,571 18,121 19,692 7,335 -- --- -------- ---------- ---------- -------- ------- Subtotals.......................... 146 44,985 459,906 504,891 120,125 2,185 --- -------- ---------- ---------- -------- ------- Continuing Care Retirement Communities: California........................... 1 1,600 10,827 12,427 1,689 -- Colorado............................. 1 400 2,715 3,115 611 -- Georgia.............................. 1 723 10,769 11,492 564 -- Kansas............................... 1 687 12,517 13,204 1,187 2,500 Massachusetts........................ 1 1,351 12,941 14,292 853 -- Tennessee............................ 1 174 3,004 3,178 25 -- Texas................................ 2 2,681 34,655 37,336 3,054 -- Wisconsin............................ 2 11,057 53,294 64,351 5,125 24,178 --- -------- ---------- ---------- -------- ------- Subtotals.......................... 10 18,673 140,722 159,395 13,108 26,678 --- -------- ---------- ---------- -------- ------- Rehabilitation Hospitals: Arizona.............................. 2 1,517 15,309 16,826 3,863 -- --- -------- ---------- ---------- -------- ------- Residential Care Facilities for the Elderly: California........................... 2 63 262 325 55 -- --- -------- ---------- ---------- -------- ------- Medical Clinics: Alabama.............................. 1 248 2,185 2,433 1,451 -- --- -------- ---------- ---------- -------- ------- Construction In Progress: 1,000 8,478 9,478 -- -- -------- ---------- ---------- -------- ------- Land Parcels: Kentucky............................. -- 578 -- 578 -- -- New Hampshire........................ -- 638 98 736 -- -- Ohio................................. -- 253 1506 1759 16 Texas................................ -- 600 210 810 1 -- --- -------- ---------- ---------- -------- ------- Subtotals.......................... -- 2,069 1,814 3,883 17 -- --- -------- ---------- ---------- -------- ------- Total Facilities....................... 281 $142,721 $1,190,888 $1,333,609 $186,206 $62,857 === ======== ========== ========== ======== =======
- -------- (1) Also represents the approximate aggregate cost for Federal income tax purposes. 33 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 Three operators of nursing homes owned by the Company have filed for protection under the United States bankruptcy laws. Under bankruptcy statutes, the tenant must either assume the Company's leases or reject them and return the properties to the Company. If the tenant assumes the leases, it is required to assume the leases under the existing terms; the court cannot change the rental amount or other lease provisions that could financially impact the Company. The Company's rent has been paid each month on a timely basis. While there is a possibility that the tenants may decide to reject the leases on these properties, the Company has identified parties interested in leasing these facilities, however such leases may be at a lower rental rate. The table below summarizes the filing dates of the bankruptcies, the number of the Company's owned facilities operated by each operator, the Company's investment in facilities subject to the bankruptcies, the percentage of the Company's revenue for 2000 relating to the facilities operated by each operator and cash deposits and letters of credit currently held by the Company as security for each operator:
Bankruptcy Number of Investment Percentage Filing Facilities in of 2000 Security Operator Date Operated Facilities Revenue Deposits -------- ---------------- ---------- ------------ ---------- ---------- Mariner Post-Acute Network................ January 18, 2000 20 $ 60,354,000 6% $2,655,000 Sun Healthcare Group, Inc.................... October 14, 1999 19 65,082,000 4% 1,844,000 Integrated Health Services, Inc.......... February 2, 2000 7 35,109,000 3% 643,000 --- ------------ --- ---------- Totals................ 46 $160,545,000 13% $5,142,000 === ============ === ==========
The Company leased 10 assisted living facilities, in which its investment was approximately $68,712,000, to Balanced Care Corporation ("BCC") under two master leases. BCC didn't make their December rent payment and the Company immediately declared BCC in default under its master leases and initiated steps to terminate the leases. BCC agreed to return the facilities to the Company and the leases were terminated effective as of January 1, 2001. The Company is in negotiations with a new operator to take over the operations of the facilities at lease rates essentially the same as those previously paid by BCC. BCC is managing the facilities on an interim basis on the Company's behalf until the facility licenses can be transferred to the name of the new operator. The Company will avail itself of cash security deposits totaling approximately $2,035,000 to cover the December rent and other costs incurred related to the default. 5. Mortgage Loans Receivable During 2000, the Company financed the sale of 3 skilled nursing facilities in 2 separate transactions with an aggregate principal amount of $6,080,000. In addition, the Company funded an additional $2,929,000 on existing mortgage loans. Such additional amounts funded will result in an increase in interest income earned by the Company. During 2000, a loan with a net book value of approximately $7,509,000 secured by 3 skilled nursing facilities was repaid, as was a $3,666,000 portion of another mortgage loan secured by 1 facility. The Company also acquired two skilled nursing facilities and one assisted living facility for which it previously provided mortgage financing in the amount of $14,260,000. At December 31, 2000, the Company had 35 mortgage loans receivable secured by 36 skilled nursing facilities, 7 assisted living facilities, 4 continuing care retirement communities and 4 parcels of land. The loans have an aggregate principal balance of approximately $191,020,000 and are reflected in the Company's financial statements net of an aggregate discount of approximately $5,397,000. The principal balances of mortgage loans receivable as of December 31, 2000 mature approximately as follows: $7,896,000 in 2001, $2,774,000 in 2002, $7,360,000 in 2003, $7,280,000 in 2004, $6,134,000 in 2005 and $159,576,000 thereafter. 34 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 The following table lists the Company's mortgage loans receivable at December 31, 2000:
Final Estimated Original Face Carrying Number of Interest Maturity Balloon Amount of Amount of Location of Facilities Facilities Rate Date Payment(1) Mortgages Mortagages(2) ---------------------- ---------- -------- -------- ---------- ------------- ------------- (Dollar amounts in thousands) Assisted Living Facilities: Alabama............... -- 9.00% 06/04 $ 710 $ 710 $ 710 Florida............... 2 10.31% 09/20 -- 7,230 7,202 Florida............... -- 9.00% 04/04 1,013 1,013 1,013 Michigan.............. -- 9.00% 06/04 1,675 1,675 1,675 North Carolina........ 2 10.44% 05/07 2,950 2,950 2,950 Pennsylvania.......... -- 9.00% 06/04 1,300 1,300 1,300 Pennsylvania.......... 1 9.09% 09/08 2,900 2,900 2,900 South Carolina........ 1 9.09% 09/08 2,955 2,955 2,955 Washington............ 1 9.95% 12/15 6,432 6,557 6,557 --- ------ ------- ------- Subtotals........... 7 19,935 27,290 27,262 --- ------ ------- ------- Skilled Nursing Facilities: Arkansas.............. 3 10.00% 12/06 4,946 5,500 5,102 California............ 1 10.00% 05/25 1,489 8,200 8,063 California............ 2 9.50% 03/09 5,336 7,841 7,140 Connecticut........... 2 10.00% 06/22 -- 8,862 7,008 Florida............... -- 11.15% 07/03 -- 4,400 558 Florida............... 1 11.45% 07/06 4,400 4,400 4,400 Florida............... 2 10.00% 12/01 4,850 4,850 4,704 Florida............... 1 10.00% 12/03 1,028 1,230 1,113 Illinois.............. 1 9.00% 01/24 -- 9,500 8,504 Indiana............... 1 11.15% 07/03 -- 785 304 Kansas................ 1 9.50% 09/03 1,169 1,550 1,214 Louisiana............. 1 10.89% 04/15 2,407 3,850 3,758 Maryland.............. 1 10.90% 06/21 -- 7,800 7,497 Massachusetts......... 1 8.75% 02/24 -- 9,000 7,687 Michigan.............. 2 13.16% 01/05 2,506 3,000 2,560 Michigan.............. 1 9.00% 01/05 1,231 1,800 1,463 Missouri.............. 6 10.87% 08/11 13,619 17,725 13,619 South Dakota.......... 1 10.75% 05/05 -- 4,275 603 Tennessee............. 1 10.44% 01/07 8,550 8,550 8,550 Texas................. 1 12.00% 03/08 -- 1,460 927 Virginia.............. 1 10.50% 04/13 10,192 16,250 15,754 Washington............ 4 11.00% 10/19 112 6,000 5,605 Wisconsin............. 1 10.75% 05/05 -- 1,350 386 --- ------ ------- ------- Subtotals........... 36 61,835 138,178 116,519 --- ------ ------- -------
35 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998
Final Estimated Original Face Carrying Number of Interest Maturity Balloon Amount of Amount of Location of Facilities Facilities Rate Date Payment(1) Mortgages Mortagages(2) ---------------------- ---------- -------- -------- ---------- ------------- ------------- (Dollar amounts in thousands) Continuing Care Retirement Communities: California............ 1 9.50% 03/09 $ 2,831 $ 4,159 $ 3,788 Florida............... 1 10.00% 06/09 15,821 15,821 15,821 Massachusetts......... 1 9.52% 06/23 -- 12,350 12,025 Oklahoma.............. 1 9.55% 03/24 2,250 11,200 10,208 --- -------- -------- -------- Subtotals........... 4 20,902 43,530 41,842 --- -------- -------- -------- Total................... 47 $102,672 $208,998 $185,623 === ======== ======== ========
- -------- (1) Most loans require monthly principal and interest payments at level amounts over life to maturity. Some loans have interest rates which periodically adjust, but cannot decrease, which results in varying principal and interest payments over life to maturity, in which case the balloon payments reflected are an estimate. Five of the loans have decreasing principal and interest payments over the life of the loans. Most loans require a prepayment penalty based on a percentage of principal outstanding or a penalty based upon a calculation maintaining the yield the Company would have earned if prepayment had not occurred. Seven loans have a provision that no prepayments are acceptable. (2) Also represents the approximate aggregate cost for Federal income tax purposes. The skilled nursing facility loan listed above in the state of Maryland with a carrying amount of $7,497,000 is directly with Mariner Post-Acute Network, which filed for protection under the United States bankruptcy laws on January 18, 2000. The revenues from this mortgage loan represent approximately 1% of the Company's revenues for the year ended December 31, 2000, and the mortgage loan is secured by a cash deposit in the amount of $400,000. The Company has not received any payments on this mortgage loan subsequent to March 2000, and has not recorded a reserve. The following table summarizes the changes in mortgage loans receivable during 2000, 1999 and 1998:
2000 1999 1998 -------- -------- -------- (In thousands) Balance at January 1,.......................... $203,362 $206,613 $199,819 New mortgage loans........................... 9,009 5,011 18,711 New discounts on mortgage loans.............. (263) -- -- Accretion of discount on loans............... 1,801 1,217 1,214 Reclassification of loans to leases.......... (14,260) (7,300) (3,500) Collection of principal...................... (14,026) (2,179) (9,631) -------- -------- -------- Balance at December 31,........................ $185,623 $203,362 $206,613 ======== ======== ========
6. Bank Borrowings The Company has a $100,000,000 unsecured credit agreement with certain banks that matures on March 31, 2003. The terms of the bank line of credit include an option to extend the bank line of credit by one year with concurrence of the bank group. At the option of the Company, borrowings under the agreement bear interest at prime (9.5% at December 31, 2000) or LIBOR plus 1.275% (7.84% at December 31, 2000). The Company pays a facility fee of .35% per annum on the total commitment under the agreement. 36 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 Under covenants contained in the credit agreement, the Company is required to maintain, among other things: (i) a minimum net worth of $475,000,000; (ii) a ratio of cash flow before interest expense and non-cash expenses to regularly scheduled debt service payments on all debt of at least 2.5 to 1.0; and (iii) a ratio of total liabilities to net worth of not more than 1.6 to 1.0; and (iv) a gross asset value coverage ratio of at least 1.45 to 1.0. 7. Notes and Bonds Payable Notes and bonds payable are due through the year 2035, at interest rates ranging from 4.3% to 10.5% and are secured by real estate properties with an aggregate net book value as of December 31, 2000 of approximately $108,669,000. The principal balances of the notes and bonds payable as of December 31, 2000 mature approximately as follows: $1,162,000 in 2001, $1,239,000 in 2002, $1,313,000 in 2003, $1,411,000 in 2004, $1,508,000 in 2005, and $56,224,000 thereafter. 8. Senior Unsecured Notes Due 2001-2038 During 2000, the Company repaid $30,000,000 in aggregate principal amount of medium term notes. The aggregate principal amount of Senior Notes outstanding at December 31, 2000 was $627,900,000. The weighted average interest rate on the Senior Notes was 7.51% and the weighted average maturity was 10.7 years. The principal balances of the Senior Notes as of December 31, 2000 mature approximately as follows: $78,150,000 in 2001, $50,000,000 in 2002, $66,000,000 in 2003, $67,750,000 in 2004, $18,000,000 in 2005 and $348,000,000 thereafter. There are $55,000,000 of medium term notes due in 2037 which may be put back to the Company at their face amount at the option of the holder on October 1st of any of the following years: 2004, 2007, 2009, 2012, 2017, or 2027. There are $41,500,000 of medium term notes due in 2028 which may be put back to the Company at their face amount at the option of the holder on November 20th of any of the following years: 2003, 2008, 2013, 2018, or 2023. There are $40,000,000 of medium term notes due in 2038 which may be put back to the Company at their face amount at the option of the holder on July 7th of any of the following years: 2003, 2008, 2013, 2018, 2023, or 2028. 9. Convertible Debentures During 1993, the Company issued $65,000,000 of 6.25% unsecured convertible debentures due January 1, 1999. The debentures were convertible at any time prior to maturity into shares of the Company's common stock at a conversion price of $22.4125 per share. During 1999, $8,000 of such debentures converted into 356 shares of common stock and the remaining debentures, totaling $57,423,000, were repaid. During 1998, $7,081,000 of such debentures converted into 315,921 shares of common stock. 10. Preferred Stock During 1997, the Company sold 1,000,000 shares of 7.677% Series A Cumulative Preferred Step-Up REIT securities ("Preferred Stock") with a liquidation preference of $100 per share. Dividends on the Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears, commencing December 31, 1997 at the rate of 7.677% per annum of the liquidation preference per share (equivalent to $7.677 per annum per share) through September 30, 2012 and at a rate of 9.677% of the liquidation preference per annum per share (equivalent to $9.677 per annum per share) thereafter. The Preferred Stock is not redeemable prior to September 30, 2007. On or after September 30, 2007, the Preferred Stock may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price of $100 per share, plus accrued and unpaid dividends, if any, thereon. 37 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 11. Stock Incentive Plan Under the terms of a stock incentive plan (the "Plan"), the Company has reserved for issuance 1,600,000 shares of common stock. Under the Plan, as amended, the Company may issue stock options, restricted stock, dividend equivalents and stock appreciation rights. The Company began accounting for the Plan under SFAS No. 123 Accounting for Stock-Based Compensation during 1999 for options granted in 1999 and thereafter. Prior to 1999, the Company accounted for the Plan under Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees. Had compensation cost for the Plan been determined consistent with SFAS No. 123 Accounting for Stock-Based Compensation for the years prior to 1999, the Company's net income and net income per share in 2000, 1999 and 1998 would have been the following pro forma amounts:
2000 1999 1998 ----------- ----------- ----------- Net income available to common stockholders: As reported......................... $63,485,000 $63,136,000 $62,071,000 Pro forma........................... 63,387,000 62,977,000 61,840,000 Basic/diluted net income per share: As reported......................... $ 1.37 $ 1.37 $ 1.39 Pro forma........................... 1.37 1.36 1.39
Because the pro forma calculation reflects only amounts attributable to options granted since January 1, 1995, and the Company adopted SFAS No. 123 during 1999, the pro forma affect has fully amortized at the end of 2000. A summary of the status of the Plan at December 31, 2000, 1999 and 1998 and changes during the years then ended are as follows:
2000 1999 1998 ---------------- ----------------- ---------------- Wtd Avg Wtd Avg Ex Wtd Avg Ex Shares Price Shares Ex Price Shares Price ------- ------- ------- -------- ------- ------- Options: Outstanding at beginning of year.................. 404,000 $22.53 279,000 $23.42 179,000 $21.89 Granted................... 125,000 14.38 125,000 20.56 100,000 26.14 Exercised................. -- -- -- -- -- -- Forfeited................. -- -- -- -- -- -- Expired................... -- -- -- -- -- -- ------- ------- ------- Outstanding at end of year..................... 529,000 20.61 404,000 22.53 279,000 23.42 ======= ======= ======= Exercisable at end of year..................... 287,334 $22.70 182,327 $22.50 89,328 $21.52 Weighted average fair value of options granted.................. $ 0.45 $ 1.04 $ 2.69 Restricted Stock: Outstanding at beginning of year.................. 53,000 73,400 94,900 Awarded................... 10,000 10,000 12,000 Vested.................... (37,000) (30,400) (33,500) Forfeited................. -- -- -- ------- ------- ------- Outstanding at end of year..................... 26,000 53,000 73,400 ======= ======= ======= Weighted average fair value of restricted stock awarded.................. $ 14.38 $ 20.56 $ 26.12
38 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 Stock options granted under the Plan become exercisable each year following the date of grant in annual increments of one-third and are exercisable at the market price of the Company's common stock on the date of grant. Options at December 31, 2000 have a weighted average contractual life of 7 years. The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions:
2000 1999 1998 ----- ----- ----- Risk free rate of return................................ 6.79% 5.18% 6.30% Dividend yield.......................................... 12.52% 8.75% 6.43% Option term............................................. 10 10 10 Volatility.............................................. 22.21% 18.96% 16.45%
The restricted stock awards are granted at no cost. Restricted stock awards vest at the third anniversary of the award date with respect to non-employee directors and at the fifth anniversary with respect to officers and employees. Subsequent to 1995, only non-employee directors receive restricted stock awards, and the remaining restricted stock issued to officers and employees fully vested in 2000. The restricted stock awards are amortized over their respective vesting periods. Expense is determined based upon the market value at the date of award of the restricted stock and is recognized over the vesting period. Expense recorded in 2000, 1999 and 1998 related to restricted stock awards was approximately $226,000, $325,000 and $440,000, respectively. Awards of dividend equivalents accompany the stock option grants beginning in 1996 on a one-for-one basis. Such dividend equivalents are payable in cash until such time as the corresponding stock option is exercised, based upon a formula approved by the Compensation Committee of the Board of Directors. That formula depends on the Company's performance measured for a minimum of a three- year period and up to a five-year period by total return to stockholders (increase in stock price and dividends paid) compared to peer companies and other select financial measures compared to peer companies, in each case as selected by the Compensation Committee. SFAS No. 123 provides that payments related to the dividend equivalents are treated as dividends. No stock appreciation rights have been issued under the Plan. 12. Pension Plan During 1991, the Company adopted an unfunded benefit pension plan covering the current non-employee members of its Board of Directors upon completion of five years of service on the Board. The benefits, limited to the number of years of service on the Board, are based upon the then current annual retainer in effect. The following tables set forth the amounts recognized in the Company's financial statements:
12/31/00 12/31/99 ---------- -------- Actuarial present value of benefit obligations: Vested benefit obligation.............................. $ 882,000 $684,000 ========== ======== Accumulated benefit obligation......................... $ 908,000 $695,000 ========== ======== Projected benefit obligation........................... $ 965,000 $764,000 Unrecognized prior service cost........................ (19,000) (47,000) Unrecognized net gain.................................. 87,000 264,000 ---------- -------- Accrued pension cost................................... $1,033,000 $981,000 ========== ========
39 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 Net pension cost for the year included the following components:
2000 1999 1998 -------- -------- -------- Current service cost........................... $ 48,000 $ 54,000 $ 43,000 Interest cost.................................. 59,000 53,000 61,000 Amortization of prior service cost............. 5,000 19,000 27,000 -------- -------- -------- Net periodic pension cost...................... $112,000 $126,000 $131,000 ======== ======== ========
Discount rates of 8.0%, 6.75% and 7.0% in 2000, 1999 and 1998, respectively, and a 5.0% increase in the annual retainer every other year, were used in determining the actuarial present value of the projected benefit obligation. 13. Transactions with Alterra Healthcare Corporation and Beverly Enterprises, Inc. As of December 31, 2000, 53 of the owned facilities are leased to and operated by subsidiaries of Alterra Healthcare Corporation ("Alterra"). Additionally, Alterra is the borrower on 1 of the Company's mortgage loans. Revenues from Alterra were approximately $19,148,000, $19,117,000 and $17,114,000 for the years ended December 31, 2000, 1999 and 1998, respectively. As of December 31, 2000, 29 of the owned facilities are leased to and operated by subsidiaries of Beverly Enterprises, Inc. ("Beverly"). Additionally, Beverly is the borrower on 4 of the Company's mortgage loans. Revenues from Beverly were approximately $21,514,000, $21,211,000 and $21,161,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Effective January 1, 2000, the Company negotiated a new lease and settlement with Beverly Enterprises, Inc. ("Beverly") that incorporated 38 of its 47 facilities then leased to Beverly, which were up for renewal at various dates from December 1998 to December 2000. As a result of the renewal and settlement, Beverly continued to lease 18 of the 38 facilities for an initial five-year lease term. The Company also returned 5 facilities to Beverly, including 2 of the 38 facilities above and 3 other facilities that Beverly had previously subleased to other operators. In addition, the Company released Beverly as a guarantor of facilities that it had previously subleased to other operators and Beverly was not required to renew the leases on the remaining 18 facilities. Beverly continued to operate 15 of the remaining 18 facilities at reduced rentals until the Company was able to lease the facilities to new operators, and continues to operate 1 of the 3 remaining facilities. The Company has decided to sell 2 of the 3 remaining facilities, for which it expects to receive approximately book value, and anticipates leasing the third for approximately the current rental. As a part of the renewal settlement, the Company recorded a note receivable from Beverly of approximately $16,208,000, net of deferred income of approximately $8,165,000 that is being recognized under the installment method. Such revenues are included in additional rent on the accompanying income statements. The promissory note bears interest at 9.0% and requires Beverly to make quarterly payments through its final maturity on December 31, 2004. One of the directors of the Company is also an officer and director of Beverly. 40 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998 14. Impairment of Long-lived Assets During 1998, the Company recorded a provision of $5,000,000 as a reduction in the value of the Company's investment in three medical clinics constructed for and leased to a company that declared bankruptcy. The fair value of the medical clinics was determined based on discounted estimated future cash flows. During 1999, the Company disposed of two of the medical clinics and continues to look for another party to whom it may lease or sell the remaining facility. 15. Dividends Dividend payments by the Company to the common stockholders were characterized in the following manner for tax purposes:
2000 1999 1998 ----- ----- ----- Ordinary income............................................ $1.25 $1.30 $1.63 Capital gain............................................... .19 .10 .05 Return of capital.......................................... .40 .40 -- ----- ----- ----- Total dividends paid..................................... $1.84 $1.80 $1.68 ===== ===== =====
16. Quarterly Financial Data (unaudited)
Three months ended --------------------------------------------- March 31, June 30, September 30, December 31, --------- -------- ------------- ------------ (In thousands except per share amounts) 2000: Revenues as reported........... $42,816 $42,813 $42,891 $42,876 SAB No. 101 adjustment......... (395) 253 166 (24) ------- ------- ------- ------- Restated revenue............... 42,421 43,066 43,057 42,852 Net income available to common stockholders.................. 16,014 16,127 15,646 15,699 SAB No. 101 adjustment......... (395) 253 166 (24) ------- ------- ------- ------- Restated net income available to common stockholders........ 15,619 16,380 15,812 15,675 Basic/diluted net income per share......................... .35 .35 .34 .34 SAB No. 101 adjustment......... (.01) .01 -- -- ------- ------- ------- ------- Restated basic/diluted net income per share.............. .34 .36 .34 .34 Dividends per share............ .46 .46 .46 .46 1999: Revenues....................... $39,309 $40,871 $41,525 $42,160 Net income available to common stockholders.................. 15,811 15,305 15,775 16,246 Basic/diluted net income per share......................... .34 .33 .34 .35 Dividends per share............ .45 .45 .45 .45
41 NATIONWIDE HEALTH PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Years ended December 31, 2000, 1999 and 1998
Year to date ---------------------------------------------- March 31, June 30, September 30, December 31, --------- -------- ------------- ------------ (In thousands except per share amounts) 2000: Revenues as reported........... $42,816 $85,629 $128,520 $171,396 SAB No. 101 adjustment......... (395) (142) 24 -- ------- ------- -------- -------- Restated revenue............... 42,421 85,487 128,544 171,396 Net income available to common stockholders.................. 16,014 32,140 47,786 63,485 SAB No. 101 adjustment......... (395) (142) 24 -- ------- ------- -------- -------- Restated net income available to common stockholders........ 15,619 31,998 47,810 63,485 Basic/diluted net income per share......................... .35 .70 1.03 1.37 SAB No. 101 adjustment......... (.01) -- -- -- ------- ------- -------- -------- Restated basic/diluted net income per share.............. .34 .70 1.03 1.37
17. Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents The carrying amount approximates fair value because of the short maturity of those instruments. Mortgage Loans Receivable Fair values are based upon the estimates of management and on rates currently prevailing for comparable loans. Long-Term Debt The fair value of long-term debt is estimated based on discounting future cash flows utilizing current rates offered to the Company for debt of the same type and remaining maturity. The estimated fair values of the Company's financial instruments are as follows:
2000 1999 ------------------- ------------------- Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (In millions) Cash and cash equivalents............ $ 6 $ 6 $ 16 $ 16 Mortgage loans receivable............ 186 186 203 190 Long-term debt....................... 770 709 797 706
42 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Directors of Nationwide Health Properties, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Nationwide Health Properties, Inc.'s annual report to shareholders included in this Form 10-K, and have issued our report thereon dated January 19, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Orange County, California January 19, 2001 43 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Initial Cost Costs Close of Period (1) to Building Capitalized ------------------------------------- Original and Subsequent to Buildings and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- ---------- -------------- ---------- ------ ------------ -------- Skilled Nursing Facilities: Benton AR $4,659 $ 4 $ 685 $ 4,663 $ 5,348 $ 335 1992 1998 Bryant AR 4,889 4 320 4,893 5,213 347 1989 1998 Hot Springs AR 2,320 -- 54 2,320 2,374 956 1972 1986 Lake Village AR 4,317 15 261 4,332 4,593 251 1997 1998 Monticello AR 3,295 8 300 3,303 3,603 210 1993 1998 Morrilton AR 4,995 2 308 4,997 5,305 329 1996 1998 Morrilton AR 3,703 2 250 3,705 3,955 268 1988 1998 Wilmot AR 787 20 240 807 1,047 193 1964 1998 Wynne (3) AR 4,165 2 327 4,167 4,494 297 1990 1998 Scottsdale AZ 2,790 100 650 2,890 3,540 906 1963 1991 Chowchilla CA 1,119 -- 109 1,119 1,228 371 1964 1987 Gilroy CA 1,892 -- 714 1,892 2,606 583 1968 1991 Hayward CA 1,222 221 795 1,443 2,238 430 1968 1991 Orange CA 5,059 -- 1,141 5,059 6,200 1,065 1987 1992 Pomona CA 1,247 -- 365 1,247 1,612 535 1963 1985 San Diego CA 4,925 -- 842 4,925 5,767 1,327 1965 1992 San Jose CA 1,136 571 1,595 1,707 3,302 488 1968 1991 Santa Cruz CA 1,596 440 1,492 2,036 3,528 598 1964 1991 Bloomfield CT 2,827 -- 670 2,827 3,497 589 1967 1994 Torrington CT 2,555 -- 140 2,555 2,695 894 1969 1987 Dania FL 1,962 954 178 2,916 3,094 439 1970 1997 Ft. Pierce FL 2,758 280 125 3,038 3,163 1,238 1965 1985 Jacksonville FL 2,787 -- 498 2,787 3,285 410 1965 1996 Jacksonville FL 1,759 -- 1,503 1,759 3,262 158 1997 1997 Lakeland FL 5,029 -- 1,000 5,029 6,029 1,048 1982 1994 Live Oak FL 3,217 1,750 50 4,967 5,017 1,442 1983 1986 Maitland FL 3,327 -- 209 3,327 3,536 1,370 1983 1986 Pensacola FL 1,833 -- 77 1,833 1,910 619 1969 1987 Flowery Branch GA 3,115 665 562 3,780 4,342 185 1970 1997 Lawrenceville GA 3,993 2,549 801 6,542 7,343 1,335 1988 1991 Buhl ID 777 -- 15 777 792 272 1913 1986 Lasalle IL 2,703 -- 127 2,703 2,830 848 1975 1991 Litchfield IL 2,689 -- 30 2,689 2,719 844 1972 1991 Brookville IN 4,120 -- 80 4,120 4,200 841 1987 1992 Evansville IN 5,324 -- 280 5,324 5,604 1,671 1968 1991 New Castle IN 5,173 -- 43 5,173 5,216 1,624 1972 1991 Petersburg IN 2,352 -- 33 2,352 2,385 969 1968 1986 Richmond IN 2,519 -- 114 2,519 2,633 1,038 1974 1986 Rochester IN 4,055 250 161 4,305 4,466 1,320 1969 1991 Wabash IN 2,790 -- 40 2,790 2,830 876 1974 1991 Belleville KS 1,887 -- 213 1,887 2,100 487 1977 1993 Colby KS 599 117 50 716 766 236 1974 1986 Derby KS 2,482 -- 133 2,482 2,615 724 1978 1992 Hiawatha KS 788 35 150 823 973 51 1974 1998 Hutchinson KS 1,855 161 75 2,016 2,091 456 1964 1994 Kensington KS 639 63 6 702 708 361 1965 1986 Onaga KS 652 88 6 740 746 286 1959 1986 Salina KS 2,463 135 27 2,598 2,625 592 1981 1994 Topeka KS 1,137 58 100 1,195 1,295 73 1973 1998 Amesbury MA 4,241 607 229 4,848 5,077 538 1971 1997
44 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Initial Cost Costs Close of Period (1) to Building Capitalized ------------------------------------- Original and Subsequent to Buildings and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- ---------- -------------- ---------- ------ ------------ -------- Skilled Nursing Facilities (continued): Beverly MA $,3,748 $ 92 $ 392 $ 3,840 $ 4,232 $ 192 1998 1998 Brighton MA 2,212 -- 300 2,212 2,512 1,134 1969 1994 Brockton MA 3,591 16 525 3,607 4,132 862 1971 1993 Buzzards Bay MA 4,815 144 415 4,959 5,374 2092 1911 1985 Danvers MA 4,248 143 392 4,391 4,783 217 1998 1998 Danvers MA 3,211 1,144 327 4,355 4,682 460 1962 1997 Danvers MA 2,891 487 305 3,378 3,683 381 1969 1997 Haverhill MA 5,707 1,764 660 7,471 8,131 1,441 1973 1993 Haverhill MA 1,414 3 775 1,417 2,192 338 1962 1993 Melrose MA 4,029 531 432 4,560 4,992 358 1965 1998 N. Bellerica MA 3,137 300 800 3,437 4,237 751 1969 1994 New Bedford MA 2,357 52 93 2,409 2,502 1,021 1889 1985 Northborough MA 2,509 451 300 2,960 3,260 196 1969 1998 Saugus MA 5,262 514 374 5,776 6,150 644 1967 1997 Sharon MA 1,097 4,369 844 5,466 6,310 286 1975 1996 Wellesley MA 2,435 83 325 2,518 2,843 1,060 1962 1985 Clinton MD 5,017 -- 400 5,017 5,417 1,714 1965 1987 Cumberland MD 5,260 -- 150 5,260 5,410 2,255 1968 1985 Hagerstown MD 4,140 176 215 4,316 4,531 1,810 1972 1985 Westminster MD 6,795 -- 80 6,795 6,875 2,913 1974 1985 Duluth MN 7,047 -- 1,014 7,047 8,061 763 1971 1997 Faribault MN 2,785 116 90 2,901 2,991 1,497 1967 1985 Minneapolis MN 5,752 284 333 6,036 6,369 2,777 1973 1985 Minneapolis MN 4,184 -- 436 4,184 4,620 1,951 1961 1985 Ostrander MN 947 47 8 994 1,002 354 1968 1986 Owatonna MN 2,140 107 59 2,247 2,306 785 1965 1986 Willmar MN 2,582 188 33 2,770 2,803 1,188 1905 1985 Maryville MO 2,689 -- 51 2,689 2,740 1,153 1979 1985 Columbus MS 3,520 75 750 3,595 4,345 231 1976 1998 Hendersonville NC 2,244 -- 116 2,244 2,360 962 1978 1985 Lakewood NJ 6,448 -- 360 6,448 6,808 4,176 1966 1987 Sparks NV 3,294 -- 740 3,294 4,034 762 1988 1991 Alliance OH 1,862 -- 83 1,862 1,945 584 1962 1991 Boardman OH 7,046 -- 60 7,046 7,106 2211 1962 1991 Columbus OH 4,333 -- 343 4,333 4,676 1,552 1984 1988 Galion OH 3,419 -- 24 3,419 3,443 1,073 1967 1991 Warren OH 7,489 -- 450 7,489 7,939 2,350 1967 1991 Wash Ct House OH 4,086 -- 356 4,086 4,442 1,501 1984 1988 Maud OK 803 -- 12 803 815 283 1960 1986 Sapulpa OK 2,243 -- 68 2,243 2,311 785 1970 1986 Tonkawa OK 795 -- 18 795 813 354 1962 1987 Portland OR 1,115 -- 100 1,115 1,215 534 1954 1985 Brownsville TN 2,957 -- 100 2,957 3,057 706 1970 1993 Celina TN 853 -- 150 853 1,003 204 1972 1993 Clarksville TN 3,479 -- 350 3,479 3,829 831 1970 1993 Columbia TN 2,240 -- 225 2,240 2,465 459 1984 1993 Decatur TN 3,330 -- 193 3,330 3,523 238 1981 1998 Hohenwald TN 3,732 -- 90 3,732 3,822 892 1975 1993 Jonesborough TN 2,551 3 65 2,554 2,619 610 1981 1993
45 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Initial Cost Costs Close of Period (1) to Building Capitalized ------------------------------------- Original and Subsequent to Buildings and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- ---------- ------------------------- -------- ------------ -------- Skilled Nursing Facilities (continued): Madison TN $ 6,415 $ -- $ 1,120 $ 6,415 $ 7,535 $ 412 1967 1998 Martin TN 4,121 -- 33 4,121 4,154 985 1977 1993 Selmer TN 2,263 1,208 28 3,471 3,499 643 1985 1993 Baytown TX 2,388 -- 90 2,388 2,478 612 1975 1990 Baytown TX 1,902 -- 61 1,902 1,963 487 1966 1990 Bogota TX 1,820 -- 14 1,820 1,834 750 1963 1986 Center TX 1,424 -- 22 1,424 1,446 365 1970 1990 Eagle Lake TX 1,833 -- 25 1,833 1,858 470 1972 1990 El Paso TX 1,888 -- 166 1,888 2,054 665 1980 1988 Garland TX 1,619 -- 238 1,619 1,857 415 1970 1990 Gilmer TX 3,033 1,785 248 4,818 5,066 225 1990 1998 Gladewater TX 2,018 -- 125 2,018 2,143 510 1971 1993 Houston TX 4,155 -- 408 4,155 4,563 1,062 1986 1993 Humble TX 1,821 -- 140 1,821 1,961 467 1973 1990 Huntsville TX 1,930 -- 135 1,930 2,065 494 1968 1990 Linden TX 2,520 -- 25 2,520 2,545 637 1968 1993 Marshall TX 865 -- 19 865 884 445 1964 1986 McKinney TX 4,797 -- 1,263 4,797 6,060 133 1967 2000 McKinney TX 1,456 -- 1,318 1,456 2,774 500 1967 1987 Mount Pleasant TX 2,505 -- 40 2,505 2,545 633 1970 1993 Nacogdoches TX 1,104 -- 135 1,104 1,239 283 1973 1990 New Boston TX 2,366 -- 44 2,366 2,410 598 1966 1993 Omaha TX 1,579 -- 28 1,579 1,607 399 1970 1993 San Antonio TX 2,033 -- 32 2,033 2,065 521 1963 1990 San Antonio TX 1,636 -- 221 1,636 1,857 419 1965 1990 Sherman TX 2,075 -- 67 2,075 2,142 525 1971 1993 Texarkana TX 1,244 -- 87 1,244 1,331 512 1983 1986 Waxahachie TX 3,493 -- 319 3,493 3,812 1,172 1976 1987 Annandale VA 7,752 -- 487 7,752 8,239 3,324 1961 1985 Charlottesville VA 4,620 -- 362 4,620 4,982 1,981 1966 1985 Petersburg VA 2,945 -- 94 2,945 3,039 1,262 1977 1985 Petersburg VA 2,215 -- 93 2,215 2,308 949 1973 1985 Battleground WA 2,226 -- 84 2,226 2,310 779 1963 1986 Kennewick WA 4,459 -- 297 4,459 4,756 495 1959 1997 Moses Lake WA 4,307 1,326 304 5,633 5,937 909 1972 1994 Moses Lake WA 2,385 -- 164 2,385 2,549 503 1988 1994 Seattle WA 5,752 -- 1,223 5,752 6,975 935 1993 1994 Shelton WA 4,382 -- 326 4,382 4,708 228 1998 1998 Tacoma WA 1,503 64 575 1,567 2,142 872 1939 1987 Chilton WI 2,275 148 55 2,423 2,478 967 1963 1986 Florence WI 1,529 -- 15 1,529 1,544 630 1970 1986 Green Bay WI 2,255 -- 300 2,255 2,555 929 1968 1986 Sheboygan WI 1,697 -- 219 1,697 1,916 695 1968 1986 Shorewood WI 5,744 368 706 6,112 6,818 2,426 1971 1986 St. Francis WI 535 -- 80 535 615 219 1964 1986 Tomah WI 1,745 128 115 1,873 1,988 774 1974 1985 Wisconsin Dells WI 1,697 -- 81 1,697 1,778 695 1972 1986 -------- ------- ---------- ----------- ----------- -------- 434,689 25,217 44,985 459,906 504,891 120,125 -------- ------- ---------- ----------- ----------- --------
46 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Initial Cost Costs Close of Period (1) to Building Capitalized -------------------------------------- Original and Subsequent to Buildings and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- ---------- -------------- ----------- ------ ------------ -------- Assisted Living Facilities: Decatur AL $ 1,825 $ -- $ 1,484 $ 1,825 $ 3,309 $ 222 1987 1996 Hanceville AL 2,447 -- 197 2,447 2,644 265 1996 1996 Benton AR 1,479 489 182 1,968 2,150 109 1988 1998 Chandler AZ 2,753 -- 505 2,753 3,258 166 1998 1998 Mesa AZ 1,391 2,700 519 4,091 4,610 603 1985 1996 Carmichael CA 7,929 755 1,500 8,684 10,184 1,590 1983 1995 Chula Vista CA 6,281 72 950 6,353 7,303 932 1989 1995 Encinitas CA 5,017 126 1,000 5,143 6,143 879 1984 1995 Mission Viejo CA 3,544 89 900 3,633 4,533 578 1985 1995 Novato CA 3,658 403 2,500 4,061 6,561 685 1978 1995 Placentia CA 3,801 184 1,320 3,985 5,305 721 1983 1995 Rancho Cucamonga CA 4,156 269 610 4,425 5,035 692 1987 1995 San Dimas CA 3,577 225 1,700 3,802 5,502 633 1975 1995 San Jose CA 7,252 -- 850 7,252 8,102 499 1998 1998 San Juan Capistrano CA 6,344 235 700 6,579 7,279 934 1985 1995 San Juan Capistrano CA 3,834 172 1,225 4,006 5,231 637 1985 1995 Santa Maria CA 2,649 118 1,500 2,767 4,267 473 1977 1995 Vista CA 3,701 82 350 3,783 4,133 613 1980 1996 Aurora CO 10,119 -- 715 10,119 10,834 443 1999 1999 Aurora CO 7,923 -- 919 7,923 8,842 1,320 1983 1995 Boulder CO 4,811 -- 833 4,811 5,644 601 1985 1995 Boulder CO 4,738 -- 184 4,738 4,922 677 1992 1995 Brighton CO 2,158 -- 210 2,158 2,368 189 1997 1997 Lakewood CO 12,401 -- 604 12,401 13,005 308 2000 2000 Hockessin DE 4,956 -- 345 4,956 5,301 217 1999 1999 Gainesville FL 2,699 -- 356 2,699 3,055 231 1997 1997 Gainsville FL 3,313 -- 310 3,313 3,623 166 1998 1998 Hudson FL 8,139 550 1,665 8,689 10,354 1,176 1987 1996 Jacksonville FL 2,770 -- 226 2,770 2,996 225 1997 1997 Jacksonville FL 2,376 -- 366 2,376 2,742 223 1997 1997 LeHigh Acres FL 2,600 -- 307 2,600 2,907 206 1997 1997 Naples FL 10,797 -- 1,140 10,797 11,937 495 1999 1999 Naples FL 4,084 -- 1,182 4,084 5,266 349 1997 1997 Palm Coast FL 2,580 -- 406 2,580 2,986 193 1997 1997 Panama City FL 2,659 -- 353 2,659 3,012 161 1998 1998 Pensacola FL 5,626 -- 408 5,626 6,034 193 1999 1999 Pensacola FL 1,580 400 170 1,980 2,150 353 1979 1996 Port Charlotte FL 2,655 -- 245 2,655 2,900 221 1997 1997 Punta Gorda FL 2,691 -- 210 2,691 2,901 230 1997 1997 Rotunda FL 2,628 -- 267 2,628 2,895 197 1997 1997 St. Petersburg FL 2,396 985 2,000 3,381 5,381 413 1993 1995 Tallahassee FL 9,084 -- 696 9,084 9,780 290 1999 1999 Travares FL 2,466 -- 156 2,466 2,622 226 1997 1997 Titusville FL 4,706 -- 1,742 4,706 6,448 67 1987 2000 Venice FL 2,535 -- 376 2,535 2,911 201 1997 1997 Boise ID 5,586 5,670 544 11,256 11,800 1,259 1978 1995 Oak Park IL 10,473 -- 603 10,473 11,076 1,047 1993 1997 Carmel IN 3,861 -- 805 3,861 4,666 257 1998 1998
47 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Initial Cost Costs Close of Period (1) to Building Capitalized ------------------------------------- Original and Subsequent to Buildings and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- ---------- ------------------------- ------ ------------ -------- Assisted Living Facilities (continued): Lawrence KS $3,822 $ -- $ 932 $ 3,822 $ 4,754 $ 255 1995 1998 Salina KS 2,887 -- 329 2,887 3,216 220 1989 1998 Salina KS 1,921 -- 200 1,921 2,121 180 1996 1997 Topeka KS 2,955 -- 424 2,955 3,379 263 1986 1998 Murray KY 2,547 -- 110 2,547 2,657 200 1998 1998 Mandeville LA 6,553 -- 831 6,553 7,384 191 1999 1999 Pittsfield MA 9,052 197 1,758 9,249 11,007 573 1998 1998 Hagerstown MD 3,785 844 533 4,629 5,162 155 1999 1999 Riverview MI 6,939 67 300 7,006 7,306 1,161 1987 1995 Hickory NC 2,531 -- 385 2,531 2,916 174 1997 1998 Deptford NJ 3,430 -- 655 3,430 4,085 193 1998 1998 Sparks (4) NV 7,278 -- 714 7,278 7,992 546 1993 1997 Sparks (5) NV 5,119 -- 505 5,119 5,624 439 1991 1997 Dayton OH 1,916 -- 270 1,916 2,186 148 1997 1997 Dublin OH 5,793 9 356 5,802 6,158 351 1998 1998 Fairfield OH 1,917 -- 270 1,917 2,187 164 1997 1997 Greenville OH 2,311 -- 215 2,311 2,526 197 1997 1997 Hillard OH 7,056 1,387 652 8,443 9,095 311 1999 1999 Lancaster OH 2,084 -- 350 2,084 2,434 122 1998 1998 Newark OH 2,047 -- 225 2,047 2,272 179 1997 1997 Sharonville OH 4,013 37 225 4,050 4,275 671 1987 1995 Springdale OH 2,092 -- 440 2,092 2,532 170 1997 1997 Urbana OH 2,118 -- 150 2,118 2,268 168 1997 1997 Youngstown OH 2,191 -- 470 2,191 2,661 123 1998 1998 Broken Arrow OK 1,445 -- 178 1,445 1,623 144 1996 1997 Oklahoma City OK 3,897 482 392 4,379 4,771 952 1982 1994 Oklahoma City OK 1,531 -- 175 1,531 1,706 153 1996 1997 Albany OR 3,657 4,531 511 8,188 8,699 1,142 1968 1995 Albany (6) OR 2,465 -- 92 2,465 2,557 411 1984 1995 Forest Grove (7) OR 3,152 -- 401 3,152 3,553 450 1994 1995 Gresham OR 4,647 -- -- 4,647 4,647 664 1988 1995 McMinnville (8) OR 3,976 -- 760 3,976 4,736 497 1989 1995 Medford OR 4,325 -- 314 4,325 4,639 541 1990 1995 Bridgeville PA 8,023 1,077 653 9,100 9,753 368 1999 1999 York PA 3,790 672 413 4,462 4,875 203 1999 1999 East Greenwich RI 8,277 -- 1,200 8,277 9,477 206 2000 2000 Lincoln RI 9,612 -- 477 9,612 10,089 160 2000 2000 Portsmouth RI 9,154 -- 1,200 9,154 10,354 284 1999 1999 Clinton SC 2,560 -- 87 2,560 2,647 144 1997 1998 Columbia SC 2,664 1 210 2,665 2,875 183 1997 1998 Greenwood SC 2,648 -- 107 2,648 2,755 149 1998 1998 Greer SC 2,389 -- 375 2,389 2,764 139 1998 1998 Brentwood TN 2,302 -- 600 2,302 2,902 321 1995 1995 Bristol TN 4,130 807 406 4,937 5,343 210 1999 1999 Germantown TN 4,623 9 755 4,632 5,387 270 1998 1998 Johnson City TN 4,289 687 404 4,976 5,380 177 1999 1999 Murfreesboro TN 4,240 783 499 5,023 5,522 201 1999 1999 Corsicana TX 1,494 -- 117 1,494 1,611 153 1996 1996 Dallas TX 3,500 718 308 4,218 4,526 906 1982 1994 Denton TX 1,425 -- 185 1,425 1,610 145 1996 1996
48 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Initial Cost Costs Close of Period (1) to Building Capitalized ------------------------------------- Original and Subsequent to Buildings and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- ---------- ------------------------- ------- ------------ -------- Assisted Living Facilities (continued): Ennis TX $ 1,409 $ -- $ 119 $ 1,409 $ 1,528 $ 144 1996 1996 Houston TX 8,945 -- 985 8,945 9,930 391 1999 1999 Houston TX 7,184 -- 1,089 7,184 8,273 299 1999 1999 Houston TX 7,194 -- 1,235 7,194 8,429 450 1998 1998 Houston TX 7,052 -- 1,089 7,052 8,141 309 1999 1999 Lakeway TX 10,542 -- 579 10,542 11,121 505 1999 1999 Lewisville TX 1,892 -- 260 1,892 2,152 169 1997 1997 Mansfield TX 1,575 -- 225 1,575 1,800 157 1996 1997 Paris TX 1,465 -- 166 1,465 1,631 150 1996 1996 Pearland TX 7,892 -- 493 7,892 8,385 493 1998 1998 Richland Hills TX 2,211 252 65 2,463 2,528 123 1998 1998 Richland Hills TX 1,616 -- 223 1,616 1,839 162 1996 1997 Weatherford TX 1,596 -- 145 1,596 1,741 146 1996 1997 Martinsville VA 3,049 -- 1,001 3,049 4,050 38 2000 2000 Midlothian VA 8,269 -- 650 8,269 8,919 157 2000 2000 Bellevue WA 4,467 -- 766 4,467 5,233 270 1998 1998 Richland WA 6,052 119 172 6,171 6,343 876 1990 1995 Tacoma WA 5,208 -- 403 5,208 5,611 456 1997 1997 Yakima WA 5,248 -- 500 5,248 5,748 384 1998 1998 Menomonee Falls (9) WI 13,190 -- 4,161 13,190 17,351 1,225 1990 1997 West Allis (10) WI 8,117 2,911 682 11,028 11,710 839 1996 1997 Hurricane WV 4,475 830 705 5,305 6,010 152 1999 1999 -------- ------- ---------- ----------- ----------- ------- 532,268 29,944 74,166 562,212 636,378 47,587 -------- ------- ---------- ----------- ----------- ------- CCRCs: Palm Desert CA 9,097 1,730 1,600 10,827 12,427 1,689 1989 1994 Sterling CO 2,715 -- 400 2,715 3,115 611 1979 1994 Lawrenceville GA 10,769 -- 723 10,769 11,492 564 1988 1998 Andover (11) KS 12,517 -- 687 12,517 13,204 1,187 1987 1997 Norton MA 8,272 4,669 1,351 12,941 14,292 853 1968 1996 Trenton TN 3,004 -- 174 3,004 3,178 25 1974 2000 College Station TX 6,008 125 833 6,133 6,966 723 1994 1998 Corpus Christi TX 14,929 13,593 1,848 28,522 30,370 2,331 1985 1997 Glendale (12) WI 22,905 -- 3,824 22,905 26,729 2,051 1988 1997 Waukesha (13) WI 28,562 1,827 7,233 30,389 37,622 3,074 1973 1997 -------- ------- ---------- ----------- ----------- ------- 118,778 21,944 18,673 140,722 159,395 13,108 -------- ------- ---------- ----------- ----------- ------- RCFE's: Murrietta CA 144 -- 35 144 179 47 1990 1998 Murrietta CA 118 -- 28 118 146 8 1990 1998 -------- ------- ---------- ----------- ----------- ------- 262 -- 63 262 325 55 -------- ------- ---------- ----------- ----------- ------- Rehab: Scottsdale AZ 5,874 -- 242 5,874 6,116 1,848 1986 1988 Tucson AZ 9,435 -- 1,275 9,435 10,710 2,015 1992 1992 -------- ------- ---------- ----------- ----------- ------- 15,309 -- 1,517 15,309 16,826 3,863 -------- ------- ---------- ----------- ----------- ------- Clinic: Heflin AL 2,100 85 248 2,185 2,433 1,451 1997 1997 -------- ------- ---------- ----------- ----------- -------
49 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Gross Amount at which Carried at Close of Period (1) Initial Cost Costs -------------------------------- to Building Capitalized Buildings Original and Subsequent to and Accum. Construction Date Facility Type and Location Improvements Acquisition Land (2) Improvements Total Depr. Date Acquired - -------------------------- ------------ ------------- -------- ------------ ---------- -------- ------------ -------- Land: Florence KY $ -- $ -- $ 578 $ -- $ 578 $ -- Derry NH 98 -- 638 98 736 -- Akron OH 1,506 -- 253 1,506 1,759 16 Bastrop TX 210 -- 600 210 810 1 ---------- ------- -------- ---------- ---------- -------- 1,814 -- 2,069 1,814 3,883 17 ---------- ------- -------- ---------- ---------- -------- Construction in Progress 8,478 -- 1,000 8,478 9,478 -- ---------- ------- -------- ---------- ---------- -------- GRAND TOTAL $1,113,698 $77,190 $142,721 $1,190,888 $1,333,609 $186,206 ========== ======= ======== ========== ========== ========
- ------- (1) Also represents the approximate cost for Federal income tax purposes. (2) Gross amount at which land is carried at close of period also represents initial cost to the Company. (3) Real estate is security for notes payable in the aggregate of $2,185,000 at 12/31/00. (4) Real estate is security for notes payable in the aggregate of $3,085,000 at 12/31/00. (5) Real estate is security for notes payable in the aggregate of $3,545,000 at 12/31/00. (6) Real estate is security for notes payable in the aggregate of $2,053,000 at 12/31/00. (7) Real estate is security for notes payable in the aggregate of $3,305,000 at 12/31/00. (8) Real estate is security for notes payable in the aggregate of $3,485,000 at 12/31/00. (9) Real estate is security for notes payable in the aggregate of $10,418,000 at 12/31/00. (10) Real estate is security for notes payable in the aggregate of $8,103,000 at 12/31/00. (11) Real estate is security for notes payable in the aggregate of $2,500,000 at 12/31/00. (12) Real estate is security for notes payable in the aggregate of $12,898,000 at 12/31/00. (13) Real estate is security for notes payable in the aggregate of $11,280,000 at 12/31/00. 50 SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION NATIONWIDE HEALTH PROPERTIES, INC. December 31, 2000 (Dollar amounts in thousands)
Real Estate Accumulated Properties Depreciation ---------- ------------ (in thousands) Balances at December 31, 1997:......................... $ 960,531 $107,077 ---------- -------- Acquisitions......................................... 261,702 26,193 Improvements......................................... 26,800 1,016 Reclassifications.................................... 3,500 -- Impairment of long-lived assets...................... (5,000) -- Sales................................................ (4,145) (970) Balances at December 31, 1998:......................... 1,243,388 133,316 ---------- -------- Acquisitions......................................... 99,572 33,876 Improvements......................................... 11,100 1,381 Reclassifications.................................... 7,300 -- Sales................................................ (29,987) (5,902) ---------- -------- Balances at December 31, 1999:......................... 1,331,373 162,671 ---------- -------- Acquisitions......................................... 21,547 33,293 Improvements......................................... 15,114 2,364 Reclassifications.................................... 10,851 -- Sales................................................ (45,276) (12,122) ---------- -------- Balances at December 31, 2000:......................... $1,333,609 $186,206 ========== ========
51 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Incorporated herein by reference to the information under the caption "Election of Directors" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 20, 2001, filed or to be filed pursuant to Regulation 14A. Item 11. Executive Compensation. Incorporated herein by reference to the information under the caption "Executive Compensation" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 20, 2001, filed or to be filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated herein by reference to the information under the caption "Stock Ownership" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 20, 2001, filed or to be filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions. Incorporated herein by reference to the information under the captions "Certain Relationships and Related Transactions" and "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 20, 2001, filed or to be filed pursuant to Regulation 14A. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) Financial Statements. Report of Independent Public Accountants.................................. 23 Consolidated Balance Sheets at December 31, 2000 and 1999................. 24 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 ..................................................... 25 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998......................................... 26 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 ..................................................... 27 Notes to Consolidated Financial Statements................................ 28 (2) Financial Statement Schedules Report of Independent Public Accountants.................................. 43 Schedule III Real Estate and Accumulated Depreciation..................... 44
(b) Reports on Form 8-K A form 8-K dated December 14, 2000 was filed with respect to the default under two master leases by Balanced Care Corporation ("Balanced Care"). The filing stated that Balanced Care proposed certain rent concessions, but the Company was unwilling to accept any rent concessions and would proceed with all available legal remedies. 52 (c) Exhibits
Exhibit No. Description ----------- ----------- Plan of Acquisition, Reorganization, Arrangement, Liquidation or 2. Succession 2.1 Agreement to Merge, dated August 19, 1997, among the Company, Laureate Investments, Inc. and Laureate Properties, Inc., filed as Exhibit 2.1 to the Company's Form 8-K dated October 7, 1997, and incorporated herein by this reference. 3. Articles of Incorporation and Bylaws 3.1(a) Restated Articles of Incorporation, filed as Exhibit 3.1 to the Company's Registration Statement on Form S-11 (No. 33-1128), effective December 19, 1985, and incorporated herein by this reference. 3.1(b) Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Form 10-Q for the quarter ended March 31, 1989, and incorporated herein by this reference. 3.1(c) Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1(c) to the Company's Registration Statement on Form S-11 (No. 33-32251), effective January 23, 1990, and incorporated herein by this reference. 3.1(d) Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1(d) to the Company's Form 10-K for the year ended December 31, 1994, and incorporated herein by this reference. 3.1(e) Articles Supplementary to the Registrant's Amended and Restated Articles of Incorporation, dated September 24, 1997, filed as Exhibit 3.1 to the Company's Form 8-K dated September 24, 1997, and incorporated herein by this reference. 3.2 Bylaws of the Company as amended January 19, 1996, filed as Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference. 3.3 Amended and Restated Bylaws of the Company, filed as Exhibit 3.1 to the Company's Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by this reference. 4. Instruments Defining Rights of Security Holders, Including Indentures 4.1 Indenture dated as of November 16, 1992, between Nationwide Health Properties, Inc., Issuer to The Chase Manhattan Bank (National Association), Trustee, filed as Exhibit 4.1 to the Company's Form S-3 (No. 33-54870) dated November 24, 1992, and incorporated herein by this reference. 4.2 Indenture dated as of June 30, 1993, between the Company and First Interstate Bank of California, as Trustee, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-3 (No. 33-64798), effective July 12, 1993, and incorporated herein by this reference. 4.3 First Supplemental Indenture dated November 15, 1993, between the Company and First Interstate Bank of California, as Trustee, filed as Exhibit 4.1 to the Company's Form 8-K dated November 15, 1993, and incorporated by reference herein. 4.4 Indenture dated as of January 12, 1996, between the Company and The Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No 33-65423) dated December 27, 1995, and incorporated herein by this reference. 4.5 Indenture dated as of January 13, 1999, between the Company and Chase Manhattan Bank and Trust Company, National Association, as Trustee, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 333-70707) dated January 15, 1999, and incorporated herein by this reference. 10. Material Contracts 10.1 Master Lease Document--General Terms and Conditions dated December 30, 1985, for Leases between various subsidiaries of Beverly as Lessees and the Company as Lessor, filed as Exhibit 10.3 to the Company's Form 10-K for the year ended December 31, 1985, and incorporated herein by this reference.
53
Exhibit No. Description ----------- ----------- 10.2 1989 Stock Option Plan of the Company as Amended and Restated January 19, 1996, filed as Exhibit 10.6 to the Company's 10-K for the year ended December 31, 1996, and incorporated herein by this reference. 10.2(a) Amended Stock Option Plan filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by this reference. 10.3 The Company's Retirement Plan for Directors effective July 26, 1991 filed as Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1991, and incorporated herein by this reference. 10.4 Deferred Compensation Plan of the Company effective September 1, 1991 filed as Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1991, and incorporated herein by this reference. 10.5 Commercial and Multi-family Mortgage Loan Sale Agreement dated as of June 5, 1992 by and between Resolution Trust Corporation, as Receiver, and Nationwide Health Properties, Inc. filed as Exhibit A to the Company's Form 8-K dated May 29, 1992, and incorporated herein by this reference. 10.6 Amended and Restated Credit Agreement dated as of July 27, 1999 between the Company and Wells Fargo Bank National Association, Bank of America, N.A., The Bank of New York and KBC Bank N.V. filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by this reference. 10.7 Amendment Number One to Amended and Restated Credit Agreement dated as of May 15, 2000 filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by this reference. 10.8 Form of Indemnity Agreement between officers and directors of the Company including John C. Argue, David R. Banks, Sam A. Brooks, Jr., William K. Doyle, Charles D. Miller and Jack D. Samuelson, R. Bruce Andrews, Mark L. Desmond, Stephen J. Insoft, Don M. Pearson, Gary E. Stark, and T. Andrew Stokes, and John J. Sheehan, Jr., filed as Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference. 10.9 Executive Employment Security Policy, filed as Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference. 10.10 Employment agreement entered into by and between Nationwide Health Properties, Inc. and R. Bruce Andrews dated as of February 25, 1998, filed as Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference. 10.11 Employment agreement entered into by and between Nationwide Health Properties, Inc. and T. Andrew Stokes dated as of February 25, 1998, filed as Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1998 and incorporate herein by this reference. 10.11(a) First Amendment to Employment Agreement of T. Andrew Stokes dated as of January 19, 2001. 10.12 Employment agreement entered into by and between Nationwide Health Properties, Inc. and Mark L. Desmond dated as of February 25, 1998, filed as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference. 10.12(a) First Amendment to Employment Agreement of Mark L. Desmond dated as of January 19, 2001. 10.13 Settlement and Amendment Agreement between Beverly Health and Rehabilitation Services, Inc. and the Company effective as of January 1, 2000. 21. Subsidiaries of the Company 23. Consents of Experts and Counsel 23.1 Consent of Arthur Andersen LLP
54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONWIDE HEALTH PROPERTIES, INC. /s/ R. Bruce Andrews By: _________________________________ R. Bruce Andrews President and Chief Executive Officer Dated: March 22, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Charles D. Miller Chairman and Director March 22, 2001 ____________________________________ Charles D. Miller /s/ R. Bruce Andrews President, Chief Executive March 22, 2001 ____________________________________ Officer and Director R. Bruce Andrews (Principal Executive Officer) /s/ Mark L. Desmond Senior Vice President and March 22, 2001 ____________________________________ Chief Financial Officer Mark L. Desmond (Principal Financial and Accounting Officer) /s/ John C. Argue Director March 22, 2001 ____________________________________ John C. Argue /s/ David R. Banks Director March 22, 2001 ____________________________________ David R. Banks /s/ William K. Doyle Director March 22, 2001 ____________________________________ William K. Doyle /s/ Jack D. Samuelson Director March 22, 2001 ____________________________________ Jack D. Samuelson
55 APPENDIX 1 BEVERLY ENTERPRISES, INC. SET FORTH BELOW IS CERTAIN CONDENSED FINANCIAL DATA OF BEVERLY ENTERPRISES, INC. ("BEVERLY") WHICH IS TAKEN FROM BEVERLY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND THE BEVERLY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AS FILED WITH THE COMMISSION. The information and financial data contained herein concerning Beverly was obtained and has been condensed from Beverly's public filings under the Exchange Act. The Beverly financial data presented includes only the most recent interim and fiscal year end reporting periods. The Company can make no representation as to the accuracy and completeness of Beverly's public filings but has no reason not to believe the accuracy and completeness of such filings. It should be noted that Beverly has no duty, contractual or otherwise, to advise the Company of any events subsequent to such dates which might affect the significance or accuracy of such information. Beverly is subject to the information filing requirements of the Exchange Act, and in accordance therewith, is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Such reports, proxy statements and other information may be inspected at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available at the following Regional Offices of the Commission: 7 World Trade Center, New York, N.Y. 10048, and 500 West Madison Street, Suite 1400, Chicago, IL 60661. Such reports and other information concerning Beverly can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, Room 1102, New York, New York 10005. I-1 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
September 30, December 31, 2000 1999 ------------- ------------ Total current assets................................. $ 488,661 $ 493,796 Property and equipment, net.......................... 1,082,763 1,110,065 Total other assets................................... 372,439 379,019 ---------- ---------- Total assets ...................................... $1,943,863 $1,982,880 ========== ========== Total current liabilities............................ $ 385,148 $ 388,054 Long-term debt....................................... 718,008 746,164 Other liabilities and deferred items................. 210,074 207,538 Total stockholders' equity........................... 630,633 641,124 ---------- ---------- Total liabilities and stockholders' equity......... $1,943,863 $1,982,880 ========== ==========
I-2 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts)
Nine months ended Years ended December 31, September 30, -------------------------- 2000 1999 1998 ------------- ------------ ------------ Revenues............................. $1,968,704 $ 2,551,007 $ 2,822,940 Costs and expenses: Operating and administrative....... 1,838,696 2,354,328 2,633,135 Interest........................... 59,942 72,578 65,938 Depreciation and amortization...... 75,171 99,160 93,722 Workforce reductions, asset impairments, transaction costs and other unusual items............... 4,627 23,818 69,443 Year 2000 remediation.............. -- 12,402 9,719 Investigation costs................ -- 202,447 1,865 ---------- ------------ ------------ 1,978,436 2,764,733 2,873,822 Income (loss) before provision for income taxes and extraordinary charge.............................. (9,732) (213,726) (50,882) Provision for (benefit from) income taxes............................... (2,044) (79,079) (25,936) ---------- ------------ ------------ Income (loss) before extraordinary charge and cumulative effect of change in accounting................ (7,688) (134,647) (24,946) ---------- ------------ ------------ Extraordinary charge, net of income taxes............................... -- -- (1,660) Cumulative effect of change in accounting, net of income taxes..... (4,415) ---------- ------------ ------------ Net income (loss).................... $ (7,688) $ (134,647) $ (31,021) ========== ============ ============ Income (loss) per share of common stock: Basic and diluted: Before extraordinary charge and cumulative effect of change in accounting....................... $ (.08) $ (1.31) $ (.24) Extraordinary charge.............. -- -- (.02) Cumulative effect of change in accounting....................... -- -- (.04) ---------- ------------ ------------ Net income per share............... $ (.08) $ (1.31) $ (.30) ========== ============ ============ Shares used to compute per share amounts............................. 102,027 102,491 103,762 ========== ============ ============
I-3 BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine months Years ended Ended December 31, September 30, -------------------- 2000 1999 1998 ------------- --------- --------- Cash flows from operating activities: Net income (loss)........................ $(7,688) $(134,647) $ (31,021) ------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities........ 42,829 323,788 37,810 ------- --------- --------- Net cash provided by operating activities............................... 35,141 189,141 6,789 ------- --------- --------- Net cash provided by (used for) investing activities............................... (40,961) (71,537) (230,586) ------- --------- --------- Net cash provided by (used for) financing activities............................... (4,418) (110,230) 135,845 ------- --------- --------- Net increase (decrease) in cash and cash equivalents.............................. (10,238) 7,374 (87,952) Cash and cash equivalents at beginning of period................................... 24,652 17,278 105,230 ------- --------- --------- Cash and cash equivalents at end of period................................... $14,414 $ 24,652 $ 17,278 ======= ========= =========
I-4
EX-10.11(A) 2 0002.txt FIRST AMENDMENT TO EMPLOYMENT AGREEMENT T. ANDREW EXHIBIT 10.11(a) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT OF T. ANDREW STOKES This First Amendment dated as of January 19, 2001 to Employment Agreement of T. Andrew Stokes hereby amends that certain Employment Agreement entered into by and between Nationwide Health Properties, Inc., a Maryland corporation (the "Company") and T. Andrew Stokes (the "Executive") as of February 25, 1998 (the "Employment Agreement"). RECITAL The parties desire to delete and restate Paragraph I - E of the Employment Agreement in its entirety. AGREEMENT NOW, THEREFORE, the parties hereto hereby agree to delete Paragraph I - E of the Employment Agreement in its entirety and restate it as follows: E. "Employment Period" shall mean the period commencing on the Effective Date and ending on February 28, 2002. IN WITNESS WHEREOF, Executive has hereunto set Executive's hand, and pursuant to the authorization from the Compensation Committee of the Board, the Company has caused this First Amendment to Employment Agreement of T. Andrew Stokes to be executed in its name on its behalf, all of the day and year first above written. NATIONWIDE HEALTH PROPERTIES, INC. By:__________________________________ R. Bruce Andrews, President Executive: By:__________________________________ T. Andrew Stokes EX-10.12(A) 3 0003.txt FIRST AMENDMENT TO EMPLOYMENT AGREEMENT OF MARK L. EXHIBIT 10.12(a) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT OF MARK L. DESMOND This First Amendment dated as of January 19, 2001 to Employment Agreement of Mark L. Desmond hereby amends that certain Employment Agreement entered into by and between Nationwide Health Properties, Inc., a Maryland corporation (the "Company") and Mark L. Desmond (the "Executive") as of February 25, 1998 (the "Employment Agreement"). RECITAL The parties desire to delete and restate Paragraph I - E of the Employment Agreement in its entirety. AGREEMENT NOW, THEREFORE, the parties hereto hereby agree to delete Paragraph I - E of the Employment Agreement in its entirety and restate it as follows: E. "Employment Period" shall mean the period commencing on the Effective Date and ending on February 28, 2002. IN WITNESS WHEREOF, Executive has hereunto set Executive's hand, and pursuant to the authorization from the Compensation Committee of the Board, the Company has caused this First Amendment to Employment Agreement of Mark L. Desmond to be executed in its name on its behalf, all of the day and year first above written. NATIONWIDE HEALTH PROPERTIES, INC. By:__________________________________ R. Bruce Andrews, President Executive: By:__________________________________ Mark L. Desmond EX-10.13 4 0004.txt SETTLEMENT AND AMENDMENT AGREEMENT EXHIBIT 10.13 SETTLEMENT AND AMENDMENT AGREEMENT ---------------------------------- THIS SETTLEMENT AND AMENDMENT AGREEMENT (the "Agreement") is made and entered into and effective as of the first day of January, 2000, by and among BEVERLY HEALTH AND REHABILITATION SERVICES, INC., a California corporation ("BHRS"), the entities set forth on Exhibit A-1 hereto (each a "Facility Tenant" and, collectively, the "Facility Tenants") (BHRS and the Facility Tenants are, collectively, "Beverly"), Nationwide Health Properties, a Maryland corporation ("Nationwide"), and the entities set forth on Exhibit A-2 hereto (each a "Facility Landlord" and, collectively, the "Facility Landlords") (Nationwide and the Facility Landlords are, collectively, "NHP"). Recitals -------- A. Beverly and NHP (as successor to Beverly Investment Properties, Inc.) have entered into that certain Master Lease Document General Terms and Conditions, dated December 30, 1985, for Leases to be Executed by Beverly Investment Properties, Inc., as Lessor, and Various Subsidiaries of Beverly Enterprises, as Lessees (the "Master Lease") and other leases (collectively, and together with the Master Lease, the "Leases") with respect to the Facilities set forth on Exhibits B, C, D and E hereto (each a "Leased Facility" and, collectively, the "Leased Facilities"). B. Exhibits B, C, D and E set forth for each Leased Facility the Facility Tenant that is the tenant under the Lease for such Facility, and Exhibit A-2 sets forth the Facility Landlord that is the landlord under the Lease for each Facility. C. The parties hereto desire to make the agreements set forth herein and take the actions described herein with respect to the Leased Facilities and the Leases. Agreement --------- NOW, THEREFORE, in consideration of the foregoing, the covenants, agreements, representations and warranties hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Restructure Payment. In partial consideration of this Agreement ------------------- and the transactions contemplated hereby, Beverly shall pay to NHP the sum of Sixteen Million Two Hundred Seven Thousand Eight Hundred Fifty Six Dollars ($16,207,856) (the "Restructure Payment"). The Restructure Payment shall be paid as set forth on Exhibit F hereto. 2. Transfer Facilities. Fee title to the Facilities located in ------------------- Riverside, Wisconsin, Central Minnesota, Osseo, Minnesota, Jacksonville, Arkansas, and La Salle, Minnesota shall be transferred to Beverly (or its designee) on substantially the terms outlined in Article 18 of the Master Lease and such other terms and conditions as are customary in Beverly's acquisitions of comparable facilities (including without limitation title insurance policies); provided, that all transaction costs payable to third parties (including without limitation all title insurance premiums and transfer taxes, but excluding attorneys' fees) shall be paid one half by Beverly and one half by NHP. 3. Termination Facilities. Those Facilities set forth on Exhibit B ---------------------- hereto are the "Termination Facilities." 3.1 Interim Operation. The appropriate Facility Tenant agrees to ----------------- continue to operate the Termination Facilities (under the Leases for such Facilities, as modified hereby) to and including the Assignment Date (as defined below) with respect to such Termination Facility. Monthly rental for each Termination Facility during such period shall be as set forth on Exhibit B hereto opposite the name of each such Termination Facility. With respect to each Termination Facility, during the period after the date hereof and ending on the applicable Assignment Date, NHP shall use its commercially reasonable efforts to identify and contract with suitable replacement operators for each of the Termination Facilities. Beverly shall have no duties with respect to the identification of, or negotiations with, replacement operators. 3.2 Transition of Operation. With respect to each Termination ----------------------- Facility, NHP shall deliver written notice to Beverly after a replacement operator has been identified ("New Operator Notice"), and NHP shall use commercially reasonable efforts to cause such replacement operator to enter into a Transition Agreement with Beverly, and in form and substance acceptable to Beverly (a "Transition Agreement"). Such Transition Agreement will provide for an orderly transition of operations at the Facility to be concluded on or prior to the Assignment Date. NHP shall provide in its lease with the new operator that a default by the new operator under the relevant Transition Agreement is a default under such lease, and shall assist Beverly in enforcing the Transition Agreement. In the event that a designated replacement operator refuses to enter into a Transition Agreement, NHP shall notify Beverly and (a) Beverly, its sole discretion, may waive the requirement of a Transition Agreement, and (b) if Beverly does not waive such requirement, NHP may withdraw the New Operator Notice. Nothing herein shall prevent NHP from designating Nationwide as a replacement operator pursuant to a New Operator Notice. 3.3 Termination. With respect to each Termination Facility, if no ----------- New Operator Notice has been issued with respect such Termination Facility (or if a New Operator Notice has been withdrawn) prior to January 1, 2001 (and such Lease has not otherwise been terminated), the appropriate Facility Tenant shall have the right at any time thereafter, in its sole discretion, to take one or both of the following actions: (i) consummate the shutdown process with respect to such Termination Facility, and (ii) upon written notice to NHP, assign its rights and interests under the Lease to the appropriate Facility Landlord with respect to such Termination Facility (and have no further liability with respect thereto), as of January 1, 2001 or such later date as the appropriate Facility Tenant shall specify in such notice of termination (the "Shutdown Date"). The appropriate Facility Tenant shall have the right to initiate the shutdown process thirty (30) days following written notice to NHP, such notice to be delivered no fewer than one hundred twenty (120) days prior to the consummation of such shutdown (the "Shutdown Notice"). Such notice may be delivered by the appropriate Facility Tenant at any time following August 31, 2000. NHP shall reimburse Beverly for all losses and costs incurred by Beverly in connection with all such shutdowns (collectively "Shutdown Costs") and hereby agrees to indemnify and hold Beverly harmless for any such Shutdown Costs. 2 3.4 Assignment Date; Assignment and Assumption. (a) The "Assignment ------------------------------------------ Date" with respect to each Termination Facility shall be as follows with respect to such Termination Facility: (i) For each Termination Facility with respect to which a New Operator Notice has been received by Beverly and has not been withdrawn, the "Assignment Date" shall be the earlier of (x) the date the new operator obtains a license to operate the Facility, and (y) December 31, 2000; or (ii) For any Termination Facility for which a Shutdown Notice has been delivered pursuant to Section 3.3 hereof, the "Assignment Date" shall be the Shutdown Date for such Termination Facility; or (iii) For any Termination Facility for which neither a New Operator Notice nor a Shutdown Notice has been delivered prior to December 31, 2000 (or if a New Operator Notice has been withdrawn and no new New Operator Notice delivered prior to December 31, 2000), the "Assignment Date" shall be thirty (30) days following written notice by Beverly of its desire to assign the Lease for such Facility to the appropriate Facility Landlord. (b) Effective as of the Assignment Date for each Termination Facility, the appropriate Facility Tenant hereby sets over, transfers and assigns unto the appropriate Facility Landlord, all of such Facility Tenant's right, title and interest in and to the Lease for such Termination Facility. (c) The Facility Landlords hereby accept the assignment set forth in Section 3.4(b) hereof, and agree to terminate and extinguish such Lease upon such assignment. 3.5 Operating Costs. In consideration for the appropriate Facility --------------- Tenant's continued leasing and operation of one or more Termination Facilities after June 30, 2000, beginning with the month of July, 2000, NHP hereby agrees to pay to Beverly, within five (5) days following receipt from Beverly of an invoice for such amount, the amount (if any) by which Beverly's aggregate net income for such month or partial month from the operation of all Termination Facilities is less than five percent (5%) of the aggregate gross revenues for the same period of all Termination Facilities (such payment shall include reimbursement for the amount of any aggregate operating loss, and could therefore exceed 5% of the aggregate gross revenues). Calculation of net income, gross revenues and operating loss for purposes of this section shall be consistent with Beverly's historical accounting (including without limitation, any rent payable hereunder for such periods shall be an expense), In addition to the foregoing, NHP shall indemnify Beverly for all economic losses to Beverly related to the operation and maintenance of any Termination Facilities for the period commencing on July 1, 2000 with respect to such Termination Facility. 3.6 Release for Termination Facilities. Effective upon the ---------------------------------- Assignment Date for each Lease, Beverly shall be released from all liability and obligation to NHP arising under such Lease for such Termination Facility, other than unfulfilled obligations (a) of 3 indemnification under Article 24 of the Lease for third party claims which arise from the possession, operation or management of the Facility by any party during the term of the Lease prior to the Assignment Date for each such Termination Facility, and (b) to pay the rent amount set forth on Exhibit B hereto for each Termination Facility, and Impositions (as defined in the Lease) that arise prior to the Assignment Date for each such Termination Facility (such amounts relating to periods after July 1, 2000 shall be expenses for the purposes of Section 3.5 hereof). Without limiting the generality of the foregoing, in no event shall Beverly have any liability or obligation for deferred maintenance or other expenses related to the physical plant of any Termination Facility. 3.7 Live Oak Facility. With respect to the Live Oak Facility in ----------------- Suwanee, Florida (which Facility is a Termination Facility) (the "Live Oak Facility"), the parties acknowledge that Beverly has paid for a sixty (60) bed addition to the Live Oak Facility (the "Addition"), and has the rights to the Certificate of Need with respect to the Live Oak Facility (collectively, the "Live Oak Bed Rights"). In consideration for the transfer to NHP or its nominee of the Addition and the Live Oak Bed Rights, NHP shall pay to Beverly the sum of One Million Four Hundred Fifty Eight Thousand Dollars ($1,458,000). NHP shall deliver to Beverly a promissory note, a portion of the principal amount of which represents this payment, in form and substance reasonably acceptable to Beverly providing for the payment of principal and interest as set forth on Exhibit F hereto. Such promissory note shall be unsecured. Upon the assignment of the Lease for the Live Oaks Facility and the concurrent purchase described above, Beverly shall deliver a quitclaim deed (or the local equivalent) and a Bill of Sale, if necessary, to NHP transferring all of Beverly's right, title and interest in the Addition and the Live Oak Bed Rights. 3.8 Purchase of FF&E. In consideration of the transfer to NHP (or ---------------- its nominee) of all of Beverly's moveable furniture, fixtures and equipment in the Termination Facilities and the Subleased Facilities (as hereinafter defined), to the extent Beverly owns any such items, NHP shall pay to Beverly the sum of Two Million, Five Hundred Thousand Dollars ($2,500,000). NHP shall deliver to Beverly a promissory note, a portion of the principal amount of which represents this amount, in form and substance reasonably acceptable to Beverly providing for the payment of principal and interest as set forth on Exhibit F hereto. Such promissory note shall be unsecured. In addition, NHP or its nominee (as shall be further set forth in the Transition Agreement) shall purchase from Beverly at the time of assignment of the Lease for each Termination Facility, all consumables and inventory at such Facility as reflected in an inventory at the time of termination, and at Beverly's cost for such items. 3.9 Texarkana, Texas. With respect to the Facility in Texarkana, ---------------- Texas (which is a Termination Facility), (a) the reference to "June 30, 2000" in the first sentence of Section 3.5 shall be a reference to "December 31, 2000," (b) the reference to "July, 2000" in the first sentence of Section 3.5 shall be a reference to "January 2001," and (c) the reference to "July 1, 2000" in the last sentence of Section 3.5 shall be a reference to "January 1, 2001." 3.10 Colton Villa. (a) With respect to the Colton Villa Facility, ------------ none of the foregoing provisions shall be effective until such Facility has been found by the relevant state survey agency to be in substantial compliance (the "Compliance Date"). Prior to the Compliance Date, the relevant Facility Tenant shall continue to pay the rent for such facility set forth on 4 Exhibit B hereto. Upon notice by Beverly to NHP that the Compliance Date has occurred, the foregoing provisions of this Agreement with respect to Termination Facilities shall apply to Colton Villa; provided, that with respect to Colton Villa, the date "January 1, 2001" in the lead-in phrase to Section 3.3 hereof shall be replaced by the date that is thirty (30) days after the Compliance Date. (b) In the event that the Compliance Date has not occurred prior to June 1, 2001, then the parties shall negotiate in good faith as to the disposition of Colton Villa. (c) NHP hereby consents to Beverly entering into a management agreement with a third party manager with respect to Colton Villa. 4. Subleased and Assigned Facilities. Those Facilities set forth on --------------------------------- Exhibit C hereto and designated thereon as "Subleased" are the "Subleased Facilities." Those Facilities set forth on Exhibit C hereto and designated thereon as "Assigned" are the "Assigned Facilities." With respect to each Subleased Facility, Exhibit C also identifies the sublease applicable to such Facility (each a "Sublease" and collectively the "Subleases"). With respect to each Assigned Facility, Exhibit C also identifies the assignee of such Lease. The parties acknowledge that there may be other subleased and assigned facilities that have been omitted from Exhibit C In the event such omitted facilities are identified and agreed to by the parties, such omitted facilities shall be "Subleased Facilities" or "Assigned Facilities" hereunder, as appropriate, and subject to the terms hereof. 4.1 Assignment of Leases and Subleases. The appropriate Facility ---------------------------------- Tenants hereby set over, transfer and assign unto the appropriate Facility Landlords, effective as of the date hereof, all of such Facility Tenants' right, title and interest in and to (a) the Leases for the Subleased Facilities and (b) the Subleases, each for the balance of the term thereof. 4.2 Assumption of Leases and Subleases. The Facility Landlords ---------------------------------- hereby accept the assignment set forth in Section 4.1 hereof and assume all of the duties and obligations under the Leases and Subleases, and agree to observe, keep and perform all of the terms, covenants and conditions to be made observed, kept and performed by each Facility Tenant, as lessee under the assigned Leases and sublessor under the Subleases, as fully as though the appropriate Facility Landlord were originally named in the Leases as lessee and the Subleases as sublessor. 4.3 Summit, New Jersey. (a) With respect to the Subleased Facility ------------------ in Summit, New Jersey, the following shall be additional exceptions to the release of Beverly's liability set forth in Section 4.6 below: (i) the amount of any lost rent accruing after the date hereof until and including the earlier to occur of (x) the execution and delivery of a new, direct lease for such Facility by NHP, and (y) September 30, 2001 (the earlier of (x) and (y) being the "Summit Expiration Date"), and (ii) in the event of a loss of the subtenant's license to operate such Subleased Facility, (x) the Facility Tenant's obligation under the Lease for 5 such Facility accruing after such loss of license and prior to the Summit Expiration Date, and (y) losses resulting from the gross negligence or willful misconduct of the operator in the operation of the Facility accruing after such loss of licensure and prior to the Summit Expiration Date. (b) In the event that Beverly is required to make any payments pursuant to paragraph (a) of this Section 4.3, NHP shall, at the request of Beverly, re-assign to the appropriate Facility Tenant the interests under the Lease and Sublease for such Facility that were assigned to NHP pursuant to Section 4.1 hereof in order that the appropriate Facility Tenant shall have the benefit of the rights and remedies of the landlord under the Sublease for such Facility. 4.4 Security Deposits. Pursuant to agreements reasonably acceptable ----------------- in form and substance to the parties, Beverly shall assign to NHP all letters of credit or other security deposits held by Beverly and securing obligations under the Subleases. 4.5 Memoranda of Assignment. The Facility Tenants and the NHP agree ----------------------- to execute, deliver and record appropriate memoranda of assignment reflecting the assignments set forth herein with respect to the Leases for the Subleased Facilities, and the Subleases. 4.6 Release for Subleased Facilities and Assigned Facilities. (a) As -------------------------------------------------------- of the date hereof, Beverly is hereby released from, all liability and obligation with respect to the Leases for the Subleased Facilities (except as set forth in Section 4.3 above), other than unfulfilled obligations (a) of indemnification under Article 24 of the Lease for third party claims which arise from the possession, operation or management of the Facility by any party during the term of the Lease for such Subleased Facility prior to the date hereof and (b) Impositions that arise prior to the date hereof for each Subleased Facility. Without limiting the generality of the foregoing, in no event shall Beverly have any liability or obligation for deferred maintenance or other expenses related to the physical plant of any Subleased Facility. (b) As of the date hereof, Beverly is hereby released from, all liability and obligation, if any, with respect to the Leases for the Assigned Facilities, other than unfulfilled obligations (a) of indemnification under Article 24 of the Lease for third party claims which arise from the possession, operation or management of the Facility by any party during the term of the Lease for such Assigned Facility prior to the date hereof and (b) Impositions that arise prior to the date hereof for each Assigned Facility. Without limiting the generality of the foregoing, in no event shall Beverly have any liability or obligation for deferred maintenance or other expenses related to the physical plant of any Assigned Facility It is agreed by the parties that Beverly currently has no primary liability under the Leases for any Assigned Facility, and nothing set forth herein is intended to increase any liability that Beverly may have with respect to any Assigned Facility, or alter the secondary or contingent nature of such liability. Further, nothing herein is intended to create any liability for Beverly under any Assigned Facility to the extent that Beverly has previously been released from such liability. 5. Other Facilities. ---------------- 6 5.1 Country House, Pomona, California. --------------------------------- (a) With respect to the Country House Facility in Pomona, California ("Country House"), the parties agree that NHP shall file a claim against Beverly, and Beverly shall pursue a claim against ResCare, pursuant to Article 21 of the Lease for Country House. Expenses of counsel agreed by the parties shall be split equally between the parties. (b) In the event that Beverly, in its sole discretion, shall determine that such claim shall no longer be pursued, but in any event no later than January 1, 2002, then upon written notice to NHP, Beverly shall purchase Country House from NHP pursuant to Article 21 of the Lease for Country House, with an agreed purchase price of One Million Six Hundred Thousand Dollars ($1,600,000). In such event Beverly shall deliver to NHP a promissory note for such amount in form and substance reasonably acceptable to Beverly providing for the payment of principal and interest at a rate of nine percent (9%) per annum to be amortized over an eight (8) year period and payable in 96 equal monthly installments on the first day of each calendar month, commencing with the calendar month of the close of such purchase. Such promissory note shall be unsecured. 5.2 West Haven, CT and Marquis, Oregon. The parties acknowledge that ---------------------------------- the West Haven facility was closed, and the CT facility and the Marquis, Oregon facilities were sold to Marquis, and the leases with respect thereto were terminated. 6. Renewal Facilities. ------------------ 6.1 Facilities and Rent. The Facilities set forth on Exhibit D ------------------- hereto are the "Renewal Facilities," and the renewal rent for each Renewal Facility is set forth opposite the name of such Renewal Facility. 6.2 New Lease. The parties shall negotiate in good faith a new lease --------- form for the Renewal Facilities. At a minimum, the new leases shall provide for a five year initial term, and four 5-year renewal terms, and a purchase option upon expiration of the then-current term for a price equal to the fair market value of such Facilities. It is currently contemplated that the parties shall agree to assign each of the Facilities to a group (each a "Renewal Group") as set forth on Exhibit D for purposes of cross-defaults, and exercise of all-or- none renewal and all-or-none purchase options. Upon execution and delivery of such new leases with respect to each Renewal Facility, all of Beverly's rights and obligations under the existing Lease for such Renewal Facility (including, without limitation, all of Beverly's rights of first refusal and options to renew and purchase under such Leases for such Renewal Facilities) shall terminate and be of no further force or effect. 6.3 Assignment. Effective as of the effectiveness of the new lease ---------- for each Renewal Facility as contemplated by Section 6.2, the appropriate Facility Tenant hereby sets over, transfers and assigns unto the appropriate Facility Landlord, all of such Facility Tenant's right, title and interest in and to the Lease for such Renewal Facility. 7 6.4 Assumption. The Facility Landlords hereby accept the assignment ---------- set forth in Section 6.3 hereof, and agree to terminate and extinguish such Lease upon such assignment. 7. Amendments. To the extent the provisions hereof conflict with ---------- existing provisions of the Leases, the Leases are hereby modified and amended to provide as set forth herein. 8. Representations and Warranties. ------------------------------ 8.1 Representations and Warranties of NHP. ------------------------------------- (a) Nationwide and each of the Facility Landlords is duly formed and organized and validly existing under the laws of and in good standing in the state of its formation, and is qualified to do business as a foreign corporation in the States in which it is required to be so qualified. (b) Nationwide and each of the Facility Landlords has full power and authority to own and lease its properties and to carry on its business as currently conducted. Nationwide and each of the Facility Landlords has the complete and unrestricted corporate power and authority to enter into this Agreement and the notes, documents and agreements contemplated hereby (collectively, the "Closing Documents"), and perform its obligations hereunder and thereunder. (c) When executed and delivered, this Agreement and the Closing Documents will constitute valid and binding obligations of NHP, enforceable in accordance with their terms, except as limited by applicable laws relating to bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application relating to or affecting creditors' rights. (d) The Facilities which NHP is transferring to Beverly are in "AS IS, WHERE IS" condition with no warranties whatsoever, either express or implied, whether of merchantability, of fitness for a particular purpose, or otherwise. 8.2 Representations and Warranties of Beverly. ----------------------------------------- (a) BHRS and each of the Facility Tenants are duly incorporated and validly existing corporations organized under the laws of and in good standing in the State of California, and is qualified to do business as a foreign corporation in the States in which it is required to be so qualified. (b) BHRS and each of the Facility Tenants have full power and authority to own and lease their properties and to carry on its business as currently conducted. BHRS and each of the Facility Tenants have the complete and unrestricted corporate power and authority to enter into this Agreement and the Closing Documents and perform their obligations hereunder and thereunder. 8 (c) When executed and delivered, this Agreement and the Closing Documents will constitute valid and binding obligations of Beverly, enforceable in accordance with their terms, except as limited by applicable laws relating to bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application relating to or affecting creditors' rights. (d) The Facilities to which Beverly is relinquishing its possessory interests, together with all furniture, fixtures, equipment and personal property the transfer of which is contemplated hereby, are in "AS IS, WHERE IS" condition with no warranties whatsoever, either express or implied, whether of merchantability, of fitness for a particular purpose, or otherwise. (e) With respect to each Subleased Facility, the relevant Facility Tenant is not in material default in its obligations as sublandlord under the sublease for any Subleased Facility. 9. Indemnity. --------- 9.1 Indemnity by NHP. NHP hereby agrees to indemnify, defend and ---------------- hold Beverly and its affiliates, officers, directors, shareholders, employees, partners, agents and representatives (collectively, "Beverly Indemnitees") harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and attorneys' fees, costs and expenses (collectively, "Liabilities") suffered by any Beverly Indemnitee (a) arising under the Leases for the Sublease Facilities, or the Subleases, after the date hereof, (b) arising from the untruth of any of the warranties, representations or covenants of NHP, or any entity constituting NHP, herein or given pursuant hereto (c) Shutdown Costs as contemplated by Section 3.3(a) hereof, and (d) constituting economic losses under the last sentence of Section 3.3(b) hereof. 9.2 Indemnity by Beverly. Beverly hereby agrees to indemnify, defend -------------------- and hold NHP and its affiliates, officers, directors, shareholders, employees, partners, agents and representatives (collectively, "NHP Indemnitees") harmless from any and all Liabilities suffered by any NHP Indemnitee (a) arising from the untruth of any of the warranties, representations or covenants of Beverly, or any entity constituting Beverly, herein or given pursuant hereto, (b) arising from Beverly's indemnification under Article 24 of the Leases for third party claims which arise from the possession, operation or management of the Facility by any party during the term of any Lease (prior to the effectiveness of the assignment thereof to NHP), and (c) Impositions that arise during the term of any Lease (prior to the effectiveness of the assignment of the Lease to NHP). 9.3 Survival of Indemnities. The provisions of this Section 9 shall ------------------------ survive any closing under this Agreement. 10. Miscellaneous. ------------- 10.1 Further Assurances. Each of the parties hereto agrees to ------------------ execute and deliver any and all further agreements, documents or instruments reasonably necessary to effectuate this Agreement and the transactions contemplated herein. All parties will make all 9 reasonable efforts to effect an orderly transfer of control of the Facilities from Beverly to NHP or its nominee, and to complete the transactions contemplated by this Agreement as promptly as practicable. 10.2 Assignment. Neither party may make any assignment of this ---------- Agreement or any rights thereof without the prior written consent of the other party in each instance. 10.3 Parties in Interest. Nothing in this Agreement, whether express ------------------- or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than Beverly and NHP and their respective permitted successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provisions give any third person any right or subrogation of action over or against any party to this Agreement. 10.4 Notices. Any notice, request, instruction or other document ------- given hereunder by either party to the other shall be in writing and delivered personally, by mail (certified mail, postage prepaid, return receipt requested, such mailed notice to be effective three (3) days after deposit) by overnight courier (to be effective the business day following deposit), by telex or facsimile transmission (to be effective when receipt acknowledged unless sent after 5:00 p.m. on any business day or on the weekend, in which event they will be deemed received on the next business day), as follows: If to Beverly: [appropriate Beverly entity] One Thousand Beverly Way Fort Smith, AR 72919 Attention: Dwight Kouri Tel: (501) 201-2000 Fax: With a copy to: The same address, attention General Counsel If to NHP: [appropriate entity] Nationwide Health Properties 610 Newport Center Drive, Suite 1150 Newport Beach, CA 92660 Attention: Bruce Andrews Tel: Fax: 10 With a copy to: The same address, attention General Counsel or at such other address as either party may by like notice designate to the other in writing. 10.5 Counterparts. This Agreement may be executed simultaneously in ------------ one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.6 Incorporation by Reference. All Exhibits hereto shall be deemed -------------------------- incorporated herein by reference. 10.7 Entire Agreement: Modification; Waiver. This Agreement and the -------------------------------------- Exhibits hereto constitute the entire agreement between Beverly and NHP pertaining to the subject matter contained therein and supersedes all prior agreements, representations and all understanding of the parties. No supplement, modification or amendment of this Agreement shall be binding unless expressed as such and executed in writing by Beverly and NHP. Except as set forth herein, no waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof, whether or not similar, nor shall any such waiver constitute a continuing waiver. No waiver shall be binding unless expressed as such in a document executed by the party making the waiver. 10.8 Guarantees. (a) BHRS hereby guarantees the obligations of each ---------- of the Facility Tenants hereunder, and each of the Facility Tenants hereby guarantees the obligations of BHRS and each of the other Facility Tenants hereunder. BHRS and each of the Facility Tenants hereby (i) agrees that the obligations of BHRS and each of the Facility Tenants hereunder may be modified, rescinded or compromised without the consent of BHRS or one or more of the Facility Tenants without releasing or modifying the guaranty obligations of BHRS and the Facility Tenants, (ii) waives all rights accorded by law to sureties and guarantors, and (iii) agrees that this is a guarantee of payment and not of collection. (b) Nationwide hereby guarantees the obligations of each of the Facility Landlords hereunder, and each of the Facility Landlords hereby guarantees the obligations of Nationwide and each of the other Facility Landlords hereunder. Nationwide and each of the Facility Landlords hereby (i) agrees that the obligations of Nationwide and each of the Facility Landlords hereunder may be modified, rescinded or compromised without the consent of Nationwide or one or more of the Facility Landlords without releasing or modifying the guaranty obligations of Nationwide and the Facility Landlords, (ii) waives all rights accorded by law to sureties and guarantors, and (iii) agrees that this is a guarantee of payment and not of collection. 10.9 Access to Records. At all times following the date hereof, and ---------------- upon reasonable notice, NHP shall allow (to the extent it is in possession of or operating any Facility), or in the event NHP has leased any Facility to a third party, NHP shall use reasonable efforts to cause such future lessee to allow Beverly and its agents and representatives to have reasonable access to, and to make copies of (at Beverly's expense), the books, records and supporting material of the Facilities relating to the period of Beverly's leasing of the Facility to 11 the extent reasonably necessary to enable Beverly to investigate and defend any claims, to file or defend cost reports and tax returns, to verify accounts receivable collections due Beverly, and to perform similar matters. Without limiting the generality of the foregoing, in connection with any Medicare audit relating to the period of Beverly's leasing of the Facility, NHP shall allow, or shall use reasonable efforts to cause any future lessee to allow, Beverly, its agents and representatives and any auditors and their agents and representatives to have reasonable access to (i) any and all staff involved with payroll and timekeeping functions at any of the Facilities, and (ii) subject to laws and regulations regarding confidentiality, the materials listed on Exhibit I hereto. In addition, Beverly shall be entitled to remove any such record for purposes of litigation to which such record refers. Any record so removed shall be returned promptly following its use. NHP agrees to, and agrees to use reasonable efforts to cause any future lessee to (and agrees on its own behalf with respect to any Facility not leased to a third party), maintain such books, records and other material relating to each Facility's operation during the period of Beverly's leasing of such Facility, including but not limited to, patient records and records of patient funds, in the manner required by law, including, but not limited to, patient records and records of patient funds in the manner required by law and as set forth on Exhibit I hereto, said time period being seven (7) years from filing of reimbursement claim, or as required by law, whichever time period is longer. 12 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. BEVERLY ------- BEVERLY HEALTH AND REHABILITATION SERVICES, INC., a California corporation BEVERLY ENTERPRISES -- CALIFORNIA, INC., a California corporation BEVERLY ENTERPRISES -- FLORIDA, INC., a California corporation BEVERLY ENTERPRISES -- OREGON, INC., a California corporation BEVERLY ENTERPRISES -- FLORIDA, INC., a California corporation BEVERLY ENTERPRISES -- MICHIGAN, INC., a California corporation BEVERLY ENTERPRISES -- TEXAS, INC., a California corporation BEVERLY ENTERPRISES -- CONNECTICUT, INC., a California corporation BEVERLY ENTERPRISES -- OKLAHOMA, INC., a California corporation BEVERLY ENTERPRISES -- WASHINGTON, INC., a California corporation BEVERLY ENTERPRISES -- IDAHO, INC., a California corporation BEVERLY ENTERPRISES -- NEW JERSEY, INC., a California corporation BEVERLY ENTERPRISES -- VIRGINIA, INC., a California corporation BEVERLY ENTERPRISES -- MARYLAND, INC., a California corporation BEVERLY ENTERPRISES -- INDIANA, INC., a California corporation BEVERLY ENTERPRISES -- NORTH CAROLINA, INC., a California corporation BEVERLY ENTERPRISES -- WISCONSIN, INC., a California corporation BEVERLY ENTERPRISES -- MINNESOTA, INC., a California corporation BEVERLY ENTERPRISES -- MISSOURI, INC., a California corporation S-1 BEVERLY ENTERPRISES -- ARKANSAS, INC., a California corporation By: __________________________________ Name: ________________________________ Title: _______________________________ S-2 NHP --- NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation By: _________________________ Name: _______________________ Title: ______________________ NATIONWIDE HEALTH PROPERTIES FINANCE CORPORATION, a Delaware corporation By: _________________________ Name: _______________________ Title: ______________________ NH TEXAS PROPERTIES LIMITED PARTNERSHIP, a Texas limited partnership By: MLD Texas Corporation, a Texas corporation, its general partner By: _________________________ Name: _______________________ Title: ______________________ MLD PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership By: MLD Properties II, Inc., a Delaware corporation, its general partner By: _________________________ Name: _______________________ Title: ______________________ S-3 MLD DELAWARE TRUST, a Delaware trust By: __________________________________ Mark L. Desmond, as trustee and not individually MLD PROPERTIES LLC, a Delaware limited liability company By: MLD Properties, Inc., a Delaware corporation, its sole member By: ________________________ Name: ______________________ Title: _____________________ S-4 Exhibit A-1 - Facility Tenants Exhibit A-1 - Facility Landlords Exhibit B - Termination Facilities Exhibit C - Subleased Facilities and Assigned Facilities Exhibit D - Renewal Facilities Exhibit E - Other Facilities Exhibit F - Note Payment Schedules Exhibit G - [Intentionally Deleted] Exhibit H - [Intentionally Deleted] Exhibit I - Books and Records i EXHIBIT A-1 ----------- FACILITY TENANTS ---------------- Beverly Health and Rehabilitation Services, Inc. Beverly Enterprises -- California, Inc. Beverly Enterprises -- Florida, Inc. Beverly Enterprises -- Oregon, Inc. Beverly Enterprises -- Florida, Inc. Beverly Enterprises -- Michigan, Inc. Beverly Enterprises -- Texas, Inc. Beverly Enterprises -- Connecticut, Inc. Beverly Enterprises -- Oklahoma, Inc. Beverly Enterprises -- Washington, Inc. Beverly Enterprises -- Idaho, Inc. Beverly Enterprises -- New Jersey, Inc. Beverly Enterprises -- Virginia, Inc. Beverly Enterprises -- Maryland, Inc. Beverly Enterprises -- Indiana, Inc. Beverly Enterprises -- North Carolina, Inc. Beverly Enterprises -- Wisconsin, Inc. Beverly Enterprises -- Minnesota, Inc. Beverly Enterprises -- Missouri, Inc. Beverly Enterprises -- Arkansas, Inc. Exhibit A EXHIBIT A-2 ----------- FACILITY LANDLORDS ------------------ Nationwide Health Properties, Inc., a Maryland corporation . Tomah Care Center, Tomah, WI . Prairie Haven Nursing, Kensington, KS . Suwannee Health Care, Live Oak, FL . Andrew Care Home, Minneapolis, MN . Faribault Manor, Faribault, MN . Ashwood Health Care CT, Willmar, MN . Taber Street Nursing Home, New Bedford, MA . Cape Cod Nursing/Retirement, Buzzards Bay, MA . Wellesley Health Rehab, Wellesley, MA . Chilton Health & Rehab, Chilton, WI . Shorewood, Heights, Shorewood, WE . Clearview Manor, Tacoma, WA . Lantern Park Manor, Colby, KS . Oakley Manor, Oakley, KS . Ostrander Nursing Home, Ostrander, MN . Owatonna Health Care Center, Owatonna, MN . Country House, Pomona, CA . Pensacola Health Care Facility, Pensacola, FL . Hawthorne Gardens (Laurelhurst C.C.), Portland, OR . Jacksonville Convalescent Center, Jacksonville, FL . Park Lake Nursing & Rehab, FL . Provincial House -- Adrian, Adrian, MI . Extend-A-Care Centre, Torrington, CT . Pleasant Manor, Sapulpa, OK . Sunset Estates, Maud, OK . Meadow Glade Manor, Battleground, WA . Snake River Rehab Center, Buhl, ID . Willow Haven, Tonkawa, OK . Summit Nursing Home, NJ . Westminster Nursing, Westminster, MD . Chowchilla, Chowchilla, CA . Hopkins HC, Hopkins, MN . Florence Villa, Florence, WI . South Shore Manor, St. Francis, WI . Riverside, WI . Central Minnesota, MN . Osseo, MN . Country House, Pomona, CA Nationwide Health Properties Finance Corporation, a Delaware corporation . Colton Villa, Hagerstown, MD . Cumberland Villa, Cumberland, MD . Beverly H&R -- Fort Pierce, Fort Pierce, FL . Wisconsin Dells H&R, Wisconsin Dells, WI . Western Village, Green Bay, WI . Greendale Health & Rehab, Sheboygan, WI . The Cedars, Charlottesville, VA . Sleepy Hollow, Annandale, VA . Walnut Hill, Petersburg, VA . Battlefield Park, Petersburg, VA. NH Texas Properties Limited Partnership, a Texas limited partnership . Texarkana Nursing Center, Texarkana, TX . El Paso Convalescent Center, El Paso, TX . Leisure Lodge of Gilmer, Gilmer, TX . Red River Haven Nursing Center, Bogata, TX . Suburban Acres Nursing Center, Marshall, TX . University Nursing Center, McKinney, TX . Renfro Healthcare Center, Waxachie, TX MLD Properties Limited Partnership, a Delaware limited partnership . Oakridge Rehab & Spclt, Richmond, IN . Petersburg H&R Center, Petersburg, IN MLD Delaware Trust, a Delaware trust; Mark L. Desmond, as trustee and not individually . Maryville Health Care, Maryville, MO MLD Properties LLC, a Delaware limited liability company . Lakewood Health & Rehab, Hendersonville, NC . Arkansas Healthcare Nursing CT, Hot Springs, AR . Jacksonville, AR EXHIBIT B --------- NHP TERMINATION FACILITIES --------------------------
ANNUAL MONTHLY FAC # FACILITY LOCATION STATE BEVERLY ENTITY RENT RENT - ----- -------- -------- ----- -------------- ---- ---- 271 Colton Villa Hagerstown MD Beverly Enterprises - Maryland, Inc. $500,000 $41,667 376 Tomah Care Center Tomah WI Beverly Enterprises - Wisconsin, Inc. 296,107 24,676 396 Prairie Haven Nursing Kensington KS Beverly Enterprises - Kansas, Inc. 3,289 274 499 Suwannee Health Care Live Oak FL Beverly Enterprises - Florida, Inc. 538,551 44,879 799 Andrew Care Home Minneapolis MN Beverly Enterprises - Minnesota, Inc. 800,000 66,667 810 Faribault Manor Faribault MN Beverly Enterprises - Minnesota, Inc. 41,199 3,433 850 Ashwood Health Care CT Willmar MN Beverly Enterprises - Minnesota, Inc. 356,401 29,700 989 Taber Street Nursing Home New Bedford MA Beverly Enterprises - Massachusetts, Inc. 324,117 27,010 991 Cape Cod Nursing/Retirement Buzzards Bay MA Beverly Enterprises - Massachusetts, Inc. 475,883 39,657 1413 Texarkana Nursing Center Texarkana TX Beverly Enterprises - Texas, Inc. 100,000 8,333 2069 Wellesley Health Rehab Wellesley MA Beverly Enterprises - Massachusetts, Inc. 100,000 8,333 2604 Chilton Health & Rehab Chilton WI Beverly Enterprises - Wisconsin, Inc. 184,994 15,416 2628 Golden Acres Onaga KS Beverly Enterprises - Kansas, Inc. 58,555 4,880 2817 Shorewood Heights Shorewood WI Beverly Enterprises - Wisconsin, Inc. 718,899 59,908 2828 Clearview Manor Tacoma WA Beverly Enterprises - Washington, Inc. 150,000 12,500 2853 Lantern Park Manor Colby KS Beverly Enterprises - Kansas, Inc. 86,956 7,246 2855 Oakley Manor Oakley KS Beverly Enterprises - Kansas, Inc. 1,200 100 2895 Ostrander Nursing Home Ostrander MN Beverly Enterprises - Minnesota, Inc. 1,200 100 2923 Owatonna Health Care Center Owatonna MN Beverly Enterprises - Minnesota, Inc. 1,200 100 ----------- Total Termination Facilities 19 $4,738,551 $394,879 ========== ======== ===========
Exhibit B EXHIBIT C --------- NHP SUBLEASED FACILITIES ------------------------
FAC # FACILITY BEVERLY ENTITY STATE ASSIGNED/ DATE SUBLEASE/SUBTENANT NAME AND NOTES - ----- -------- -------------- ----- SUBLEASED ---- --------------------------------- --------- 142 Country House, Beverly Healthcare-California, CA Subleased 4/30/95 Res-Care, Inc. (facility Pomona Inc. now closed) 180 Pensacola Health Beverly Enterprises-Florida, FL Subleased 7/31/97 Chartwell Healthcare, Inc. Care Facility, Inc. 9/30/98 - sublease terminated Pensacola and subleased to Complete Care Services, Inc. 477 Hawthorne Gardens Beverly Enterprises-Oregon, OR Subleased 2/28/94 2/2000 purchased by S. Swain (Laurelhurst Inc. and Beverly was released C.C.), Portland Marquis Healthcare; 12/31/98 NHP Lease expired 753 Jacksonville Beverly Health and FL Assigned 11/1/90 Assignment of leasehold to Convalescent Center, Rehabilitation Services, Inc. B.A.T. Management Foundation, Jacksonville Inc.; Beverly released from liability to NHP per agreement dated 5/24/00 796 Park Lake Nursing Beverly Enterprises-Florida, FL Assigned 12/31/98 Delta Health Group, Inc.; & Rehab Inc. Beverly released from liability 12/31/99 942 Provincial House - Beverly Enterprises-Michigan, MI Assigned 12/01/89 Assignment of Leasehold to Adrian, Adrian Inc. Bixby Hospital of Adrian 1305 El Paso Convalescent Beverly Enterprises-Texas, TX Subleased 5/31/97 Complete Care Services Center, El Paso Inc. 1331 Leisure Lodge of Beverly Enterprises-Texas, TX Subleased 12/15/94 Healthcare Centers of Texas, Gilmer, Gilmer Inc. Inc. and National Medical Care Associates, Inc. 2/6/98 subtenant assigned to Senior Living Properties, LLC 1334 Red River Haven Beverly Enterprises-Texas, TX Subleased 1/1/94 Healthcare Centers of Texas, Nursing Center, Inc. Inc. and National Medical Bogata Care Associates, Inc. 2/6/98 subtenant assigned to Senior Living Properties, LLC 2824 Extend-A-Care Beverly Enterprises-Connecticut, CT Assigned 9/15/90 Assignment to Turner Centre, Torrington Inc. Enterprises, Inc. 11/13/98 Sun assigned to Lexington Healthcare, Inc. 2852 Suburban Acres Nursing Beverly Enterprises-Texas, TX Subleased 12/31/93 Chartwell Healthcare, Inc. Center, Marshall Inc. 9/30/98 Chartwell sublease terminated and subleased to Complete Care Services 2856 Pleasant Manor, Sapulpa Beverly Enterprises-Oklahoma, OK Assigned 6/29/88 Assignment of leasehold Inc. to Medi-plex II 2857 Sunset Estates, Maud Beverly Enterprises-Oklahoma, OK Assigned 6/29/88 Assignment of leasehold to Inc. Medi-plex II 2930 Meadow Glade Manor, Beverly Enterprises-Washington, WA Subleased 12/31/94 Eagle Healthcare, Inc. Battleground Inc. 2934 Snake River Rehab Beverly Enterprises-Idaho, ID Subleased 12/31/93 Northwest BEC-CORP. Center, Buhl Inc. 2947 Willow Haven, Tonkawa Beverly Enterprises-Oklahoma, OK Assigned 6/29/88 Assignment of leasehold to Inc. Medi-plexII 2975 University Nursing Beverly Enterprises-Texas, TX Subleased 4/1/94 Healthcare Centers of Texas, Center, McKinney Inc. Inc. and National Medical Care Associates, Inc. 2/6/98 subtenant assigned to Senior Living Properties, LLC 2994 Renfro Healthcare Beverly Enterprises-Texas, TX Subleased 9/30/94 Healthcare Centers of Texas, Center, Waxachie Inc. Inc. and National Medical Care Associates, Inc. 2/6/98 subtenant assigned to Senior Living Properties, LLC 3123 Summit Nursing Home Beverly Enterprises-New Jersey, NJ Subleased 3/1/91 265 River Avenue, Inc., Inc. Michael Konig and Nicholas Schwartz
Exhibit C EXHIBIT D --------- NHP RENEWAL FACILITIES ----------------------
ANNUAL MONTHLY FAC # FACILITY LOCATION STATE BEVERLY ENTITY RENT RENT - ----- -------- -------- ----- -------------- ---- ---- 202 The Cedars Charlottesville VA Beverly Enterprises-Virginia, Inc. $ 578,197 $ 48,183 204 Sleepy Hollow Annandale VA Beverly Enterprises-Virginia, Inc. 1,551,396 129,283 248 Walnut Hill Petersburg VA Beverly Enterprises-Virginia, Inc. 347,031 28,919 249 Battlefield Park Petersburg VA Beverly Enterprises-Virginia, Inc. 433,674 36,139 272 Cumberland Villa Cumberland MD Beverly Enterprises-Maryland, Inc. 943,226 78,602 274 Westminster Nursing Westminster MD Beverly Enterprises-Maryland, Inc. 908,027 75,669 2129 Beverly H&R - Fort Pierce Fort Pierce FL Beverly Enterprises-Florida, Inc. 350,000 29,167 3887 Chowchilla Chowchilla CA Beverly Healthcare-California, Inc. 212,065 17,672 -------------- SUBTOTAL RENEWAL GROUP 1 8 $5,323,615 $443,634 -------------- ------------------- 96 Oakridge Rehab & Spclt Richmond IN Beverly Enterprises-Indiana, Inc. $ 505,875 $ 42,156 98 Petersburg H&R Center Petersburg IN Beverly Enterprises-Indiana, Inc. 294,312 24,526 235 Lakewood Health & Rehab Hendersonville NC Beverly Enterprises-North Carolina, Inc. 332,477 27,706 325 Wisconsin Dells H & R Wisconsin Dells WI Beverly Enterprises-Wisconsin, Inc. 514,550 42,879 439 Hopkins HC Hopkins MN Beverly Enterprises-Minnesota, Inc. 409,094 34,091 446 Maryville Health Care Maryville MO Beverly Enterprises-Missouri, Inc. 517,450 43,121 1128 Arkansas Healthcare Nursing CT Hot Springs AR Beverly Enterprises-Arkansas, Inc. 282,307 23,526 2606 Western Village Green Bay WI Beverly Enterprises-Wisconsin, Inc. 639,811 53,318 2607 Florence Villa Florence WI Beverly Enterprises-Wisconsin, Inc. 290,626 24,219 2818 South Shore Manor St. Francis WI Beverly Enterprises-Wisconsin, Inc. 141,936 11,828 2819 Greendale Health & Rehab Sheboygan WI Beverly Enterprises-Wisconsin, Inc. 271,464 22,622 -------------- SUBTOTAL RENEWAL GROUP 2 11 $4,199,902 $349,992 -------------- ------------------- TOTAL NHP RENEWAL FACILITIES 19 $9,523,517 $793,626 ============== ===================
Exhibit D EXHIBIT E --------- OTHER FACILITIES ---------------- Riverside, Wisconsin Central, Minnesota Osseo, Minnesota Jacksonville, Arkansas Country House, Pomona, California Exhibit E EXHIBIT F --------- NOTE PAYMENT SCHEDULES ---------------------- Note Payable to NHP: - -------------------- Note $16,207,856 Term (years) 5 Rate 9.00% Basis 30/360
Principal Date Payment Principal Interest Balance ---- ------- --------- -------- --------- 12/31/99 $16,207,856 03/31/00 $2,854,677 $2,490,000 $364,677 13,717,856 06/30/00 1,908,652 1,600,000 308,652 12,117,856 09/30/00 2,272,652 2,000,000 272,652 10,117,856 12/31/00 1,827,652 1,600,000 227,652 8,517,856 03/31/01 996,652 805,000 191,652 7,712,856 06/30/01 1,073,539 900,000 173,539 6,812,856 09/30/01 1,178,289 1,025,000 153,289 5,787,856 12/31/01 1,430,227 1,300,000 130,227 4,487,856 03/31/02 850,977 750,000 100,977 3,737,856 06/30/02 834,102 750,000 84,102 2,987,856 09/30/02 817,227 750,000 67,227 2,237,856 12/31/02 800,352 750,000 50,352 1,487,856 3/31/03 233,477 200,000 33,477 1,287,856 6/30/03 228,977 200,000 28,977 1,087,856 9/30/03 224,477 200,000 24,477 887,856 12/31/03 219,977 200,000 19,977 687,856 3/31/04 187,441 171,964 15,477 515,892 6/30/04 183,572 171,964 11,608 343,928 9/30/04 179,702 171,964 7,738 171,964 12/31/04 175,833 171,964 3,869 0 ---------------------------------------------------------------------- Total $18,478,454 $16,207,856 $2,270,598 0 ======================================================================
Note Receivable from NHP: - ------------------------- Note $ 3,958,000 Term (years) 0.5 Rate 9.00% Basis 30/360 Exhibit F
Principal Date Payment Principal Interest Balance ---- ------- --------- -------- -------- 12/31/99 $3,958,000 03/31/00 $2,068,055 $1,979,000 $89,055 1,979,000 06/30/00 2,023,528 1,979,000 44,528 0 ----------------------------------------------------------------------- Total $4,091,583 $3,958,000 $133,583 0 =======================================================================
EXHIBIT G --------- [Intentionally Deleted] Exhibit G EXHIBIT H --------- [Intentionally Deleted] Exhibit H EXHIBIT I --------- BOOKS AND RECORDS ----------------- I. RECORD RETENTION ---------------- A. Reimbursement Related Documents: ------------------------------- Effective February 3, 2000, all reimbursement-related documents must be maintained for seven (7) years. This includes: . MDS files . Medical records . Supporting documentation B. Compliance Documentation: ------------------------ Compliance documents must be maintained for four years. These include: . Training attendance logs . Material deficiency reports C. Personnel Files: --------------- All Personnel Files must be maintained for at least four years after the date of an associate's termination, except for the personnel records of salaried exempt associates, whose records must be retained for six years. For more information on retaining personnel records, refer to policy HR- 211. These records retained in personnel files include, but are not limited to: . Employment prescreening, including Attestation of Exclusion and Conviction, form HR-711 . Code of Conduct Commitment to Integrity (Recertification) and Compliance and Disclosure forms D. State and Local Laws: -------------------- If local or state laws are more stringent about record retention, you must meet the more stringent requirement. E. Locked File Cabinet: ------------------- All records, including confirmation notices from the corporate compliance officer, training attendance logs, copies of reportable events and all applicable logs, must be maintained in a locked file cabinet in the executive director's office at all times. Exhibit I-1 The executive director, business office manager and group vice president should possess a key to this locked file cabinet. No other keys should be provided to any personnel unless directed by the group vice president or the corporate compliance officer. II. AUDIT MATERIALS --------------- Nursing sign-in sheets Nursing assignment sheets Floor plans identifying the distinct part rooms Approval letters from the state or requests for changes in distinct part rooms Facility licenses Nursing midnight census Medical records Therapy contracts Therapy labor and service logs Payroll records, e.g. punch detail Pharmacy statements Mileage logs for company vehicles Exhibit I-2
EX-21 5 0005.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21 Subsidiaries of the Registrant As of December 31, 2000 State of Incorporation or Name Organization ---- ------------ Nationwide Health Properties Finance Corporation ...... Delaware MLD Financial Capital Corporation ..................... Delaware MLD Wisconsin SNF, Inc. ............................... Wisconsin MLD Delaware Trust .................................... Delaware MLD Properties, Inc. .................................. Delaware MLD Properties, LLC ................................... Delaware NH Texas Properties Limited Partnership ............... Texas MLD Properties Limited Partnership .................... Delaware EX-23.1 6 0006.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 33-35276, Registration Statement File No. 33- 64798, Registration Statement File No. 333-32135, Registration Statement File No. 333-17061, Registration Statement File No. 333-20589, and Registration Statement File No. 333-70707. Arthur Andersen LLP Orange County, California March 19, 2001 10-K 7 0007.pdf NATIONWIDE HEALTH PROPERTIES, INC. 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