Form 10-Q for Nationwide Health Properties

-----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, Bp7/AvaF4Z8UMPCBNL2OlJRA9cXgHChjkAnWlI58OLu1v/Bmb/vmUwvAyj7fnwJ0 RBvW7HE08nHikS2zyFyseg== 0001193125-03-069393.txt : 20031029 0001193125-03-069393.hdr.sgml : 20031029 20031029165251 ACCESSION NUMBER: 0001193125-03-069393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031029 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09028 FILM NUMBER: 03964257 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-Q 1 d10q.htm FORM 10-Q FOR NATIONWIDE HEALTH PROPERTIES Form 10-Q for Nationwide Health Properties

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003.

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 1-9028

NATIONWIDE HEALTH PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Maryland		95-3997619
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

610 Newport Center Drive, Suite 1150

Newport Beach, California 92660

(Address of principal executive offices)

(949) 718-4400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Rule 12b-2). Yes x No ¨

Shares of registrant’s common stock, $0.10 par value, outstanding at October 28, 2003—58,797,216.

NATIONWIDE HEALTH PROPERTIES, INC.

FORM 10-Q

September 30, 2003

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets	2

	Condensed Consolidated Statements of Operations	3

	Condensed Consolidated Statement of Stockholders’ Equity	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	23

	PART II. OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	24

SIGNATURES		25

Part I. Financial Information

Item 1. Financial Statements

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2003			December 31, 2002
	(Unaudited)
	(Dollars in thousands)
*ASSETS*

Investments in real estate
Real estate properties:
Land	$	153,692		$	154,563
Buildings and improvements		1,314,598			1,299,625

		1,468,290			1,454,188
Less accumulated depreciation		(254,888	)		(224,400	)

		1,213,402			1,229,788
Mortgage loans receivable, net		100,159			99,292
Investment in unconsolidated joint venture		15,043			16,115

		1,328,604			1,345,195
Cash and cash equivalents		10,823			8,387
Receivables		4,474			4,429
Assets held for sale		5,211			9,682
Other assets		46,783			42,240

	$	1,395,895		$	1,409,933

*LIABILITIES AND STOCKHOLDERS’ EQUITY*

Borrowings under unsecured revolving credit facility	$	50,000		$	107,000
Senior notes due 2003-2038		548,750			614,750
Notes and bonds payable		136,908			111,303
Accounts payable and accrued liabilities		48,956			47,740

Stockholders’ equity:
Preferred stock $1.00 par value; 5,000,000 shares authorized; 1,000,000 shares issued and outstanding at September 30, 2003 and December 31, 2002, stated at liquidation preference of $100 per share		100,000			100,000
Common stock $0.10 par value; 100,000,000 shares authorized; 58,797,216 and 49,160,216 issued and outstanding at September 30, 2003 and December 31, 2002, respectively		5,880			4,916
Capital in excess of par value		722,113			610,173
Cumulative net income		722,191			680,511
Cumulative dividends		(938,903	)		(866,460	)

Total stockholders’ equity		611,281			529,140

	$	1,395,895		$	1,409,933

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(In thousands, except per share amounts)
Revenues:
Rental income	$	37,640		$	36,505		$	111,921		$	102,040
Interest and other income		3,331			3,219			9,890			10,946

		40,971			39,724			121,811			112,986
Expenses:
Interest and amortization of deferred financing costs		13,690			14,849			43,328			39,878
Depreciation and amortization		10,911			9,888			32,328			26,284
General and administrative		2,044			2,089			5,945			5,691
Impairment of assets		—			—			—			12,472

		26,645			26,826			81,601			84,325

Income before unconsolidated entities		14,326			12,898			40,210			28,661
Income from unconsolidated joint venture		473			366			1,455			725

Income from continuing operations		14,799			13,264			41,665			29,386
Discontinued operations
Gain on sale of facilities		—			3,008			444			3,110
Loss from discontinued operations		(121	)		(2,019	)		(429	)		(3,174	)

		(121	)		989			15			(64	)

Net income		14,678			14,253			41,680			29,322
Preferred stock dividends		(1,919	)		(1,919	)		(5,758	)		(5,758	)

Income available to common stockholders	$	12,759		$	12,334		$	35,922		$	23,564

Basic/diluted per share amounts:
Income from continuing operations available to common stockholders	$	0.22		$	0.23		$	0.66		$	0.48

Discontinued operations	$	0.00		$	0.02		$	0.00		$	0.00

Income available to common stockholders	$	0.22		$	0.25		$	0.66		$	0.48

Dividends paid per share	$	0.37		$	0.46		$	1.20		$	1.38

Diluted weighted average common shares outstanding		58,822			49,161			54,539			48,778

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

	Preferred stock			Common stock			Capital in excess of par value		Cumulative net income		Cumulative dividends			Total stockholders’ equity
	Shares	Amount		Shares	Amount		Capital in excess of par value		Cumulative net income		Cumulative dividends			Total stockholders’ equity
Balances at December 31, 2002	1,000	$	100,000	49,160	$	4,916	$	610,173	$	680,511	$	(866,460	)	$	529,140
Issuance of common stock	—		—	9,637		964		111,851		—		—			112,815
Stock option amortization	—		—	—		—		89		—		—			89
Net income	—		—	—		—		—		41,680		—			41,680
Preferred dividends	—		—	—		—		—		—		(5,758	)		(5,758	)
Common dividends	—		—	—		—		—		—		(66,685	)		(66,685	)

Balances at September 30, 2003	1,000	$	100,000	58,797	$	5,880	$	722,113	$	722,191	$	(938,903	)	$	611,281

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2003			2002
	(In thousands)
Cash flows from operating activities:
Net income	$	41,680		$	29,322
Equity in earnings of unconsolidated joint venture		(1,178	)		(592	)
Depreciation and amortization		32,328			26,284
Depreciation and amortization in discontinued operations		150			1,106
Gain on sale of facilities		(444	)		(3,110	)
Impairment of assets		—			12,472
Impairment of assets in discontinued operations		645			4,882
Amortization of deferred financing costs		990			748
Distributions from unconsolidated joint venture		2,250			650
Net change in operating assets and liabilities		(3,687	)		5,829

Net cash provided by operating activities		72,734			77,591

Cash flows from investing activities:
Investment in real estate facilities		(31,835	)		(150,175	)
Disposition of real estate facilities		18,244			11,388
Investment in unconsolidated joint venture		—			(13,106	)
Principal payments on mortgage loans receivable		1,356			18,954

Net cash used in investing activities		(12,235	)		(132,939	)

Cash flows from financing activities:
Borrowings under unsecured revolving credit facility		166,000			239,500
Repayment of borrowings under unsecured revolving credit facility		(223,000	)		(204,500	)
Issuance of common stock		112,820			34,609
Issuance of senior unsecured debt		—			100,000
Repayments of senior unsecured debt		(66,000	)		(50,000	)
Issuance of notes and bonds		36,900			10,000
Principal payments on notes and bonds		(11,098	)		(830	)
Dividends paid		(72,443	)		(73,585	)
Other, net		(1,242	)		(1,877	)

Net cash provided by (used in) financing activities		(58,063	)		53,317

Increase (decrease) in cash and cash equivalents		2,436			(2,031	)
Cash and cash equivalents, beginning of period		8,387			9,062

Cash and cash equivalents, end of period	$	10,823		$	7,031

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2003

(Unaudited)

1. Organization

Nationwide Health Properties, Inc., a Maryland corporation organized in 1985, is a real estate investment trust (REIT) specializing in investments in health care related senior housing and long-term care facilities. 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. and its subsidiaries.

We believe we have operated in such a manner as to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. We intend to continue to qualify as such and therefore to distribute at least ninety percent (90%) of our REIT taxable income to our stockholders. If we qualify for taxation as a REIT, we will generally not be subject to federal income taxes on our income that is distributed to stockholders. Accordingly, no provision has been made for federal income taxes.

As of September 30, 2003, we had investments in 380 facilities in 38 states, consisting of:

•

184 skilled nursing facilities;

•

131 assisted and independent living facilities;

•

12 continuing care retirement communities;

•

one rehabilitation hospital;

•

one long-term acute care hospital;

•

two buildings held for sale; and

•

49 assisted living facilities operated by an unconsolidated joint venture in which we have a 25% interest.

Our facilities are operated by 68 different operators, including the following publicly traded companies:

•

Alterra Healthcare Corporation (Alterra);

•

American Retirement Corporation (ARC);

•

Beverly Enterprises, Inc.;

•

Harborside Healthcare Corporation;

•

HEALTHSOUTH Corporation;

•

Mariner Health Care, Inc.; and

•

Sun Healthcare Group, Inc.

Three operators of our facilities accounted for 10% or more of our revenues as follows:

• Alterra	12	%

• ARC	12	%

• Atria Senior Living Group	11	%

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the condensed consolidated financial statements included herein without audit. These financial statements include all adjustments that are, in the opinion of management, necessary for a fair presentation of the results of operations for the three-month and nine-month periods ended September 30, 2003 and 2002 pursuant to the rules and regulations of the Securities and Exchange Commission. All such adjustments are of a normal recurring nature. Certain items in prior period financial statements have been reclassified to conform to current year presentation, including those required by Statement of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations. Although we believe that the disclosures in the financial statements included herein are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with our financial statements and the notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2002 filed with the Securities and Exchange Commission. The results of operations for the three-month and nine-month periods ending September 30, 2003 and 2002 are not necessarily indicative of the results for a full year.

Principles of Consolidation

The condensed consolidated financial statements include our accounts, the accounts of our wholly owned subsidiaries and the accounts of our majority owned and controlled joint ventures. All material intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Revenue Recognition

Rental income from operating leases is accrued as earned over the life of the lease agreements in accordance with accounting principles generally accepted in the United States. The majority of our leases do not contain step rent provisions. 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, included in the caption “Rental income,” and additional interest, included in the caption “Interest and other income,” 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 rent and interest are generally calculated and payable monthly or quarterly, and the majority of our leases contain provisions so that total rent cannot decrease from one year to the next. While the calculations and payments of additional rents contingent upon revenue are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (“SAB No. 101”) does not allow for the recognition of this revenue until all possible contingencies have been eliminated. Most of our leases with additional rent contingent upon facility net patient revenues in excess of base amounts are structured as quarterly calculations so that all contingencies have been eliminated at each of our quarterly reporting dates.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We have historically deferred the payment of rent for the first few months on leases for certain buildings we have constructed. These deferred amounts are repaid over the remainder of the lease term. Although the payment of cash rent is deferred, rental income is recorded on a straight-line basis over the life of the lease. We recognized approximately $538,000 of revenues in excess of cash received during the nine months ended September 30, 2003 and $2,245,000 of revenues in excess of cash received during the nine months ended September 30, 2002. There is approximately $9,517,000 at September 30, 2003 and $8,979,000 at December 31, 2002 of deferred rent receivables, net of reserves, recorded under the caption “Other assets” on the balance sheets. We evaluate the collectibility of the deferred rent balances on an ongoing basis and provide reserves against receivables we believe may not be fully recoverable. The ultimate amount of deferred rent we realize could be less than amounts recorded.

Gain on sale of facilities

We recognize sales of facilities only upon closing. Payments received from purchasers prior to closing are recorded as deposits. Gains on facilities sold are recognized using the full accrual method upon closing when the collectibility of the sales price is reasonably assured and we are not obligated to perform significant activities after the sale to earn the gain. Gains may be deferred in whole or in part until the sales meet the requirements of gain recognition on sales of real estate under SFAS No. 66 Accounting for Sales of Real Estate.

Asset Impairment

We review our long-lived assets individually on a quarterly basis to determine if there are indicators of impairment in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). Indicators may include, among others, the tenant’s inability to make rent payments, operating losses or negative operating trends at the facility level, notification by the tenant that it will not renew its lease, a decision to dispose of an asset or changes in the market value of the property. For operating assets, if indicators of impairment exist, we compare the estimated undiscounted cash flows from the expected use of the property to its net book value to determine if impairment exists. If the sum of the estimated undiscounted cash flows is higher than the current net book value, in accordance with SFAS No. 144, we conclude no impairment exists. If the sum of the estimated undiscounted cash flows is lower than the current net book value, we recognize an impairment loss for the difference between the net book value of the asset and its estimated fair market value. To the extent we decide to sell an asset, we recognize an impairment loss if the current net book value of the asset exceeds its fair value less costs to sell. The above analyses require us to determine whether there are indicators of impairment for individual assets, to estimate the most likely stream of cash flows from operating assets and to determine the fair value of assets that are impaired or held for sale. If our assumptions, projections or estimates regarding an asset change in the future, we may have to record an impairment charge to reduce or further reduce the net book value of the asset.

Accounting for Stock-Based Compensation

In 1999, we adopted the accounting provisions of SFAS No. 123 Accounting for Stock-Based Compensation (SFAS No. 123). SFAS No. 123 established a fair value based method of accounting for stock-based compensation. Accounting for stock-based compensation under SFAS No. 123 causes the fair value of stock options granted to be amortized as an expense over the vesting period of the stock and causes any dividend equivalents earned to be treated as dividends for financial reporting purposes. Net income includes stock-based compensation expense of approximately $69,000 for the three-month period ended September 30, 2003 and $148,000 for the three-month period ended September 30, 2002 and $201,000 for the nine-month period ended September 30, 2003 and $278,000 for the nine-month period ended September 30, 2002.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impact of New Accounting Pronouncements

In January 2003, the FASB released Interpretation No. 46 Consolidation of Variable Interest Entities: Interpretation of ARB No. 51. In April 2003, the FASB released SFAS No. 149 Amendment of Statement 133 on Derivative Instruments and Hedging Activities. In May 2003, the FASB released SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The effect of these pronouncements on our financial statements is not expected to be material.

3. Real Estate Properties

As of September 30, 2003, we had direct ownership of 159 skilled nursing facilities, 128 assisted living facilities, 11 continuing care retirement communities, one rehabilitation hospital and one long-term acute care hospital. We lease our owned facilities to single tenants under “triple-net” leases that are accounted for as operating leases. The leases generally have initial terms ranging from 5 to 21 years, and have two or more multiple-year renewal options. Approximately 78% of our facilities are leased under master leases. In addition, the majority of our leases contain cross-collateralization and cross-default provisions tied to other leases with the same tenant, as well as grouped lease renewals and grouped purchase options. Leases covering 248 facilities are secured by security deposits consisting of irrevocable letters of credit or cash, most of which cover from three to six months of initial monthly minimum rents. Under the terms of the leases, the tenant is responsible for all maintenance, repairs, taxes, insurance and capital expenditures on the leased properties. No individual property held by us is material to us as a whole.

During the nine months ended September 30, 2003, we acquired two skilled nursing facilities and one assisted and independent living facility in two separate transactions for an aggregate investment of approximately $13,663,000. We also funded approximately $18,172,000 in expansions, construction and capital improvements at certain facilities in accordance with existing lease provisions. Such capital improvements, expansions and construction generally result in an increase in the minimum rents earned by us on these facilities. At September 30, 2003, we had committed to fund additional expansions, construction and capital improvements and construction of approximately $28,000,000.

During the nine-month period ended September 30, 2003, we sold five assisted living facilities in one transaction for cash proceeds of approximately $13,640,000. The sale of these facilities resulted in a gain of approximately $327,000 that is included in the gain on sale of facilities in discontinued operations. We also sold one skilled nursing facility for which we provided a mortgage loan of approximately $2,615,000 resulting in a gain of approximately $900,000, all of which was deferred.

Three of our tenant operators remain involved in Chapter 11 reorganization bankruptcy proceedings, as described below. Generally speaking, a tenant in bankruptcy can assign, affirm or reject a lease. Until a lease is rejected, the tenant is obligated to comply with the terms of the lease following the bankruptcy filing, including the timely payment of rent (only Lexington Healthcare, Inc. described below is not current in its rent). Moreover, if the lease ultimately is assigned or affirmed, the tenant (or its assignee) is obligated to accept the lease without modification and to cure all pre-filing breaches. In our experience, whether or not the leased property is providing positive cash flow is usually a key factor in the tenant’s decision to assign, affirm or reject a lease. We believe that if the leases ultimately are rejected, we should be able to re-lease or operate the facilities upon terms that would not have a long-term material adverse effect on our company.

•

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

January 2003. This facility was classified as held for sale and written down to its fair value less costs to sell in 2002 and was sold for approximately that value in June 2003. Alpha has advised us it intends to affirm the leases for the three remaining facilities, all of which generate positive cash flows.

•

Alterra (Filed January 2003). Alterra operates 54 of our facilities, 47 of which are under a master lease with six other individual leases and one mortgage loan receivable cross-defaulted to it. It also operates all 49 of the facilities owned by our unconsolidated joint venture which are under two master leases. Both portfolios generate positive cash flows. On July 23, 2003, the bankruptcy court approved a majority owned subsidiary of Emeritus Corporation, with financing provided by an affiliate of Fortress Investment Group LLC, as the winning bidder at an auction to acquire Alterra. The proposed acquisition is expected to be consummated in the fourth quarter of 2003 following the confirmation of Alterra’s Chapter 11 plan of reorganization, and is contingent upon satisfaction of various conditions, including consents from certain of Alterra’s secured lenders and lessors. The current plan essentially provides that all the leases would be affirmed without any reductions in rent.

•

Lexington Healthcare, Inc. (Lexington) (Filed April 2003). Lexington operates two of our facilities under a master lease that we expect to be rejected in the fourth quarter of 2003. The portfolio has historically generated positive cash flows, and although it is not currently, we expect it to again once certain reconstruction is completed. We are negotiating with potential new operators to lease the facilities, subject to bankruptcy court approval. We would expect the new lease to be at substantially the same rent level as the existing lease. As we are recognizing revenue on a cash basis for these facilities, we did not recognize any revenue for the month of September 2003 because Lexington had not paid the rent by the end of the month. The September and October rent are currently outstanding.

The bankruptcy court approved our pre-negotiated settlement with SV/Home Office Inc. and certain affiliates (SV) in March 2003. SV emerged from bankruptcy on October 3, 2003.

4. Mortgage Loans Receivable

As of September 30, 2003, we held 22 mortgage loans receivable secured by 25 skilled nursing facilities, three assisted living facilities and one continuing care retirement community. As of September 30, 2003, the mortgage loans receivable had a net book value of approximately $100,159,000 with individual outstanding balances ranging from approximately $148,000 to $12,993,000 and maturities ranging from 2003 to 2031.

During the nine months ended September 30, 2003, we provided a mortgage loan in the amount of $2,615,000 on a facility we sold. In addition, three amortizing mortgage loans with no balloon payments matured during the nine months ended September 30, 2003.

5. Investment in Unconsolidated Joint Venture

During 2001, we entered into a joint venture with JER Senior Housing, LLC, a wholly-owned subsidiary of JER Partners, an institutional investor. The joint venture may invest up to $130,000,000 in health care facilities similar to those already owned by us. We are a 25% equity partner in the venture. The financial statements of the joint venture are not consolidated with our financial statements and our investment is accounted for using the equity method. No investments were made by or into this joint venture prior to the second quarter of 2002.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

venture partner of approximately $49,100,000 and capital contributions from us of approximately $16,400,000. We do not expect to make any additional contributions to the joint venture related to the facilities it acquired during 2002.

In addition to our 25% share of the income from the joint venture, we receive a management fee of 2.5% of the joint venture revenues. This fee is included in our income from unconsolidated joint venture and in the general and administrative expenses below on the joint venture’s income statement.

Please see Note 3 for a discussion of the Alterra bankruptcy proceedings.

The balance sheet and income statement for the joint venture below present its financial position as of September 30, 2003 and December 31, 2002 and its results of operations for the three-month and nine-month periods ended September 30, 2003 and 2002 in thousands. The joint venture did not have any operations during the three months ended March 31, 2002.

BALANCE SHEET

(Unaudited)

	September 30, 2003			December 31, 2002
Assets
Investment in real estate:
Land	$	13,410		$	13,410
Buildings and improvements		107,829			107,720

		121,239			121,130
Less accumulated depreciation		(4,193	)		(1,944	)

		117,046			119,186
Cash and cash equivalents		6,240			8,312
Other assets		1,403			1,697

	$	124,689		$	129,195

Liabilities and Equity
Notes and bonds payable	$	60,801		$	60,831
Accounts payable and accrued liabilities		3,716			3,904
Equity:
Capital contributions		65,501			65,501
Distributions		(13,900	)		(4,900	)
Cumulative net income		8,571			3,859

Total equity		60,172			64,460

	$	124,689		$	129,195

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

INCOME STATEMENT

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Rental income	$	3,692	$	2,764	$	11,078	$	5,232
Expenses:
Interest and amortization of deferred financing costs		1,217		918		3,619		1,545
Depreciation and amortization		750		603		2,249		1,204
General and administrative		202		114		498		215

		2,169		1,635		6,366		2,964

Income from continuing operations		1,523		1,129		4,712		2,268
Discontinued operations		—		52		—		98

Net income	$	1,523	$	1,181	$	4,712	$	2,366

6. Assets Held for Sale

During 2002, we classified ten unoccupied buildings and eight land parcels as assets held for sale. As required by SFAS No. 144, the net book values of these assets were transferred to assets held for sale and the operations of these assets have been included in discontinued operations for all periods presented. See Note 10 for the detail of the amounts classified or reclassified as discontinued operations.

During the nine-month period ended September 30, 2003, we sold three buildings and four land parcels in seven separate transactions for net proceeds of approximately $4,468,000, that resulted in a gain of approximately $117,000. These assets had previously been written down to their individual estimated fair values less costs to sell during 2002. We also received approximately $140,000 from the sale of a portion of another of the land parcels and approximately $30,000 from the sale of equipment at one building that served to reduce our basis in those assets. In addition, we recorded an impairment of assets charge of $645,000 related to three of the assets held for sale, as discussed in more detail below in Note 9. During the nine-month period ended September 30, 2003, we did not classify any additional assets as held for sale.

At September 30, 2003, two buildings and three land parcels remain in assets held for sale. At December 31, 2002, there were five buildings and seven land parcels classified as assets held for sale.

7. Stockholders’ Equity

In order to enhance our capital base and improve our liquidity, we sold 9,625,000 shares of common stock on May 2, 2003, at a negotiated price of $12.00 per share to a select group of institutional investors, all but one of which were existing stockholders. This private placement resulted in net proceeds to us of approximately $112,800,000 after placement agent, legal and other fees of approximately $2,700,000. The net proceeds were used to repay borrowings under our unsecured revolving credit facility. In connection with this offering, we reduced our quarterly dividend payable to $0.37 per share, representing a reduction of $0.09 per share, or approximately 20%, from the rate we had previously paid dividends.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. Earnings Per Share (EPS)

Basic EPS is computed by dividing income from continuing operations available to common stockholders by the weighted average common shares outstanding. Income from continuing operations available to common stockholders is calculated by deducting dividends declared on preferred stock from income from continuing operations. Diluted EPS includes the effect of any potential shares outstanding, which for us is only comprised of dilutive stock options. The table below details the components of the basic and diluted earnings per share from continuing operations available to common stockholders calculations:

	Three months ended September 30,
	2003				2002
	Income			Shares	Income (loss)			Shares
	(In thousands)
Income from continuing operations	$	14,799			$	13,264
Less: preferred stock dividends		(1,919	)			(1,919	)

Amounts used to calculate Basic EPS		12,880		58,797		11,345		49,120
Effect of dilutive securities:
Stock options		—		25		—		41

Amounts used to calculate Diluted EPS	$	12,880		58,822	$	11,345		49,161

	Nine months ended September 30,
	2003				2002
	Income			Shares	Income (loss)			Shares
	(In thousands)
Income from continuing operations	$	41,665			$	29,386
Less: preferred stock dividends		(5,758	)			(5,758	)

Amounts used to calculate Basic EPS		35,907		54,530		23,628		48,722
Effect of dilutive securities:
Stock options		—		9		—		56

Amounts used to calculate Diluted EPS	$	35,907		54,539	$	23,628		48,778

9. Impairment of Assets

During the nine months ended September 30, 2003, we recorded an impairment of assets charge of $645,000 in discontinued operations related to three of our assets held for sale. During 2003, we entered into agreements to sell two assets for less than our net book value and became aware of facts and circumstances indicating another asset had become impaired.

During the first quarter of 2002, we became aware of facts and circumstances indicating that certain assets had become impaired. After analyzing the assets and the facts, we recorded an impairment of assets charge in continuing operations of $12,472,000. As a result of lower than expected operating results for the first quarter of 2002 at ten facilities operated by Senior Services of America that were previously operated by Balanced Care Corporation prior to its default on its leases in December 2000 and six facilities operated by another operator, we changed our estimate of the recoverability of the deferred rent related to these facilities at the end of March 2002. We determined that the most appropriate method of recognizing revenues for these facilities, given the operating results, is to record revenues only to the extent cash rent is actually received. Accordingly, we fully

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reserved the deferred rent balance outstanding and all related notes receivable outstanding, totaling $8,305,000, as part of the impairment of assets charge in continuing operations. In addition, the impairment of assets charge reported in continuing operations also included $4,167,000 to fully reserve a loan previously made to the operator of a large continuing care retirement community in Florida. The collectibility of that loan became uncertain due to developments at the facility during the first quarter of 2002 that we believed might necessitate a change in operators. During the second quarter of 2002, we entered into an agreement with a new operator to take over the facility effective September 1, 2002.

During the first quarter of 2002, we elected to classify seven unoccupied buildings and eight land parcels as assets held for sale and transferred the net book values of these assets to assets held for sale on the balance sheet as required by SFAS No. 144. We recorded an impairment of assets charge in discontinued operations during the first quarter of 2002, totaling $2,065,000, that represents the write-down of four of these properties to their individual estimated fair values less costs to sell.

10. Discontinued Operations

SFAS No. 144 requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations. See Note 3, Note 6 and Note 9 for more detail regarding the facilities sold and classified as held for sale during 2003 and 2002. The following table details the amounts reclassified to discontinued operations for the periods presented:

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002
	(In thousands)
Rental income	$	—		$	1,125		$	940		$	3,343
Interest and other income		—			255			—			257

		—			1,380			940			3,600

Depreciation and amortization		—			274			150			1,106
General and administrative		121			308			574			786
Impairment of assets		—			2,817			645			4,882

		121			3,399			1,369			6,774

Loss from discontinued operations		(121	)		(2,019	)		(429	)		(3,174	)
Gain on sale of facilities		—			3,008			444			3,110

Discontinued operations	$	(121	)	$	989		$	15		$	(64	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us 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. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact our most critical accounting policies. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

Revenue Recognition

Our rental revenue is accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 13 Accounting for Leases (SFAS No. 13) and SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (SAB No. 101) among other authoritative pronouncements. These pronouncements require us to account for the rental income on a straight-line basis unless a more appropriate method exists. Straight-line accounting requires us to calculate the total fixed rent to be paid over the life of the lease and recognize that revenue evenly over that life. In a situation where a lease calls for fixed rental increases during the life of a lease or there is a period of free rent at the beginning of a lease, rental income recorded in the early years of a lease is higher than the actual cash rent received which creates an asset on the balance sheet called deferred rent receivable. At some point during the lease, depending on the rent levels and terms, this reverses and the cash rent payments received during the later years of the lease are higher than the rental income recognized, which reduces the deferred rent receivable balance to zero by the end of the lease. The majority of our leases do not contain fixed increases or provide for free or reduced rent at the beginning of the lease term. However, certain leases for facilities we have constructed have free rent for the first three to six months and certain leases we have entered into, primarily with regard to facilities returned to us by operators in bankruptcy, have reduced or free rent in the early months of the lease or fixed increases in future years. We record the rent for these facilities on a straight-line basis in accordance with SFAS No. 13. However, we also assess the collectibility of the deferred portion of the rent that is to be collected in a future period in accordance with SAB No. 101. This assessment is based on several factors, including, among other things, the financial strength of the lessee and any guarantors, the historical operations and operating trends of the facility, the historical payment pattern of the facility and whether we intend to continue to lease the facility to the current operator. If our evaluation of these factors indicates we may not receive the rent payments due in the future, we provide a reserve against the current rental income as an offset to revenue, and depending on the circumstances, we may provide a reserve against the existing deferred rent balance for the portion, up to its full value, that we estimate will not be recovered. This assessment requires us to determine whether there are factors indicating the future rent payments may not be fully collectible and to estimate the amount of the rent that will not be collected. If our assumptions or estimates regarding a lease change in the future, we may have to record a reserve to reduce or further reduce the rental revenue recognized and/or deferred rent receivable balance.

Additional rents 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, and most of our leases contain provisions so that total rent cannot decrease from one year to the next. While the calculations and payments of additional rents contingent upon revenue are generally made on a quarterly basis, SAB No. 101 does not allow for the recognition of this revenue until all possible contingencies have been eliminated. Most of our leases with additional rents contingent upon revenue are structured as quarterly calculations so that all contingencies for revenue recognition have been eliminated at each of our quarterly reporting dates.

Depreciation and Useful Lives of Assets

We calculate depreciation on our buildings and improvements using the straight-line method based on estimated useful lives ranging up to 40 years, generally from 30 to 40 years. A significant portion of the cost of each property is allocated to building (generally approximately 90%). The allocation of the cost between land and building, and the determination of the useful life of a property, are based on management’s estimates. We calculate depreciation and amortization on equipment and lease costs using the straight-line method based on estimated useful lives of up to five years or the lease term, whichever is appropriate. We review and adjust useful lives periodically. If we do not allocate appropriately between land and building or we incorrectly estimate the useful lives of our assets, our computation of depreciation and amortization will not appropriately reflect the usage of the assets over future periods.

Asset Impairment

We review our long-lived assets individually on a quarterly basis to determine if there are indicators of impairment in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). Indicators may include, among others, the tenant’s inability to make rent payments, operating losses or negative operating trends at the facility level, notification by the tenant that it will not renew its lease, a decision to dispose of an asset or changes in the market value of the property. For operating assets, if indicators of impairment exist, we compare the undiscounted cash flows from the expected use of the property to its net book value to determine if impairment exists. If the sum of the undiscounted cash flows is higher than the current net book value, in accordance with SFAS No. 144, we conclude no impairment exists. If the sum of the undiscounted cash flows is lower than the current net book value, we recognize an impairment loss for the difference between the net book value of the asset and its estimated fair market value. To the extent we decide to sell an asset, we recognize an impairment loss if the current net book value of the asset exceeds its fair value less costs to sell. The above analyses require us to determine whether there are indicators of impairment for individual assets, to estimate the most likely stream of cash flows from operating assets and to determine the fair value of assets that are impaired or held for sale. If our assumptions, projections or estimates regarding an asset change in the future, we may have to record an impairment charge to reduce or further reduce the net book value of the asset.

Collectibility of Receivables

We evaluate the collectibility of our mortgage and other receivables on a regular basis. We evaluate the collectibility of the receivables based on factors including, among others, payment history, the financial strength of the borrower and any guarantors, the value of the underlying collateral, the operations and operating trends of the underlying collateral, if any, and current economic conditions. If our evaluation of these factors indicates we may not recover the full value of the receivable, we provide a reserve against the portion of the receivable that we estimate will not be recovered. This analysis requires us to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that will not be collected. If our assumptions or estimates regarding the collectibility of a receivable change in the future, we may have to record a reserve to reduce or further reduce the carrying value of the receivable.

Impact of New Accounting Pronouncements

Operating Results

Nine-Month Period Ended September 30, 2003 vs. Nine-Month Period Ended September 30, 2002

Rental income increased $9,881,000, or 10%, over the same period in 2002. The increase was primarily due to rental income from three facilities acquired during 2003 and 46 facilities acquired during 2002, rental income from five facilities we acquired during 2002 that previously had an aggregate mortgage loans receivable balance of $29,146,000 and rent increases at existing facilities. The increase was partially offset by rent reductions on certain facilities that were returned to us and leased to other operators in 2003 and 2002. Interest and other income decreased $1,056,000, or 10%, from the same period in 2002. The decrease was primarily due to the payoff at par of mortgage loans receivable totaling $17,422,000 securing six facilities, acquiring title to five facilities previously having an aggregate mortgage loans receivable balance of $29,146,000 during 2002 and regular principal repayments of notes receivable during 2002 and 2003. The decrease was partially offset by interest earned on a new mortgage loan with a balance of $2,615,000 in 2003 and a new mortgage loan with a balance of $7,051,000 in 2002.

Interest and amortization of deferred financing costs increased $3,450,000, or 9%, over the same period in 2002. The increase was primarily due to the issuance of $100,000,000 of fixed rate medium-term notes in the third quarter of 2002, obtaining a $10,000,000 mortgage secured by two existing buildings in the third quarter of 2002, the assumption of a $14,227,000 mortgage note on one facility acquired during the second quarter of 2002 and obtaining a $29,475,000 mortgage secured by one existing building in the third quarter of 2003. The increase was partially offset by the payoff of $66,000,000 of fixed rate medium-term notes during 2003, the payoff of $50,000,000 of fixed rate medium-term notes during 2002, a reduction in the average balance on our $150,000,000 unsecured revolving credit facility during the third quarter of 2003 and a reduction in the average interest rates on our unsecured revolving credit facility. Depreciation and amortization increased $6,044,000, or 23%, over the same period in 2002 due primarily to the acquisition of 46 facilities during 2002, the acquisition of three facilities during the nine months ended September 30, 2003 and acquiring title to five facilities previously having an aggregate mortgage loans receivable balance of $29,146,000 during 2002.

Income from unconsolidated joint venture increased $730,000, or 101%, over the same period in 2002. This income represents our 25% share of the income generated by the unconsolidated joint venture and our management fee of 2.5% of the revenues of the unconsolidated joint venture. The increase was due to the fact that there was no income from the unconsolidated joint venture prior to April 2002 when its first investments were made and there was an additional investment in the unconsolidated joint venture in the fourth quarter of 2002. Please see the caption “Investment in Unconsolidated Joint Venture” below for more information regarding the unconsolidated joint venture.

During the first quarter of 2002, we became aware of facts and circumstances indicating that certain assets may have become impaired. After analyzing the assets and the facts, during the three months ended March 31, 2002, we recorded an impairment of assets charge in continuing operations totaling $12,472,000. As a result of lower than expected operating results for the first quarter of 2002 at ten facilities operated by Senior Services of America that were previously operated by Balanced Care Corporation prior to its default on its leases in December 2000 and six facilities operated by another operator, we changed our estimate of the recoverability of the deferred rent related to these facilities at the end of March 2002. We determined that the most appropriate method of recognizing revenues for these facilities, given the operating results, is to record revenues only to the extent cash is actually received. Accordingly, we fully reserved the deferred rent balance outstanding and all related notes receivable outstanding, totaling approximately $8,305,000, as part of the impairment of assets charge in continuing operations. In addition, the impairment of assets charge reported in continuing operations also included $4,167,000 to fully reserve a loan previously made to the operator of a large continuing care retirement community in Florida. The collectibility of that loan became uncertain due to developments at the facility during the first quarter of 2002 that we believed might necessitate a change in operators. A new operator took over the operation of the facility effective September 1, 2002. We did not record any impairment of assets charge in continuing operations for the nine months ended September 30, 2003.

During the first quarter of 2002, we classified seven unoccupied buildings and eight land parcels as assets held for sale. During the remainder of 2002, we classified three additional unoccupied buildings as assets held for sale. As required by Statement of Financial Accounting Standards (“SFAS”) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, the net book values of these assets have been transferred to assets held for sale and the operations of these assets have been included in discontinued operations for the nine-month periods ended September 30, 2003 and September 30, 2002. We did not classify any additional assets as held for sale during the nine months ended September 30, 2003.

The income in discontinued operations of $15,000 is an increase of $79,000 from the loss of $64,000 for the same period in 2002. The increase was primarily due to the fact that the gain on sale of facilities in 2003 is higher than the loss from operations included in discontinued operations for 2003, while the gain on sale of facilities in 2002 is less than the loss from operations included in discontinued operations for 2002. During the nine months ended September 30, 2003, we had an impairment of assets charge of $645,000 in discontinued operations compared to $4,882,000 during the same period in 2002. The impairment of assets charge for the nine months ended September 30, 2003 represents the write-down of three of our assets held for sale to their individual estimated fair values less costs to sell. The impairment of assets charge for the nine months ended September 30, 2002 represents the write-down of seven of our assets held for sale to their individual estimated fair values less costs to sell. The impairment of assets charge in 2003 was partially offset by $216,000 of income from operations included in discontinued operations while the impairment of assets charge in 2002 was partially offset by $1,708,000 of income from operations included in discontinued operations. The difference in income from operations included in discontinued operations was primarily caused by the fact that the facilities sold in 2003 and 2002 had income in 2002, but either do not have income in 2003 or only have income during 2003 prior to their sale date while the assets held for sale generate expenses, but generally do not produce income.

Three-Month Period Ended September 30, 2003 vs. Three-Month Period Ended September 30, 2002

Rental income increased $1,135,000, or 3%, over the same period in 2002. The increase was primarily due to rental income from three facilities acquired during 2003 and 37 facilities acquired during the third quarter of 2002, rental income from two facilities we acquired during the fourth quarter of 2002 that previously had an aggregate mortgage loans receivable balance of $17,294,000 and rent increases at existing facilities. The increase was partially offset by rent reductions on certain facilities that were returned to us and leased to other operators in 2003 and 2002.

Interest and amortization of deferred financing costs decreased $1,159,000, or 8%, over the same period in 2002. The decrease was primarily due to a reduction in the average balance on our $150,000,000 unsecured revolving credit facility during the third quarter of 2003 as compared to the third quarter of 2002, the payoff of $66,000,000 of fixed rate medium-term notes during 2003, the payoff of $25,000,000 of fixed rate medium-term notes during the third quarter of 2002 and a reduction in the average interest rates on our unsecured revolving credit facility. The decrease was partially offset by the issuance of $100,000,000 of fixed rate medium-term notes in the third quarter of 2002, obtaining a $10,000,000 mortgage secured by two existing buildings in the third quarter of 2002, the assumption of a $14,227,000 mortgage note on one facility acquired during the second quarter of 2002 and obtaining a $29,475,000 mortgage secured by one existing building in the third quarter of 2003. Depreciation and amortization increased $1,023,000, or 10%, over the same period in 2002 due primarily to the acquisition of 37 facilities during the third quarter of 2002, the acquisition of three facilities during the nine months ended September 30, 2003 and acquiring title to two facilities previously having an aggregate mortgage loans receivable balance of $17,294,000 during the fourth quarter of 2002.

The loss in discontinued operations of $121,000 is a reduction of $1,110,000 from the income of $989,000 for the same period in 2002. The reduction was primarily due to the fact that there was a gain on sale in the third quarter of 2002 of $3,008,000 that was greater than the loss from operations included in discontinued operations while there was no gain in the third quarter of 2003 to offset the loss from operations. During the third quarter of 2003 we did not recognize any impairment of assets charge, while in the third quarter of 2002 there was an

impairment of assets charge of $2,817,000 included in discontinued operations that represents the write-down of five assets held for sale to their individual estimated fair values less costs to sell. The impairment of assets charge in the third quarter of 2002 was partially offset by $798,000 of income from operations included in discontinued operations while the loss from operations included in discontinued operations for the third quarter of 2003 of $121,000 only consists of operating losses. The decrease in income from operations from the third quarter of 2002 to the third quarter of 2003 of $919,000 was primarily due to the fact that the facilities sold in 2003 and 2002 had income in 2002, but either do not have income in 2003 or only have income during 2003 prior to their sale date while the assets held for sale generate expenses, but generally do not produce income.

We expect to receive increased rent and interest at individual facilities because our leases and mortgages generally contain provisions under which rents or interest income increase with increases in facility revenues and/or increases in the Consumer Price Index. If revenues at our facilities and/or the Consumer Price Index do not increase, our revenues may not continue to increase. Sales of facilities or repayments of mortgage loans receivable would serve to offset revenue increases, and if sales and repayments exceed additional investments, this could actually reduce revenues. Our leases could renew below or above the aggregate existing rent level, so the impact of lease renewals may cause a decrease or an increase in the total rent we receive. The exercise of purchase options by tenants would also cause a decrease in the total rent we receive. Additional investments in healthcare facilities would increase rental and/or interest income. As additional investments in facilities are made, depreciation and/or interest expense will also increase. We expect any such increases to be at least partially offset by rents or interest income associated with the investments.

Information Regarding Certain Operators

•

Alpha (Filed October 2002). Alpha leased five facilities that were formerly operated by Beverly Enterprises, Inc. Two of these leases were rejected. One was leased to a new operator resulting in an annual rent reduction of approximately $150,000. The other rejected facility was closed in January 2003. This facility was classified as held for sale and written down to its fair value less costs to sell in 2002 and was sold for approximately that value in June 2003. Alpha has advised us it intends to affirm the leases for the three remaining facilities, all of which generate positive cash flows.

•

The bankruptcy court approved our pre-negotiated settlement with SV/Home Office Inc. and certain affiliates (SV) in March 2003. SV emerged from bankruptcy on October 3, 2003.

Investment in Unconsolidated Joint Venture

During 2001, we entered into a joint venture with JER Senior Housing, LLC, a wholly-owned subsidiary of JER Partners, an institutional investor. The joint venture may invest up to $130,000,000, of which over $127,000,000 has already been invested, in healthcare facilities similar to those already owned by us. We are a 25% equity partner in the venture. The financial statements of the joint venture are not consolidated with our financial statements and our investment is accounted for using the equity method. No investments were made by or into this joint venture prior to April 2002.

The joint venture owns 49 assisted living facilities in 12 states that are leased to Alterra. The joint venture was financed with secured non-recourse debt of approximately $60,860,000, capital contributions from our joint venture partner of approximately $49,100,000 and capital contributions from us of approximately $16,400,000. We do not expect to make any additional contributions to the joint venture related to the facilities it acquired during 2002.

Liquidity and Capital Resources

During the nine months ended September 30, 2003, we acquired two skilled nursing facilities and one assisted and independent living facility in two separate transactions for an aggregate investment of approximately $13,663,000. We also funded approximately $18,172,000 in expansions, construction and capital improvements at certain facilities in accordance with existing lease provisions. Such capital improvements, expansions and construction generally result in an increase in the minimum rents earned by us on these facilities either at the time of funding or upon completion of the project. The acquisitions, capital improvements, expansions and construction were funded by borrowings on our unsecured revolving credit facility and by cash on hand. At September 30, 2003, we had committed to fund additional expansions, construction and capital improvements of approximately $28,000,000.

During the nine-month period ended September 30, 2003, we sold five assisted living facilities in one transaction for cash proceeds of approximately $13,640,000. The sale of these facilities resulted in a gain of approximately $327,000 that is included in the gain on sale of facilities in discontinued operations. The proceeds from the sales were used to repay borrowings on our unsecured revolving credit facility.

During the nine months ended September 30, 2003, we sold three buildings and four land parcels classified as assets held for sale in seven separate transactions for net proceeds of approximately $4,468,000, that resulted in a gain of approximately $117,000. These assets had previously been written down to their individual estimated fair values less costs to sell during 2002. The proceeds from the sales were used to repay borrowings on our unsecured revolving credit facility.

During the nine-month period ended September 30, 2003 we repaid $66,000,000 of fixed rate medium-term notes that bore interest at a weighted average rate of 7.49%. The repayments were funded by borrowings on our unsecured revolving credit facility and by cash on hand.

We have $41,500,000 of medium-term notes with a rate of 7.6% due in 2028 which may be put back to us at their face amounts at the option of the holders. If some or all of the holders exercise their option, those notes would then mature on November 20, 2003. While we do not expect that these notes will be put back to us, the holders may elect to do so. We had an additional $40,000,000 of medium-term notes with a rate of 6.59% due in 2038 that could have been put back to us at their face amounts at the option of the holders on July 7, 2003, however none of these medium-term notes were put back to us. We anticipate repaying the medium-term notes maturing and any that are put back to us with a combination of proceeds from the issuance of additional medium-term notes under the shelf registration statements discussed below, borrowings on our unsecured revolving credit facility, cash on hand, new mortgage financing on certain facilities, potential asset sales and mortgage loans receivable payoffs, the potential issuance of equity securities under the shelf registration statements discussed below or cash from operations. Our medium-term notes have been investment grade rated since 1994. Our current ratings are Baa3 from Moody’s, BBB- from Standard & Poor’s and BBB- from Fitch.

At September 30, 2003, we had $100,000,000 available under our $150,000,000 unsecured revolving credit facility that expires on November 7, 2005. As of September 30, 2003, we had shelf registrations on file with the Securities and Exchange Commission under which we may issue (a) up to $316,000,000 in aggregate principal amount of medium-term notes and (b) up to approximately $8,140,000 of securities including debt, convertible debt, common and preferred stock. We filed a new $500,000,000 shelf registration statement under which we may issue securities including common and preferred stock, debt and convertible debt that became effective in October 2003, which will replace the shelf registration statement with $8,140,000 available at September 30, 2003.

During the nine months ended September 30, 2003, we entered into a new note payable in the amount of $29,475,000 at 5.99%. The net proceeds were used to repay borrowings on our unsecured revolving credit facility.

We did not use any off-balance sheet financing arrangements or have any unconsolidated subsidiaries prior to the second quarter of 2002. The only off-balance sheet financing arrangement that we currently utilize is the unconsolidated joint venture discussed above under the caption “Investment in Unconsolidated Joint Venture.”

The level of our new investments has been depressed during the prior four years, although we did make significant acquisitions during 2002. Financing for future investments may be provided by borrowings under our unsecured revolving credit facility, private placements or public offerings of debt or equity, the assumption of secured indebtedness, obtaining mortgage financing on a portion of our owned portfolio or through joint ventures. We anticipate the potential repayment of certain mortgage loans receivable and the possible sale of certain facilities during 2003. In the event that there are mortgage loan receivable repayments or facility sales in excess of new investments, revenues may decrease. We anticipate using the proceeds from any mortgage loans receivable repayments or facility sales to reduce the outstanding balance on our unsecured revolving credit facility, to repay other borrowings as they mature or to provide capital for future investments. Any such reduction in debt levels would result in reduced interest expense that we believe would partially offset any decrease in revenues. We believe we have sufficient liquidity and financing capability to finance anticipated future investments, maintain our current dividend level and repay borrowings at or prior to their maturity, for at least the next twelve months.

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. These 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:

•

continued deterioration of the operating results or financial condition, including bankruptcies, of our tenants;

•

occupancy levels at certain facilities;

•

changes in the ratings of our debt securities;

•

access to the capital markets and the cost of capital;

•

government regulations, including changes in the reimbursement levels under the Medicare and Medicaid programs;

•

the general distress of the healthcare industry;

•

the effect of economic and market conditions and changes in interest rates;

•

the amount and yield of any additional investments;

•

the ability of our operators to repay deferred rent or loans in future periods;

•

our ability to attract new operators for certain facilities;

•

our ability to sell certain facilities for their book value;

•

changes in tax laws and regulations affecting real estate investment trusts; and

•

the risk factors set forth under the caption “Risk Factors” in Item 1 of our annual report on Form 10-K/A for the year ended December 31, 2002.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This market risk exposure discussion is an update of material changes to the Item 7a. “Quantitative and Qualitative Disclosures About Market Risk” discussion included in our annual report on Form 10-K/A for the year ended December 31, 2002 and should be read in conjunction with that discussion. Readers are cautioned that many of the statements contained in this “Quantitative and Qualitative Disclosures About Market Risk” discussion are forward looking and should be read in conjunction with the disclosures under the heading “Statement Regarding Forward-Looking Disclosure” set forth above.

We are exposed to market risks related to fluctuations in interest rates on our mortgage loans receivable and debt. We do not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities or other types of derivative financial instruments.

We provide mortgage loans to operators of healthcare facilities as part of our normal operations. The majority of the loans have fixed rates. Three of our mortgage loans have adjustable rates; however, the rates adjust only once or twice over the loan lives and the minimum adjusted rates are equal to the current rates. Therefore, all mortgage loans receivable are treated as fixed rate notes.

We utilize debt financing primarily for the purpose of making additional investments in healthcare facilities. Historically, we have made short-term borrowings on our variable rate unsecured revolving credit facility to fund our acquisitions until market conditions were appropriate, based on management’s judgment, to issue stock or fixed rate debt to provide long-term financing.

During the nine months ended September 30, 2003, the borrowings under our unsecured revolving credit facility have decreased from $107,000,000 to $50,000,000.

For fixed rate debt, changes in interest rates generally affect the fair market value, but do not impact 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. 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 remaining three months of 2003 of approximately $173,000.

Decreases in interest rates during 2002 and 2003 resulted in a decrease in interest expense related to our unsecured revolving credit facility. Any future interest rate increases will increase the cost of borrowings on our unsecured revolving credit facility and any borrowings to refinance long-term debt as it matures or to finance future acquisitions.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the quarterly period covered by this report. No change in our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 3.1		Amended and Restated Bylaws of the Company.

Exhibit 10.1		Employment agreement entered into by and between Nationwide Health Properties, Inc. and Douglas M. Pasquale dated as of September 30, 2003.

Exhibit 31		Rule 13a-14(a) Certifications of CEO and CFO.

Exhibit 32		Section 1350 Certifications of CEO and CFO.

(b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 29, 2003	NATIONWIDE HEALTH PROPERTIES, INC.

	By:	/s/ MARK L. DESMOND
		Mark L. Desmond Senior Vice President and Chief Financial Officer (Principal Financial Officer)

EX-3.1 3 dex31.htm BYLAWS OF NATIONWIDE HEALTH PROPERTIES AMENDED AND RESTATED ON OCTOBER 21, 2003 Bylaws of Nationwide Health Properties amended and restated on October 21, 2003

Exhibit 3.1

BYLAWS

NATIONWIDE HEALTH PROPERTIES, INC.

AS AMENDED AND RESTATED OCTOBER 21, 2003

ARTICLE I

OFFICES

Section 1. Registered office. The registered office of the corporation shall be established and maintained at the office of THE CORPORATION TRUST INCORPORATED, 32 South Street, Baltimore, Maryland 21202, and said THE CORPORATION TRUST INCORPORATED be the registered agent of this corporation in charge thereof.

Section 2. Other Offices. The corporation may establish such other offices, within or without the State of Maryland, at such place or places as the Board of Directors from time to time may designate, or which the business of the corporation may require.

ARTICLE II

STOCKHOLDERS

Section 1. Annual Meetings. Annual meetings of stockholders for the election of Directors and for such other business as may be stated in the notice of the meeting, shall be held on a date and at a time designated by the Board of Directors at such place, within or without the State of Maryland, as the Board of Directors by resolution shall determine, and as set forth in the notice of the meeting.

If the date of the annual meeting shall fall on a legal holiday of the state in which the meeting is to be held, the meeting shall be held on the next succeeding business day.

Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called by the Chairman, the Chief Executive Officer, the President, by a majority of the Board of Directors or by a majority of the Independent Directors and shall be called by an officer upon written request of stockholders holding in the aggregate not less than 10% of the outstanding shares entitled to vote on the business proposed to be transacted thereat. Such meetings may be held at such time and place, within or without the State of Maryland, as shall be stated in the notice of the meeting. The call of a special meeting shall state the nature of the business to be transacted and no other business shall be considered at the meeting. A Special meeting may be called for the purpose of removing a Director.

Section 3. Notice of Meetings. Written or printed notice, stating the place, date and time of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, by the United States mail, postage prepaid, not less than twenty (20) nor more than ninety (90) days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all stockholders entitled to vote thereat.

Section 4. Voting. At each annual meeting the stockholders entitled to vote shall elect a Board of Directors, and they may transact such other corporate business as shall be stated in the notice of the meeting. The vote for Directors, and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. All elections of Directors shall be by a plurality of the votes cast, and all questions shall be decided by a majority vote, except as otherwise provided by the Articles of Incorporation or by the laws of the State of Maryland.

The Directors may fix a day not more than ninety (90) days prior to the holding of any such meeting as the date as of which stockholders entitled to notice of and to vote at such meeting shall be determined; and only stockholders of record on such day shall be entitled to notice of or to vote at any such meeting.

Each stockholder entitled to vote, in accordance with the terms of the Articles of Incorporation and the provisions of these Bylaws, shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after eleven (11) months from its date unless such proxy provides for a longer period. In no case shall any proxy be given for a period in excess of ten (10) years from the date of its execution.

Section 5. Quorum. Except as provided in the next section hereof, any number of stockholders together holding a majority of the stock issued and outstanding and entitled to vote thereat, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of business. If, at any meeting, less than a quorum shall be present or represented, those present, either in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock shall be present, at which time any business may be transacted which might have been transacted at the meeting as originally noticed.

Section 6. Action Without Meeting. Except for the election of Directors, any action to be taken by the stockholders may be taken without a meeting, if, prior to such action, all stockholders entitled to vote thereon shall consent in writing to such action being taken, and such consent shall be treated for all purposes as a vote at a meeting.

ARTICLE III

DIRECTORS

Section 1. Number and Term. The number of Directors shall not be less than five (5) nor more than nine (9) until changed by amendment of these Bylaws. The exact number of Directors shall be eight (8) until changed, within the limit specified, by a Bylaw amending this section duly adopted by the Board of Directors or stockholders. The Directors shall be elected at the annual meeting of stockholders, and each Director shall be elected to serve until his successor shall be elected and shall have qualified. In no case shall the number of Directors be less than five (5), unless changed by an amendment to the Articles of Incorporation.

The Board of Directors of this corporation shall be classified into three groups. Each group of Directors shall be elected for successive terms ending at the annual meeting of stockholders the third year after election.

Directors need not be stockholders.

Section 2. Independent Directors. At least a majority of the entire Board of Directors shall be Independent Directors. An Independent Director shall mean a Director who is not, directly or indirectly, an Affiliate of the Advisor of the corporation. An Affiliate of the Advisor shall mean a person who: (a) is an officer or director or employee of the Advisor; (b) beneficially owns 5% or more of any class of equity securities of the Advisor because of the power to vote, sell, or exercise a right to acquire such securities; (c) is an officer, director or employee of, or beneficially owns 5% or more of any class of equity securities of, an entity that controls, is controlled by or is under common control with the Advisor; or (d) has a member of his or her immediate family who has one of the foregoing relationships with the Advisor.

Section 3. Quorum. A majority of the Directors shall constitute a quorum for the transaction of business. If, at any meeting of the Board, there shall be less than a quorum present, a majority of those present may adjourn the meeting, from time to time, until a quorum is obtained, and no further notice thereof need be given other than by announcement at said meeting which shall be so adjourned.

Section 4. First Meeting. The newly elected Directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after the annual meeting of stockholders or the time and place of such meeting may be fixed by written consent of the entire Board.

Section 5. Election of Officers. At the first meeting, or at any subsequent meeting called for that purpose, the Directors shall elect the officers of the corporation, as more specifically set forth in ARTICLE V of these Bylaws. Such officers

shall hold office until the next annual election of officers, or until their successors are elected and shall have qualified.

Section 6. Regular Meetings. Regular meetings of the Board of Directors shall be held, without notice, at such places and times as shall be determined, from time to time, by resolution of the Board of Directors.

Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman, the Chief Executive Officer, the President, or by the Secretary on four (4) days’ notice to each Director. In case such notice is delivered personally, or by telephone or telegram, it shall be delivered at least twenty-four (24) hours prior to the time of the holding of the meeting.

Section 8. Place of Meetings. The Directors may hold their meetings, and have one or more offices, and keep the books of the corporation outside the State of Maryland at any office or offices of the corporation, or at any other place as they from time to time by resolution may determine.

Section 9. Dispensing with Notice. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the Directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting need not be given to any Director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such Director.

Section 10. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if, prior to such action, a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board of Directors or committee.

Section 11. Telephonic Meetings. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.

Section 12. Approval By Independent Directors. For all purposes, a transaction which is subject to approval by a majority of the Independent Directors shall be approved if such transaction is approved by a majority of the Directors present and entitled to vote at a meeting at which a quorum is present, provided that the Independent Directors voting to approve the transaction constitute an absolute majority of all independent Directors serving at such time.

Section 13. Duties of Independent Directors and/or Investment Committee. The Independent Directors and/or the Investment Committee of the corporation shall have the special duties described in this section.

(a) The Independent Directors and/or the Investment Committee shall supervise the relationship of the corporation with the Advisor and shall evaluate the capability and performance of the Advisor before entering into or renewing any advisory agreement (“Advisory Agreement”). The criteria used to evaluate the performance of the Advisor shall be set forth in the minutes of a meeting of the Board of Directors. The Independent Directors and/or the Investment Committee shall supervise the performance of the Advisor and the compensation paid to it by the corporation to determine that the provisions of any Advisory Agreement between the corporation and the Advisor are being carried out. The Independent Directors and/or the Investment Committee shall determine at least annually that the compensation which the corporation agrees to pay to the Advisor is reasonable in relation to the nature and the quality of services performed. In connection with the duties set forth in this subsection 13(a), the Independent Directors shall evaluate any competitive relationship among the Company, Beverly Enterprises and the Company’s officers and directors affiliated with Beverly Enterprises.

(b) The Independent Directors and/or the Investment Committee shall review the corporation’s investment policies at least annually to determine that the policies are being followed by the corporation and are in the best interests of its stockholders. The findings of the Independent Directors and/or the Investment Committee shall be set forth in the minutes of meetings of the Board of Directors. Such investment policies may be altered from time to time by the Board of Directors with the consent of a majority of the Independent Directors and/or the Investment Committee and without approval of the stockholders upon a determination that such a change is in the best interests of the corporation and the stockholders.

(c) The Independent Directors and/or the Investment Committee shall determine, from time to time, but at least annually, that the total fees and expenses of the corporation are reasonable in light of the investment experience of the corporation, its net assets, its net income, and the fees and expenses of other comparable advisers in real estate. The findings of the Independent Directors and/or the Investment Committee shall be set forth in the minutes of meetings of the Board of Directors.

(d) A majority of the Independent Directors must approve all matters in which a Beverly Enterprises related entity is involved, and must approve any acquisition from or sale to any director, officer or employee of the Company, or of the Advisor or any affiliate thereof, of any of the assets or other property of the Company.

Section 14. General Powers of Directors. The Board of Directors shall have the management of the business of the corporation, and, subject to the restrictions imposed by law exercise all the powers of the corporation.

Section 15. Specific Powers of Directors. Without prejudice to such general powers, it hereby is expressly declared that the Directors shall have the following powers:

(1) To make and change regulations, not inconsistent with these Bylaws, for the management of the business and affairs of the corporation.

(2) To purchase or otherwise acquire for the corporation any property; rights or privileges which the corporation is authorized to acquire.

(3) To pay for any property purchased for the corporation, either wholly or partly in money, stock, bonds, debentures or other securities of the corporation.

(4) To borrow money and make and issue notes, bonds and other negotiable and transferable instruments, mortgages, deeds of trust and trust agreements, and to do every act and thing necessary to effectuate the same.

(5) To remove any officer for cause, or any officer, other than the President, summarily, without cause, and, in their discretion, from time to time to devolve the powers and duties of any officer upon any other person for the time being.

(6) To appoint and remove or suspend subordinate officer or agents as they may deem necessary, and to determine their duties, and to fix and from time to time to change their salaries or remuneration, and to require security as and when they think fit.

(7) To confer upon any officer of the corporation the power to appoint, remove and suspend subordinate officers and agents.

(8) To determine who shall be authorized, on behalf of the corporation, to make and sign bills, notes, acceptances, endorsements, contracts and

other instruments.

(9) To determine who shall be entitled, in the name and on behalf of the corporation, to vote upon or to assign and transfer any shares of stock, bonds or other securities of other corporations held by this corporation.

(10) To delegate any of the powers of the Board, in relation to the ordinary business of the corporation, to any standing or special committee, or to any officer or agent (with power to sub-delegate), upon such terms as they deem fit.

(11) To call special meetings of the stockholders for any purpose or purposes.

(12) To appoint the accountants and attorneys for the corporation.

Section 16. Compensation. Directors shall receive a stated salary for their services as Directors and, by resolution of the Board, a fixed fee and expenses for attendance at each meeting.

Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, or otherwise, and as to Independent Directors, receiving compensation therefor.

ARTICLE IV

COMMITTEES

Section 1. Appointments and Powers. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees. The Board of Directors may designate one or more Directors as alternate members of a committee who may replace any absent or disqualified member at any meeting of the committee. Such alternate members shall not be counted for purposes of determining a quorum unless so appointed, in which case they shall be counted in the place of the absent or disqualified member. The committee, to the extent provided in said resolution or resolutions or in these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in these Bylaws or as may be determined from time to time by resolution adopted by the Board of Directors.

Section 2. Minutes. Committees shall keep regular minutes of their proceedings, and report the same to the Board of Directors when required.

Section 3. Audit Committee. The Audit Committee shall select and

engage in behalf of the corporation, and fix the compensation of, a firm of certified public accountants whose duty it shall be to audit the books and accounts of the corporation and its subsidiaries for the fiscal year in which they are appointed, and who shall report to such Committee. The Audit Committee shall confer with the auditors and shall determine, and from time to time shall report to the Board of Directors upon the scope of the auditing of the books and accounts of the corporation and its subsidiaries. The Audit Committee shall also be responsible for determining that the business practices and conduct of employees and other representatives of the corporation and its subsidiaries comply with the policies and procedures of the corporation. None of the members of the Audit Committee shall be officers or employees of the corporation.

Section 4. Investment Committee. The Investment Committee shall consist solely of Independent Directors and shall have the power to approve real estate acquisition and other investments in the best interests of the corporation. The Investment Committee shall have such other powers as may be delegated by the Board of Directors from time to time. The Investment Committee shall also have the special duties described in ARTICLE III, SECTION 13.

ARTICLE V

OFFICERS

Section 1. Officers. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting of stockholders. The Directors shall elect a Chairman, a Chief Executive Officer, a President, a Secretary and a Treasurer and one or more Vice Presidents as they may deem proper. Any person may hold two or more offices.

The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold office for such terms and shall exercise such powers and perform such duties as shall from time to time be determined by the Board of Directors.

Section 2. Chairman. The Chairman, if one be elected, shall preside at all meetings of the Board of Directors and stockholders, and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors.

Section 3. Chief Executive Officer. The Chief Executive Officer shall have the general powers and duties of supervision and management usually vested in the office of Chief Executive Officer of a corporation. He shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts on behalf of the corporation, and he shall cause the corporate seal to be affixed to any instrument requiring it, and when so affixed the seal

shall be attested by the Secretary or Treasurer, or an Assistant Secretary or an Assistant Treasurer.

Section 4. President. The President shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. He shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts on behalf of the corporation, and he shall cause the corporate seal to be affixed to any instrument requiring it, and when so affixed the seal shall be attested by the Secretary or Treasurer, or an Assistant Secretary or an Assistant Treasurer.

Section 5. Vice Presidents. Each Vice President shall have such powers and shall perform such duties as are usually vested in the office of Vice President of a corporation. He shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts on behalf of the corporation, and he shall cause the corporate seal to be affixed to any instrument requiring it, and when so affixed the seal shall be attested by the Secretary or Treasurer, or an Assistant Secretary or an Assistant Treasurer.

Section 6. Secretary. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and Directors, and all other notices required by law or by these Bylaws, and, in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the Chairman, the Chief Executive Officer, the President, the Board of Directors, or the stockholders, upon whose requisition the meeting is called as provided in these Bylaws. He shall record all proceedings of meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have custody of the corporate seal, and shall affix said seal to all instruments requiring it, when authorized by the Board of Directors or the President, and shall attest the same.

Section 7. Treasurer. The Treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. He shall deposit all monies and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors.

The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors or the President, taking proper vouchers for such disbursements. He shall render to the President and the Board of Directors, at the regular meetings of the Board, or whenever they may request it, an accounting of all his

transactions as Treasurer, and of the financial condition of the corporation.

If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties, in such amount and with such surety as the Board shall prescribe.

Section 8. Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers, if any, shall be appointed by the Chief Executive Officer, the President or Vice President and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the Secretary and by the Treasurer.

ARTICLE VI

RESIGNATIONS; FILLING OF VACANCIES: INCREASE IN NUMBER OF

DIRECTORS;

REMOVAL FROM OFFICE

Section 1. Resignations. Any Director, member of a committee, or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and, if no time be specified, at the time of its receipt by the Board of Directors, the President or the Secretary. The acceptance of a resignation shall not be necessary to make it effective.

Section 2. Filling of Vacancies. If the office of any officer, Director or member of a committee becomes vacant, the remaining Directors in office, although less than a quorum, may appoint, by a majority vote, any qualified person to fill such vacancy, who shall hold office for the unexpired term of his predecessor, or until his successor is elected and shall have qualified. Independent Directors shall fill vacancies among the Independent Directors’ positions. Each Independent Director shall hold office for the unexpired term of his predecessor, or until his successor is elected and qualified.

Any vacancy occurring by reason of an increase in the number of Directors may be filled by action of a majority of the entire Board, for a term of office continuing only until the next election by the stockholders of Directors within the Group to which the new Director is appointed, or may be filled by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of Directors.

Section 3. Removal >From Office. At a meeting of stockholders expressly called for such purpose, any or all members of the Board of Directors may be removed, with or without cause, by a vote of the holders of not less than two-thirds (2/3) of the issued and outstanding capital stock entitled to vote thereon or by a unanimous vote of all other members of the Board of Directors, and said stockholders may elect a successor or successors to fill any resulting vacancies, for the unexpired terms of the removed Directors.

Any officer or agent, or member of a committee elected or appointed by the Board of Directors, may be removed by said Board whenever, in its judgment, the best interests of the corporation shall be served thereby.

ARTICLE VII

CAPITAL STOCK

Section 1. Certificates of Stock. Certificates of stock, numbered, and with the seal of the Corporation affixed, signed by the Chairman, the Chief Executive Officer, the President or a Vice President, and the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, shall be issued to each stockholder, certifying to the number of shares owned by him in the corporation. Whenever any certificate is countersigned, or otherwise authenticated by a transfer agent or registrar, the signatures of such Chairman, Chief Executive Officer, President or Vice President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer may be facsimiles.

In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue.

Section 2. Lost Certificates. A new certificate of stock may be issued in place of any certificate theretofore issued by the corporation and alleged to have been lost or destroyed, and the Directors may, at their discretion, request the owner of the lost or destroyed certificate, or his legal representative, to give the corporation a bond, in such sum as they may direct, but not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate.

Section 3. Transfer of Shares. Subject to the restrictions that may be contained in the Articles of Incorporation, the shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized representatives.

Section 4. Dividends. Subject to the provisions of the Articles of Incorporation and the laws of the State of Maryland, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the corporation, as and when they may deem expedient.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

Section 1. Corporate Seal. The Board of Directors shall adopt a common seal of the corporation. Said seal shall be circular in form and shall contain the name of the corporation, Nationwide Health Properties, Inc., the date of its organization, and the words: “Incorporated-Maryland.” It may be used by causing it or a facsimile thereof to be impressed, affixed, or otherwise reproduced.

Section 2. Fiscal Year. The fiscal year of the corporation shall end on the 31st day of December of each calendar year.

Section 3. Checks, Drafts, Notes. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as from time to time shall be determined by resolution of the Board of Directors.

Section 4. Corporate Records. The corporation shall keep correct and complete books of account and minutes of the proceedings of its stockholders and Directors.

The corporation shall keep and maintain at its principal offices a certified copy of its Articles of Incorporation and all amendments thereto, a certified copy of its Bylaws and all amendments thereto, a stock ledger or duplicate stock ledger, revised annually, containing the names, alphabetically arranged, of all stockholders, their residence addresses, and the number of shares held by them, respectively. In lieu of the stock ledger or duplicate stock ledger, a statement may be filed in the principal office stating the name of the custodian of the stock ledger or duplicate stock ledger, and the present and complete post office address (including street and number, if any) where such stock ledger or duplicate stock ledger is kept.

The Independent Directors shall take all reasonable steps to assure that a full and correct annual statement of the affairs of the corporation is prepared annually, including a balance sheet and a financial statement of operations for the preceding fiscal year which shall be certified by independent certified public accountants, and distributed to stockholders within 120 days after the close of the corporation’s fiscal year and a reasonable period of time prior to the annual meeting of stockholders. Such annual statement shall also be submitted at the annual meeting and shall be filed within twenty (20) days thereafter at the principal office of the corporation. The Independent Directors shall also be responsible for scheduling the annual meeting of stockholders.

Section 5. Notice and Waiver of Notice. Whenever, pursuant to the laws of the State of Maryland or these Bylaws, any notice is required to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid,

addressed to the person entitled thereto at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute.

Any notice required to be given may be waived, in writing by the person or persons entitled thereto, whether before or after the time stated therein.

Section 6. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No Director or candidate for the office of Director shall act as inspector of an election of Directors. Inspectors need not be stockholders.

Section 7. Certain Policies of the Corporation. Notwithstanding any other provisions of these Bylaws, the corporation shall not engage in any of the following activities:

(I) investing in any junior mortgage loan unless by appraisal or other method the Independent Directors determine that (a) capital invested in any such loan is adequately secured on the basis of the equity of the borrower in the property underlying such investment and the ability of the borrower to repay the mortgage loan or (b) such loan is a financing device entered into by the Company to establish the priority of its capital investment over the capital invested by others investing with the Company in a real estate project;

(ii) investing in commodities or commodity future contracts (other than interest rate futures, when used solely for hedging purposes);

(iii) investing more than 1% of the Company’s total assets in contracts for the sale of real estate unless such contracts are recordable in the chain of title;

(iv) issuing securities that are redeemable at the option of the holders thereof;

(v) granting warrants or options to purchase voting capital stock of the Company unless such warrants or options (a) are issued at an exercise price greater than or equal to the fair market value of the voting capital stock of the Company on the date of the grant and for consideration (including services) that in the judgment of a majority of the Independent Directors has a market value at least equal to the value of the warrant or option on the date of grant, (b) are exercisable within five years from the date of grant and (c) when aggregated with all other outstanding options and warrants are less than 10% of the then outstanding shares of the Company’s voting capital stock on the date of grant; provided that terms of warrants or options that are issued ratably to the holders of all voting capital stock or as part of a financing arrangement need not meet the above restrictions;

(vi) holding equity investments in unimproved, non-income producing real property; except such properties as are currently undergoing development or are presently intended to be developed within one year; together with mortgage loans on such property (other then first mortgage development loans), aggregating to more than 10% of the Company’s assets;

(vii) engaging in trading (as compared with investment activities) or engaging in the underwriting of or distributing as agent the securities issued by others;

(viii) making secured and unsecured borrowings which in the aggregate exceed 300% of the net assets of the Company; unless such borrowing is approved by a majority of the Independent Directors;

(ix) undertaking any activity that would disqualify the Company as a real estate investment trust under the provisions of the Code as long as a real estate investment trust is accorded substantially that same treatment or benefits under the United States tax laws from time to time in effect as under Sections 856-860 of the Code at the date of adoption of the Company’s Bylaws; and

(x) acquiring any real property unless the consideration paid for such real property is based on the fair market value of the property as determined by a majority of the directors.

Section 8. Applicability of Maryland Control Share Acquisition Act. The voting rights of any shares of stock of the Corporation that are acquired by Cohen & Steers Capital Management, Inc. and/or its associates shall be exempt from, and not subject to, the provisions of Title 3, Subtitle 7 (the Maryland Control Share Acquisition Act) of the Maryland General Corporation Law, including but not limited to Section 3-

702. As used in this Bylaw provision, the term “associate” shall have the meaning ascribed to it in the Maryland Control Share Acquisition Act.

ARTICLE IX

AMENDMENTS TO BYLAWS

Section 1. Amendment of Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote.

Section 2. Amendment by Directors. Subject to the right of the shareholders as provided in Section 1 of this Article IX, to adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended, or repealed by the Board of Directors; provided, however, that the provisions of Sections 2, 12 and 13 of Article III and of Section 4 of Article IV with respect to Independent Directors may not be amended by the Board of Directors, and provided further that the Board of Directors may adopt an amendment of a Bylaw changing the authorized number of directors only within the limits specified in the Articles of Incorporation or in Section 1 of Article III of these Bylaws.

ARTICLE X

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 1. Indemnification. The corporation shall indemnify and hold harmless, and shall pay expenses incurred by or satisfy a judgement or fine levied against, each officer, director and other person, in the manner and to the full extent permitted by the General Corporation Law of the State of Maryland.

Section 2. Provisions Not Exclusive. This Article shall not be construed as a limitation upon the power of the corporation to enter into contracts or undertakings of indemnity with a director, officer, employee or agent of the corporation, nor shall it be construed as a limitation upon any other rights to which a person seeking indemnification may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to actions in his official capacity and as to action in another capacity while holding office.

CERTIFICATE OF SECRETARY

I, DON M. PEARSON, Secretary of Nationwide Health Properties, Inc., hereby certify that the attached Bylaws, as Amended and Restated, comprising 16 pages, constitute the Bylaws of this corporation as Amended and Restated, and the same are in full force and effect as of this 21st day of October, 2003.

IN WITNESS WHEREOF, I have executed this certificate and caused the seal of said corporation to be affixed hereto as of this 21st day of October, 2003.



/s/ Don M. Pearson
DON M. PEARSON

(SEAL)

EX-10.1 4 dex101.htm EMPLOYMENT AGREEMENT Employment Agreement

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

(Douglas M. Pasquale)

This EMPLOYMENT AGREEMENT, as amended and restated, is entered into this 30th day of September, 2003, by and between Nationwide Health Properties, Inc., a Maryland corporation (the “Company”), and Douglas M. Pasquale (the “Executive”).

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to enter into this Employment Agreement with Executive to assure that the Company will have the service and dedication of Executive. This Employment Agreement contains the entire agreement between the parties with respect to the matters specified herein, and supersedes any prior oral and written employment agreements, understandings and commitments between the Company and Executive, and any severance or employment security policy of the Company which may cover Executive.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

Definitions.

(1) “Cause” shall mean (a) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) which is not remedied promptly by Executive after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed his duties, or (b) the willful engaging by Executive in illegal conduct as determined by a court of law or gross misconduct, which is materially and demonstrably injurious to the Company. For purposes of this definition, no

act or failure to act on the part of Executive shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based on the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company.

(2) “Disability” shall mean the absence of Executive from his duties with the Company on a full-time basis for a period of (a) ninety (90) consecutive calendar days or (b) an aggregate of one hundred fifty (150) or more calendar days in any fiscal year, as a result of mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive.

(3) “Effective Date” shall mean the date of Executive’s commencing employment with the Company but in no event later than November 1, 2003.

(4) “Employment Period” shall mean the period commencing on the Effective Date and ending on the third anniversary of the Effective Date; provided, however, that commencing on the Effective Date and on the first day of each month thereafter (the most recent of such dates is hereinafter referred to as the “Renewal Date”), the Employment Period shall be automatically extended so as to terminate on the third anniversary of such Renewal Date (but not later than the date when Executive attains age 65), unless the Company or Executive shall give notice to the other that the Employment Period shall not be further extended prior to any such Renewal Date.

(5) “Stock Options” means only stock options issued pursuant to Nationwide Health Properties, Inc. 1989 Stock Option Plan as Amended and Restated April 20, 2001, and as it may be further amended, or any other stock option plan of the Company approved by the shareholders.

II. Conditions of Employment.

(1) Position and Duties. Executive is to be initially employed as Executive Vice President and Chief Operating Officer of the Company. During the Employment Period, (a) Executive’s position (including titles), authority, duties and responsibilities shall be at least commensurate with the most significant of those held, exercised and assigned to Executive at any time, and (b) Executive’s services shall be performed at the location where Executive was employed at the commencement of the Employment Period or any office or location within 25 miles from such location. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company, and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for Executive to serve on corporate, civic or charitable boards or committees so long as such activities do not interfere with the performance of Executive’s responsibilities as an employee of the Company in accordance with this Agreement.

(2) Compensation

(a) Base Salary. As of the commencement of the Employment Period, Executive shall receive an annual base salary (the “Annual Base Salary”) of $400,000, payable in twice monthly installments (except if deferred by Executive under a Company-sponsored deferral plan). Executive’s Annual Base Salary shall be reviewed by the Compensation Committee of the Board (the “Committee”) each January during the Employment Period. Any increase in Annual Base Salary approved by the Committee shall not serve to limit or reduce any other obligation to Executive under this Agreement.

(b) Hiring Bonus and Annual Bonus. Executive is to be paid a Hiring Bonus of $250,000, due and owing in January of 2004, with the payment to be subject to normal withholding.

In addition to Annual Base Salary and the Hiring Bonus, Executive shall be eligible to receive, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”). Such Annual Bonus may range from 0% to 120% (with a target of 60% (the “Target Bonus”)) of the Annual Base Salary earned by Executive during the fiscal year, with the specific amount determined by the Committee based on its assessment of the Company’s and Executive’s performance for the fiscal year. In assessing such performance, the Committee shall take into account the growth and income of the Company relative to its annual financial plan, the quality of the Company’s assets, Executive’s performance in terms of implementing the Company’s business strategy, and other considerations deemed by the Committee to be relevant to the current and future success of the Company. Annual Bonus earned by Executive shall be paid to Executive no later than ninety (90) days following the end of the fiscal year to which the Annual Bonus applies, unless such Annual Bonus is voluntarily deferred by Executive in accordance with a Company sponsored deferral program.

Notwithstanding any other provisions herein, Executive shall be paid not later than January 31, 2005, total cash compensation for calendar year 2004 (Annual Base Salary paid during 2004 plus Annual Bonus for 2004) of not less than $750,000, which amount is in addition to the Hiring Bonus.

(c) Stock Options. In addition to Annual Base Salary and Annual Bonus, Executive shall be eligible to receive, for each fiscal year of the Employment Period, a grant of Stock Options to purchase common stock of the Company (the “Stock Options). Such Stock Options shall (i) be granted to Executive each January during the Employment Period, (ii) have a ten-year term, (iii) carry an exercise price equal to the market price of the Company’s common stock on the date of grant (as such price is defined in the

Company’s Stock Option Plan), and (iv) be granted in conjunction with the right to earn a cash payment equal to the amount of dividends paid by the Company from the date of grant of the Stock Option to the date the Stock Option is exercised on an equivalent number of common shares to the shares represented by the Stock Option (the “Performance-Based Dividend Equivalents”).

The specific number of shares of common stock represented by Stock Options granted annually to Executive, the specific performance objectives associated with earning the Performance-Based Dividend Equivalents for each grant of Stock Options, and any vesting restrictions placed on the exercise of such Stock Options and Performance-Based Dividend Equivalents shall be determined by the Committee. However, concurrent with the commencement of the Employment Period, the Committee shall grant to Executive Stock Options for 40,000 shares with vesting and Performance-Based Dividend Equivalents provisions the same as other grants to the Company officers made at its Compensation Committee Meeting on January 28, 2003, and shall grant to Executive Stock Options with Performance-Based Dividend Equivalents for another 40,000 shares in January of 2004.

Furthermore, the Company agrees the Committee shall grant to Executive at the time of his election as President and Chief Executive Officer Stock Options with Performance-Based Dividend Equivalents for an additional 20,000 shares.

The Company agrees that there will be a full review of the Company’s bonus and long-term incentive compensation programs within twelve months of the Effective Date, and that Executive will have full participation in the review process. As a consequence of the review process, the Committee may replace future grants of Stock Options and Performance-Based Dividend Equivalents for Executive during the Employment Period with another form of long-term incentive compensation of similar value and risk acceptable to Executive and the Committee.

(d) Benefit Plans. During the Employment Period, Executive and/or Executive’s beneficiaries, as the case may be, shall participate in and shall receive all benefits under Company-sponsored retirement plans, savings plans, deferral plans, medical plans (including dental, vision and drug prescription plans), life insurance plans, disability plans, and accidental death and travel accident insurance plans provided to Executive as of the commencement of the Employment Period or as otherwise agreed to by Executive. Life insurance and participation in benefit plans shall be the same as or substantially equivalent to that provided to or for the Company’s President and Chief Executive Officer.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to annual paid vacation time of four (4) weeks per calendar year, and a monthly car allowance of $1,000. In addition, Executive shall be entitled to receive any fringe benefits or perquisites, or substantial equivalents thereof, including club memberships, existing or subsequently introduced by the Company during the Employment Period for the President and Chief Executive Officer.

(f) Expenses. Upon presentment of verifiable invoices to the Company’s Controller or Chief Financial Officer (the “Authorized Officer”) and other documentation as may be requested by the Company, and subject to the Company’s expense reimbursement policies, the Company shall reimburse Executive for the reasonable costs and expenses which he incurs in connection with the performance of his duties and obligations under this Agreement. In addition, the Company shall reimburse Executive for all legal expenses incurred by Executive in the preparation, negotiation and execution of this Agreement.

III. Termination of Employment

(1) Death or Disability. Executive’s employment with the Company shall terminate automatically upon Executive’s death during the Employment Period. In the event of Executive’s Disability during the Employment Period (pursuant to the definition

of Disability set forth in Section I(2) of this Agreement), the Company may, at the discretion of the Board, give Executive written notice in accordance with Section IX(2) of this Agreement of its intention to terminate Executive’s employment with the Company. In such event, Executive’s employment with the Company shall terminate effective on the 30^th day after receipt of such notice by Executive (the “Effective Disability Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of his duties; provided that if Executive has returned to full-time performance of his duties, the Company may not terminate Executive due to a Disability until such time limits have again been met.

(2) Cause. The Company may terminate Executive’s employment during the Employment Period for Cause. The termination of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a notice that Executive is guilty of the conduct described in Section I (1) specifying the particulars thereof in reasonable detail.

(3) Good Reason. Executive’s employment with the Company may be terminated by Executive during the Employment Period for Good Reason. For purposes of this Agreement, “Good Reason” shall mean (a) without the express written consent of Executive, the assignment to Executive of any duties or any other action by the Board (or the Chief Executive Officer, if Executive is not then serving as such officer) which results in a material diminution in Executive’s position (including titles), authority, duties or responsibilities from those contemplated in Section II(1) of this Agreement, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Board promptly after receipt of notice thereof given by Executive; (b) any failure by the Company to comply with any of the provisions of Section II(2) of this Agreement, other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive; (c) a requirement by the Board that the primary

business location of Executive be relocated more than 25 miles from the location where Executive was employed at the commencement of the Employment Period; (d) any purported termination by the Company of Executive’s employment other than as expressly permitted by this Agreement; (e) a failure by the Company to appoint Executive to the office of President and Chief Executive Officer within two years after the Effective Date or upon the retirement of the current President and Chief Executive Officer, whichever is earlier, (f) a failure by the Company to cause the election of Executive as a member of its Board of Directors within one year after the Effective Date, or (g) any Change of Control of the Company. “Change of Control” shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A, Regulation 240.14a-101, promulgated under the Securities Exchange Act of 1934 as in effect on the Effective Date or, if Item 6(e) is no longer in effect, any regulation issued by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 which serves similar purposes; provided that, without limitation, a Change of Control shall be deemed to have occurred if and when (a) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities, or (b) individuals who are members of the Board immediately prior to a meeting of the shareholders of the Company involving the election of directors shall not constitute a majority of the Board following such election.

(4) Notice of Termination. Any termination of employment of Executive during the Employment Period by the Company for Cause, or by Executive for Good Reason, shall be communicated to the other party hereto in accordance with Section IX(2) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (a) indicates the specific termination provision in this Agreement relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and

circumstances claimed to provide a basis for termination of Executive’s employment with the Company under the provision so indicated, and (c) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than thirty days after giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(5) Date of Termination. “Date of Termination” means (a) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (b) if Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies Executive of such termination, and (c) if Executive’s employment is terminated by reason of death or Disability, the date of death of Executive or the Effective Disability Date, as the case may be.

IV.

Obligations of the Company upon Termination of Executive’s Employment For Good Reason; Other than for Cause, Death or Disability. Except as provided for in Section VI of this Agreement, if during the Employment Period, the Company shall terminate Executive’s employment other than for Cause or Disability, or Executive shall terminate his employment with the Company for Good Reason, the Company shall pay to Executive (i) any Annual Base Salary owed to Executive through the Date of Termination to the extent not previously paid, (ii) an amount equal to three (3) times Executive’s highest Annual Base Salary during any of the last three full fiscal years prior to the Date of Termination,

and (iii) an amount equal to three (3) times either (A) if Executive has been employed by the Company for at least three full fiscal years, the average Annual Bonus earned by Executive over the last three full fiscal years prior to the Date of Termination, or (B) if Executive has not been employed by the Company for at least three full fiscal years, the Target Bonus for the most recent fiscal year.

In addition to the payments described in subparagraphs (i), (ii), and (iii) above, the Company also shall (A) arrange to provide to Executive for a period of three years from the Date of Termination, medical (including dental, vision and prescription drug coverage) and life insurance with terms no less favorable, in the aggregate, than the most favorable of those provided to Executive during the year immediately preceding the Date of Termination, (B) immediately vest all previously unvested shares of Restricted Stock and Stock Options held by Executive (which shall occur automatically without any action on the part of the Company), (C) provide Executive with any Performance-Based Dividend Equivalents (to the extent earned by the Executive though the Date of Termination, as determined by the Company’s Compensation Committee) for the three years following the Date of Termination, and (D) pay any compensation previously deferred by Executive in accordance with the provisions of the plan under which such compensation was deferred.

Payments pursuant to subparagraph (i) above shall be made within thirty (30) days following the Date of Termination. Payments pursuant to subparagraph (ii) above shall be made in equal monthly installments over the three-year period following the Date of Termination. Payments pursuant to subparagraph (iii) above shall be made in equal annual installments over the three-year period following the Date of Termination on each anniversary following the Date of Termination. Payments pursuant to subparagraph (C) above shall be made at the time such payments would have been made had Executive remained in the employment of the Company.

If Executive should die while receiving payments pursuant to this Article IV, the remaining payments which would have been made to Executive if he had lived shall be

paid to the beneficiary designated in writing by Executive, or if there is no effective written designation, then to his spouse, or if there is neither an effective written designation nor a surviving spouse, then to Executive’s estate. Designation of a beneficiary or beneficiaries to receive the balance of any such payments shall be made by written notice to the Company, and Executive may revoke or change any such designation of beneficiary at any time by a later written notice to the Company.

(2) Death. If Executive’s employment with the Company is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for (a) payment of any Base Salary previously earned by Executive but as yet unpaid, (b) payment of any Annual Bonus previously awarded to Executive for a fiscal year completed prior to the Date of Termination but as yet unpaid, and (c) the continuation of any existing rights Executive may have following death under the provisions of any benefit, stock option, deferral or compensation plan provided to Executive by the Company.

(3) Disability. If Executive’s employment with the Company is terminated by reason of Executive’s Disability during the Employment Period in accordance with Section III(1) of this Agreement, this Agreement shall terminate without further obligations to Executive other than for (a) payment of any Base Salary previously earned by Executive but as yet unpaid, (b) payment of any Annual Bonus previously awarded to Executive for a fiscal year completed prior to the Date of Termination but as yet unpaid, and (c) the continuation of any existing rights Executive may have following Disability under any benefit, stock option, deferral or compensation plan provided to Executive by the Company.

(4) Cause; Other than for Good Reason. If, during the Employment Period, Executive’s employment shall be terminated for Cause or if Executive voluntarily terminates his employment with the Company other than for Good Reason, this

Agreement shall terminate without further obligations to Executive other than for (a) payment of any Base Salary previously earned by Executive but as yet unpaid, (b) payment of any Annual Bonus previously awarded to Executive for a fiscal year completed prior to the Date of Termination but as yet unpaid, and (c) the continuation of any existing rights Executive may have following termination for Cause or voluntary termination other than for Good Reason under any benefit, stock option, deferral or compensation plan provided to Executive by the Company.

If any portion of the payments set forth in Sections IV (1)-(4) above (the “Termination Payments”), together with any and all other amounts due and payable to Executive as a result of such transaction (including any amounts payable with respect to any Stock Options held by Executive), shall be deemed to be an “excess parachute payment” under Section 280G of the Internal Revenue Code, the amount of such payments shall be increased to a new amount (the “Modified Termination Payments”) such that the Modified Termination Payments less the sum of (A) the excise tax payable under Section 4999 of the Internal Revenue Code by Executive on the Termination Payments and (B) any and all federal and state income, excise and other tax payable by Executive on the difference between the Termination Payments and the Modified Termination Payments, is equal to the Termination Payments.

(5) Period from execution of this Employment Agreement to commencement of the Employment Period. The Company and Executive acknowledge there may be as long as a four-month period between execution of this Employment Agreement and the Effective Date. If the Company terminates this Employment Agreement before the Effective Date other than for Cause, as defined in Section I(1) hereof, Executive has the right to separation consideration provided in this Employment Agreement as if the Executive had commenced full-time employment with the Company and was terminated other than for Cause.

V. Non-Exclusivity of Rights.

Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company for which Executive may qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company. Amounts which are vested or which Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement (other than this Agreement) with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Executive shall not be covered by any prior employment agreement, security policy or understanding thereof after the Effective Date of this Agreement and shall not be covered by any severance policy, practice or program of the Company.

VI. Full Settlement; Offsets.

The Company’s obligations to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, defense or other claim, right or action which the Company may have against Executive or others.

Executive shall not be obligated to seek other employment or to take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, and in the event Executive does seek other employment, the terms of such employment (including any compensation received in conjunction therewith) shall not modify, mitigate or offset the amounts payable to Executive under any of the provisions of this Agreement.

VII. Confidential Information.

Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential business information and knowledge or data relating to the Company and its business which shall have been obtained during Executive’s employment by the Company and which shall not be or become public knowledge (other than by acts of Executive or representatives of Executive in violation of this Agreement) or be information already known to Executive prior to the Employment Period. After termination of Executive’s employment with the Company, Executive shall not, without the prior written consent of the Board, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company or those designated by it. Upon Executive’s violation of the provisions of this Section VII, the Company shall be relieved of all future obligations to Executive under this Agreement. However, in no event shall an asserted or alleged violation of the provisions of this Section VII constitute a basis for deferring or withholding any amounts otherwise payable to Executive until such asserted or alleged violation is reasonably confirmed by the Board.

VIII. Successors.

(1) This Agreement is personal to Executive and without the prior written consent of the Board shall not be assignable by Executive otherwise than by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(2) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

IX. Miscellaneous.

(1) This Agreement shall be governed by and construed in accordance with the laws of the State of California. The captions of this Agreement are not part of the

provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(2) All notices and other communications hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:

Douglas M. Pasquale, Executive Vice President and Chief Operating Officer

610 Newport Center Drive Suite 1150

Newport Beach, CA 92660

If to the Company:

Nationwide Health Properties, Inc.

610 Newport Center Drive, Suite 1150

Newport Beach, CA 92660

Attention: Chairman

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(3) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(4) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(5) Any failure by Executive or the Company to insist upon strict compliance with any provision hereof or any other provision of this Agreement, or the failure to assert any right Executive or the Company may have hereunder, including, without limitation, the right of Executive to terminate employment with the Company for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(6) The Company shall provide Executive with a Directors and Officers Indemnity Agreement to be mutually agreed upon between Executive and the Board but no less favorable than those for other executives of the Company, and shall obtain or have obtained Directors and Officers Insurance which includes coverage for Executive.

X. Arbitration.

(1) The parties agree that any disputes, controversies or claims which arise out of or are related to this Agreement, Executive’s employment or termination of employment, including, but not limited to, any claim relating to the purported validity, interpretation, enforceability or breach of this Agreement, and/or any other claim or controversy arising out of the relationship between Executive and the Company (or the nature of the relationship) or the continuation or termination of that relationship, including, but not limited to, claims that a termination was for Cause or for Good Reason, claims for breach of covenant, breach of an implied covenant of good faith and fair dealing, wrongful termination, breach of contract, intentional infliction of emotional distress, defamation, breach of right of privacy, interference with advantageous or contractual relations, fraud, conspiracy or other tort or property claims of any kind, which are not settled between the parties, shall be settled by arbitration in accordance with the then-current Rules of Practice and Procedure for Employment Arbitration (the “Rules”) of the Judicial Arbitration and Mediation Services, Inc. (“JAMS”).

(2) The arbitration shall be before a single arbitrator selected in accordance with the JAMS Rules or otherwise by mutual agreement of the parties. The Arbitration shall take place in Orange County, California, unless the parties mutually agree to hold the arbitration at another location. Depositions and other discovery shall be allowed in accordance with the JAMS Rules. The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the State of California or Federal law, or both, as applicable to the claim(s) asserted.

(3) In consideration of the parties’ agreement to submit to arbitration all disputes with regard to this Agreement and/or with regard to any alleged contract, or any other claim arising out of their conduct, the relationship existing hereunder or the continuation or termination of that relationship, and in further consideration of the anticipated expedition and the minimizing of expense of this arbitration remedy, the arbitration provisions of this Agreement shall provide the exclusive remedy, and each party expressly waives any right he or it may have to seek redress in another forum. The arbitrator, and not any Federal, state, or local court or agency shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties.

(4) Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award. Except as otherwise provided for in this Agreement, both the Company and Executive agree that neither of them shall initiate or prosecute any lawsuit or administrative action in any way related to any claim covered by this Agreement.

(5) Any claim which either party has against the other party that could be submitted for resolution pursuant to this Section X must be presented in writing by the claiming party to the other party within one year of the date the claiming party knew or should have known of the facts giving rise to the claim, except that claims arising out of or

related to the termination of Executive’s employment must be presented by Executive within one year of the Date of Termination. Unless the party against whom any claim is asserted waives the time limits set forth above, any claim not brought within the time periods specified herein shall be waived and forever barred, even if there is a Federal or state statute of limitations which would have given more time to pursue the claim.

(6) The Company shall advance the costs and expenses of the arbitrator. In any arbitration to enforce any of the provisions or rights under this Agreement, the unsuccessful party in such arbitration, as determined by the arbitrator, shall pay to the successful party all costs, expenses and reasonable attorneys’ fees incurred therein by such party (including without limitation such costs, expenses and fees on any appeals), and if such successful party shall recover an award in any such arbitration proceeding, such costs, expenses and attorneys’ fees shall be included as part of such award. Notwithstanding the foregoing provision, in no event shall the successful party be entitled to recover an amount from the unsuccessful party for costs, expenses and attorneys’ fees that exceeds the unsuccessful party’s costs, expenses and attorneys’ fees incurred in connection with the action or proceeding.

(7) Any decision and award or order of the arbitrator shall be final and binding upon the parties hereto and judgment thereon may be entered in the Superior Court of the State of California or any other court having jurisdiction.

(8) Each of the above terms and conditions shall have separate validity, and the invalidity of any part thereof shall not affect the remaining parts.

(9) Any decision and award or order of the arbitrator shall be final and binding between the parties as to all claims which were or could have been raised in connection with the dispute to the full extent permitted by law. In all other cases the parties agree that the decision of the arbitrator shall be a condition precedent to the institution or

maintenance of any legal, equitable, administrative, or other formal proceeding by Executive or the Company in connection with the dispute, and that the decision and opinion of the arbitrator may be presented in any other forum on the merits of the dispute.

IN WITNESS WHEREOF, Executive has hereunto set Executive’s hand, and pursuant to the authorization from the Board, the Company has caused this Employment Agreement, as amended and restated, to be executed in its name on its behalf, all as of the day and year first above written.

Nationwide Health Properties, Inc.

By:		/s/ David R. Banks

Title:		Chairman, Compensation Committee

Executive

/s/ Douglas M. Pasquale

Douglas M. Pasquale

EX-31 5 dex311.htm CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 302 Certifications of CEO and CFO pursuant to Section 302

Exhibit 31

CERTIFICATIONS

I, R. Bruce Andrews, certify that:

1.	I have reviewed this report on Form 10-Q of Nationwide Health Properties, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: October 29, 2003

/s/ R. BRUCE ANDREWS

R. Bruce Andrews

President and Chief Executive Officer

I, Mark L. Desmond, certify that:

1.	I have reviewed this report on Form 10-Q of Nationwide Health Properties, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have:

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: October 29, 2003

/s/ MARK L. DESMOND

Mark L. Desmond

Senior Vice President and Chief Financial Officer

EX-32 6 dex32.htm CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 906 Certifications of CEO and CFO pursuant to Section 906

Exhibit 32

WRITTEN STATEMENT

PURSUANT TO

18 U.S.C. SECTION 1350

The undersigned, R. Bruce Andrews, the Chief Executive Officer, and Mark L. Desmond, the Chief Financial Officer, of Nationwide Health Properties, Inc. (the “Company”), pursuant to 18 U.S.C. §1350, hereby certify that, to the best of my knowledge:

(i) the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 of the Company (the “Report”) fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 29, 2003

/s/ R. BRUCE ANDREWS
R. Bruce Andrews
President and Chief Executive Officer

/s/ MARK L. DESMOND
Mark L. Desmond
Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.

-----END PRIVACY-ENHANCED MESSAGE-----

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents