-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, agaVqDgaxsuH7ug8OOhJulOSB1BWmOJX0JfOX+jDrnr/lyeRke51T8PxzQDXP+o+ hArpp/3T0xOExmLhCtgVvg== 0000908737-94-000047.txt : 19941122 0000908737-94-000047.hdr.sgml : 19941122 ACCESSION NUMBER: 0000908737-94-000047 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941116 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 94560765 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6173323990 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q/A (Amendment No. 1) Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9317 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland No. 04-6558834 (State of Incorporation) (I.R.S. Employer Identification No.) 400 Centre Street, Newton, Massachusetts 02158 (Address of principal executive office) (Zip Code) (617) 332-3990 (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 Number of Common Shares outstanding at the latest practicable date, November 10, 1994: 57,385,000 shares of beneficial interest, $.01 par value. HEALTH AND RETIREMENT PROPERTIES TRUST FORM 10-Q/A (Amendment No. 1) September 30, 1994 INDEX PART I Financial Information Page Item 1. Financial Statements Balance Sheets - December 31, 1993 and September 30, 1994 1 Statements of Income - Quarters and Nine Months Ended September 30, 1993 and 1994 2 Statements of Cash Flows - Nine Months Ended September 30, 1993 and 1994 3 Notes to Financial Statements 4-8 Item 2. Management's Discussion and Analysis of 9-13 Financial Condition and Results of Operations Signatures HEALTH AND RETIREMENT PROPERTIES TRUST BALANCE SHEETS (dollars in thousands) (Unaudited)
December 31, September 30, 1993 1994 ----------- ------------- ASSETS Real estate properties, at cost: Land $ 33,450 $ 64,749 Buildings and improvements 330,988 585,148 Equipment 20,373 41,869 -------- -------- 384,811 691,766 Less accumulated depreciation 34,969 39,728 -------- -------- 349,842 652,038 Real estate mortgages and notes, net 157,281 125,224 Cash and cash equivalents 13,887 58,606 Interest and rent receivable 3,039 4,060 Deferred interest and finance costs, net and other assets 3,613 7,513 -------- -------- $527,662 $847,441 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings $ 73,000 $216,451 Security deposits 8,300 3,800 Due to affiliates 709 362 Accounts payable and accrued expenses 4,518 11,157 Shareholders' equity: Preferred shares of beneficial interest, $.01 par value, 50,000,000 shares authorized, none issued - - Common shares of beneficial interest, $.01 par value, 100,000,000 shares authorized, 44,121,000 shares and 57,385,000 shares issued and outstanding, respectively 441 574 Additional paid-in capital 470,572 652,989 Cumulative net income 118,889 163,503 Distributions of funds from operations (148,767) (201,395) --------- --------- Total shareholders' equity 441,135 615,671 --------- --------- $527,662 $847,441 ======== ======== See accompanying notes /TABLE HEALTH AND RETIREMENT PROPERTIES TRUST STATEMENTS OF INCOME (amounts in thousands, except per share data) (Unaudited)
Quarter Ended Nine Months September 30, Ended September 30, -------------- ------------------ 1993 1994 1993 1994 ------- ------- ------- ------- Revenues: Rental income $11,668 $17,864 $34,520 $43,865 Interest income 3,059 5,952 6,620 17,414 ------- ------- ------- ------- Total revenues 14,727 23,816 41,140 61,279 ------- ------- ------- ------- Expenses: Interest 1,768 2,887 4,215 5,215 Advisory fees 683 1,066 1,882 2,693 Depreciation and amortization 2,274 3,971 6,703 9,926 General and administrative 263 304 656 873 ------- ------- ------- ------- Total expenses 4,988 8,228 13,456 18,707 ------- ------- ------- ------- Income before gain on sale of properties and extraordinary items 9,739 15,588 27,684 42,572 Gain on sale of properties - - - 3,994 ------- ------- ------- ------- Income before extradordinary items 9,739 15,588 27,684 46,566 Extraordinary items - early extinguishment of debt and termination costs of interest rate hedging arrangements - - ( 3,392) ( 1,953) ------- ------- ------- ------- Net income $ 9,739 $15,588 $24,292 $44,613 ======= ======= ======= ======= Weighted average shares outstanding 35,121 57,384 34,001 51,172 ======= ======= ======= ======= Per share amounts: Income before extraordinary items $ .28 $ .27 $ .81 $ .91 ======= ======= ======= ======= Net income $ .28 $ .27 $ .71 $ .87 ======= ======= ======= ======= See accompanying notes /TABLE HEALTH AND RETIREMENT PROPERTIES TRUST STATEMENTS OF CASH FLOWS (dollars in thousands) (Unaudited)
Nine Months Ended September 30, ----------------- 1993 1994 -------- -------- Cash flows from operating activities: Net income $24,292 $ 44,613 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of properties - ( 3,994) Loss on early extinguishment of debt 3,392 1,953 Depreciation and amortization 6,703 9,926 Amortization of interest costs 406 537 Decrease in security deposits - ( 4,500) Deferred finance costs ( 401) ( 6,532) Changes in assets and liabilities: Increase in interest and rent receivable and other assets ( 6,387) ( 1,380) (Decrease) increase in accounts payable and accrued expenses ( 1,484) 6,639 Increase (decrease) in due to affiliate 9 ( 347) --------- --------- Cash provided by operating activities 26,530 46,915 --------- --------- Cash flows from investing activities: Investment in mortgage loans ( 89,325) ( 13,631) Repayment of mortgage loans 4,591 45,688 Real estate acquisitions ( 7,458) (335,781) Sale of real estate - 28,400 --------- --------- Cash used in investing activities ( 92,192) (275,324) --------- --------- Cash flows from financing activities: Proceeds from issuance of shares, net 123,138 182,366 Proceeds from borrowings 70,600 351,390 Payments on borrowings ( 93,566) (208,000) Termination costs of debt and interest rate hedging arrangements ( 2,843) - Payment related to stock surrender ( 3,000) - Dividends paid ( 33,279) ( 52,628) --------- --------- Cash provided by financing activities 61,050 273,128 --------- --------- (Decrease) Increase in cash and cash equivalents ( 4,612) 44,719 Cash and cash equivalents at beginning of period 14,104 13,887 --------- --------- Cash and cash equivalents at end of period $ 9,492 $ 58,606 ======== ======== Supplemental cash flow information: Interest paid $ 4,565 $ 2,381 ======== ======== See accompanying notes /TABLE HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS September 30, 1993 and 1994 (dollars in thousands, except per share data) (Unaudited) 1. Basis of presentation The financial statements of Health and Retirement Properties Trust, formerly known as Health and Rehabilitation Properties Trust, ("the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. 2. Tax status The Company is a real estate investment trust under the Internal Revenue Code of 1986, as amended. Accordingly, the Company expects not to be subject to federal income taxes on amounts distributed to shareholders provided it distributes at least 95% of its real estate investment trust taxable income and meets certain other requirements for qualifying as a real estate investment trust. 3. Dividends On October 6, 1994, the Trustees declared a dividend on the Company's common shares of beneficial interest with respect to the quarter ended September 30, 1994 of $.33 per share, which will be paid on or about November 30, 1994 to shareholders of record at the close of business on October 23, 1994. Dividends are principally based on funds from operations which means net income excluding gains (or losses) from debt restructuring and sales of property plus depreciation and amortization. Dividends in excess of net income are a return of capital. 4. Leases On February 11, 1994, in connection with the merger of Greenery Rehabilitation Group Inc. (Greenery) into Horizon Healthcare Corporation (Horizon), the Company sold to Horizon for $28,400, three facilities that had been leased to Greenery. The Company realized a capital gain of approximately $3,994 on the sale of these properties. In addition, Horizon has leased seven facilities previously leased to Greenery, on substantially similar terms except the leases were extended through 2005. The HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS September 30, 1993 and 1994 (dollars in thousands, except per share data) (Unaudited) 4. Leases-continued Company has also granted Horizon a ten year option to buy, at the rate of no more than one facility per year, the seven leased facilities. Also, the Company leased the three remaining Greenery facilities to a newly formed corporation, Connecticut Subacute Corporation II (CSC II), an affiliate of HRPT Advisors, Inc. (Advisor). These facilities are being managed by and the lease payments are guaranteed by Horizon for a term of up to five years. The terms of these lease arrangements are substantially similar to the original lease arrangements. On August 31, 1994, the Company acquired a medical laboratory building for $3,850. The property was acquired subject to a triple-net lease with Unilab Corporation with a remaining term of 12 years. The yield on this transaction is approximately 13% On September 9, 1994, the Company completed its transaction with Host Marriott Corporation whereby it acquired 14 retirement communities containing 3,952 residences or beds for approximately $320,000. The communities are triple net leased through December 31, 2013 to a wholly owned subsidiary of Marriott International, Inc. (Marriott). The leases are guaranteed by Marriott. The acquisition was funded with the proceeds of the equity offering described in Note 7, borrowings under the Company's revolving credit facility, assumption of $17,620 of existing debt and part of the proceeds of the debt offering described in Note 6. 5. Real Estate Mortgages and Notes On February 11, 1994, in connection with the Horizon - Greenery merger, the Company provided Horizon with $9,400 first mortgage financing for two facilities. One of the facilities previously was owned by the Company and leased to Greenery. The mortgage notes bear interest at 11.5% per annum and mature December 31, 2000. During the first nine months of 1994, mortgage loans, secured by twenty properties, with outstanding principal balances totalling $47,559 were repaid. HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS September 30, 1993 and 1994 (dollars in thousands, except per share data) (Unaudited) 6. Borrowings December 31, September 30, 1993 1994 ------------ ------------- Revolving credit facility $ 73,000 $ - Floating rate senior Notes, Series A - 75,000 Floating rate senior Notes, Series B, net - 123,831 Industrial Development Bonds - 17,620 ---------- --------- Total $ 73,000 $ 216,451 ========== ========= ---------- --------- On June 15, 1994, the Company amended its revolving credit facility, among other things, to reduce the interest rate spread over LIBOR, to increase the facility to $120,000 and to make the facility unsecured. During June, the Company borrowed $62,000 under the revolving credit facility to fund a portion of the Marriott transaction. Such borrowings were repaid in July with the proceeds of a debt offering described below and cash on hand. On August 30, 1994, the Company increased the facility to $170,000. On July 13, 1994, the Company received net proceeds of $197,270 from the offering of $200,000 in floating rate senior notes due in 1999. The notes were issued in two series. The Series A Notes, in an aggregate principal amount of $75,000, bear interest at LIBOR plus 105 basis points and may be called by the Company beginning April 13, 1995. The Series B Notes, in an aggregate principal amount of $125,000, were issued at a discount (99.0159% of par), bear interest at LIBOR plus 72 basis points and may be called by the Company beginning July 13, 1996. A portion of these proceeds were used to fund part of the Marriott transaction and to repay borrowings under the Company's revolving credit facility. The Company expects to apply the balance to fund future real estate acquisitions. 7. Common Shares of Beneficial Interest On January 19, 1994, the Company received net proceeds of approximately $8,301 and issued 601,500 shares of the Company's stock in connection with the exercise of the underwriter's over- allotment option granted in connection with a public offering of the Company's stock in December 1993. The proceeds were used as part of the initial deposit on the Marriott transaction. HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS September 30, 1993 and 1994 (dollars in thousands, except per share data) (Unaudited) 7. Common Shares of Beneficial Interest - Continued On May 13, 1994, the Company received net proceeds of approximately $174,065 from the public offering of 12,650,000 shares of the Company's stock. These proceeds were used, in part, to repay $73,000 in borrowings under the Company's revolving credit facility and the balance to fund part of the Marriott transaction. On July 7, 1994, the Board of Trustees granted a total of 12,500 shares under the 1992 Award Plan. An aggregate of 11,000 Shares were granted to the Company's President, Chief Financial Officer, Treasurer and certain employees of Advisors. These share awards will vest over a three year period, with one-third of the shares vesting on the date of grant. Each of the three Indepenedent Trustees was granted 500 shares as part of his annual fee. At September 30, 1994, 972,500 shares remain reserved for issuance under the 1992 Award Plan. 8. Financing Commitments During the quarter ended September 30, 1994, the Company provided improvement financing at existing properties of approximately $2,492. As of September 30, 1994, the Company has commitments to provide additional improvement financing at existing properties totalling approximately $14,333. 9. Concentration of Credit Risk Substantially all of the Company's assets are invested in income producing health care real estate. At September 30, 1994, a total of 56% of the Company's real estate properties, net and real estate mortgages and notes, net were subject to mortgages and leases with Marriott and Horizon. The financial statements of Marriott have been filed with the Securities and Exchange Commission (SEC) as a part of Marriott's Quarterly Form 10-Q, file number 1-12188, for the quarter ended September 17, 1994. The financial statements of Horizon have been filed with the SEC as a part of Horizon's Quarterly Report on Form 10-Q, file number 1-9369, for the quarter ended August 31, 1994. 10. Pro Forma Information (Unaudited) The following summarized Pro Forma Statements of Income assume that all of the Company's real estate acquisition and financing transactions during 1993, both 1993 share offerings, the January 19, 1994 over-allotment option exercise, the Horizon- Greenery merger and the Marriott transaction and the related HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS September 30, 1993 and 1994 (dollars in thousands, except per share data) (Unaudited) 10. Pro Forma Information (Unaudited) - Continued equity offering completed in May 1994 and debt offering completed in July 1994, had occurred on January 1, 1993 and give effect to the Company's borrowing rates throughout the periods indicated. These pro forma statements are not necessarily indicative of the expected results of operations or the Company's financial position for any future period. Differences could result from, but are not limited to, additional property investments, prepayments of mortgages, exercise of purchase options by tenants, changes in interest rates and changes in the debt and/or equity structure of the Company. HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS September 30, 1993 and 1994 (dollars in thousands, except per share data) (Unaudited)
Year Ended Nine Months Ended December 31, September 30, 1993 1993 1994 ----------- ------- -------- Pro Forma Statements of Income Total revenues $92,424 $69,398 $80,228 Total expenses 27,452 24,908 30,572 ------- ------- ------- Net income $64,972 $44,490 $49,656 ======= ======= ======= Weighted average shares outstanding 57,373 57,373 57,373 ======= ======= ======= Net income per share $ 1.13 $ .78 $ .87 ======= ======= =======
September 30, 1994 ------------- Pro Forma Balance Sheet Real estate properties, net $652,038 Real estate mortgages and notes, net 125,224 Other assets 70,179 -------- Total Assets $847,441 ======== Borrowings Other liabilities $216,451 Shareholder's equity 15,319 Total Liabilities and 615,671 -------- Shareholder's Equity $847,441 /TABLE HEALTH AND RETIREMENT PROPERTIES TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Quarter Ended September 30, 1994 versus 1993 Total revenues for the quarter ended September 30, 1994, increased to $23,816,000 from $14,727,000 for the quarter ended September 30, 1993. Rental income increased to $17,864,000 from $11,668,000 and interest income increased to $5,952,000 from $3,059,000 during the comparable period. Rental income increased primarily as a result of new investments in real estate subsequent to September 30, 1993, including the $33,400,000 Community Care of America (CCA) transaction in December 1993 and the $320,000,000 transaction with Marriott International, Inc. (Marriott) in 1994. Interest income increased primarily due to the acquisition of three pools of performing mortgage loans between May and December, 1993 and the CCA mortgage of $26,600,000 in December 1993. Total expenses for the quarter ended September 30, 1994, increased to $8,228,000 from $4,988,000 for the quarter ended September 30, 1993. The increase is the result of increases in interest expense, advisory fees and depreciation and amortization of $1,119,000, $383,000 and $1,697,000 respectively. Interest expense increased primarily as a result of the $200,000,000 floating rate senior notes issued in July 1994 in connection with the Marriott transaction versus average borrowings in the 1993 quarter of $106,746,000. Income before gain on sale of properties and extraordinary item and net income was $15,588,000 or $.27 per share for the 1994 quarter compared with $9,739,000 or $.28 per share for the 1993 quarter. The increase in income before gain on sale of properties and extraordinary items is primarily a result of the new investments since September 30, 1993. The lower per share amounts resulted from the increased total number of shares outstanding due to the offering in May 1994. The Company bases its dividend primarily on funds from operations during the quarter. Funds from operations means net income excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization. Cash available for distribution may not necessarily equal funds from operations as the cash flow of the Company is affected by other factors not included in the funds from operations calculation. HEALTH AND RETIREMENT PROPERTIES TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Quarter Ended September 30, 1994 versus 1993 - Continued Funds from operations for the 1994 quarter was $19,818,000 or $.35 per share for the 1994 quarter and $12,187,000 or $.35 per share, for the 1993 quarter. The dividends declared which relate to these quarters were $18,937,000 or $.33 per share in 1994 and $11,239,000 or $.33 per share in 1993. Nine Months Ended September 30, 1994 versus 1993 Total revenues for the nine months ended September 30, 1994 increased to $61,279,000 from $41,140,000 for the nine months ended September 30, 1993. Rental income increased to $43,865,000 from $34,520,000 and interest income increased to $17,414,000 from $6,620,000 during the comparable period. Rental income increased as a result of new real estate investments, including the CCA transaction in December 1993 and the $320,000,000 Marriott transaction in 1994. The increase in interest income reflects the purchases between May and December 1993 of three pools of performing mortgage loans and the CCA transaction in December 1993. Total expenses for the nine months ended September 30, 1994 increased to $18,707,000 from $13,456,000 in 1993. Interest expense increased by $1,000,000, primarily as a result of the $200,000,000 floating rate senior notes issued in July 1994 in connection with the Marriott transaction versus average borrowings in 1993 of $101,986,000. Advisory fees and depreciation and amortization increased by $811,000 and $3,223,000 respectively, in the 1994 period as a result of new investments, including those mentioned above, that occurred near the end of, or subsequent to, the 1993 period. Funds from operations for the nine months ended September 30, 1994 and 1993 was $53,136,000 ($1.04 per share) and $34,825,000 ($1.02 per share), respectively. Income before gain on sale of properties and extraordinary items was $42,572,000 ($.83 per share) and $27,684,000 ($.81 per share), respectively, and net income was $44,613,000 ($.87 per share) and $24,292,000 ($.71 per share), respectively. Income before gain on sale of properties and extraordinary items increased primarily as a result of new investments since September 1993. Dividends declared relating to the nine months ended September 30, 1994 and 1993 were $52,628,000 ($.99 per share) and $24,292,000 ($.97 per share), respectively. HEALTH AND RETIREMENT PROPERTIES TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Assets of the Company increased to $847,441,000 at September 30, 1994, from $527,662,000 at December 31, 1993. The increase is principally the net result of increases in real estate properties, net, and cash and cash equivalents of $302,196,000 and $44,719,000, respectively and a decrease in real estate mortgages and notes, net, of $32,057,000. The increase in real estate properties is the net result of the acquisition of 14 retirement communities in connection with the Marriott transaction, and the sale of three properties in connection with the February 11, 1994 merger of Greenery Rehabilitation Group, Inc. (Greenery) into Horizon Healthcare Corporation (Horizon). Cash increased as a result of mortgage prepayments and excess proceeds from the July debt offering. Real estate mortgages and notes, net, decreased principally due to the prepayment of mortgage investments totalling $45,688,000 net of new mortgage financings of $13,631,000. During the third quarter, the Company completed its previously announced transaction with Host Marriott Corporation to acquire 14 retirement communities containing 3,952 residencies or beds for $320,000,000 subject to adjustments. The communities are triple net leased through December 31, 2013 to a wholly owned subsidiary of Marriott. The leases provide for fixed rent aggregating approximately $28,000,000 per year and additional rentals equal to 4.5% of annual revenues from operations in excess of base amounts determined on a facility by facility basis. All of the leases are subject to cross default provisions and are guaranteed by Marriott. This transaction was funded from cash on hand, the proceeds of an equity offering discussed below, drawings under the Company's revolving credit facility, assumption of $17,620,000 of existing debt bearing interest at 7.75%, and a portion of the proceeds from a floating rate note offering described below. One of the Company's tenants which leases HRP's two psychiatric facilities has exercised its option to purchase these facilities from HRP. Resolution of the option exercise price is presently being determined by an appraisal of the fair market value of the properties. In addition, Horizon has filed a registration statement with the Securities and Exchange Commission (SEC) in which it has indicated a use of proceeds to be the acquisition of a long term care facility it currently leases from HRP. Horizon has the option to acquire this facility upon 60 days written notice to HRP in connection with an option agreement entered into pursuant to the Horizon-Greenery merger. As the appraisal process is ongoing for the psychiatric HEALTH AND RETIREMENT PROPERTIES TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES-Continued facilities and official written notice of the option exercise has not yet been provided by Horizon, it is too early for the Company to predict the economic impact of these transactions. Both transactions are expected to occur in early 1995. The ultimate impact will depend on, among other things, the selling price, the Company's ability to reinvest the sales proceeds, the timing of such new investments and the yield it obtains on such investments. Cash and cash equivalents held by the Company do not generate income comparable to income generated when such funds are invested in income-producing real estate. The Company therefore continues to seek new investments with yields equivalent to or greater than current liquid investments. On July 13, 1994, the Company received net proceeds of $197,270,000 from the offering of $200,000,000 in floating rate senior notes due in 1999. The notes were issued in two series. The Series A Notes, in an aggregate principal amount of $75,000,000, bear interest at LIBOR plus 105 basis points and may be called by the Company beginning April 13, 1995. The Series B Notes, in an aggregate principal amount of $125,000,000, were issued at a discount (99.0159% of par), bear interest at LIBOR plus 72 basis points and may be called by the Company beginning July 13, 1996. A portion of these proceeds were used to fund part of the Marriott transaction and to repay $56,000,000 in borrowings under the Company's revolving credit facility. The Company expects to apply the balance to future real estate acquisitions. This senior note offering was drawn under a shelf registration statement for the offering of up to $345,000,000 of debt securities, preferred shares of beneficial interest, common shares of beneficial interest and common share warrants. An additional $145,000,000 of securities may be issued under this registration statement. At September 30, 1994, the Company had $58,606,000 of cash and cash equivalents and the ability to borrow up to an additional $170,000,000 under its revolving credit facility. At September 30, 1994, the Company had outstanding commitments to provide $14,333,000 in improvement financing for existing investments. In addition, at September 30, 1994 the Company had an outstanding commitment to provide purchase-lease financing of $35,000,000 for nine skilled nursing facilities in Vermont and New Hampshire. HEALTH AND RETIREMENT PROPERTIES TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES-Continued The Company is continuing to seek new investments to expand and diversify its portfolio of leased and mortgaged health care related real estate. The Company believes that the new investments described above substantially improve the quality and diversity of lessees and mortgagors in its portfolio and also the security of its future cash flows and dividends. Approximately 70% of the Company's portfolio is leased to or mortgage financed with seven New York Stock Exchange listed companies. Also, Marriott, which is an A- investment grade rated company, is the Company's largest single tenant. The Company intends to balance the use of debt and equity in such a manner that the long term cost of funds borrowed to acquire or mortgage finance facilities is appropriately matched, to the extent practicable, with the terms of the investments made with such borrowed funds. As of September 30, 1994, the Company's debt as a percentage of total capitalization was approximately 26%. Current expenses and dividends are provided for by funds from operations. HEALTH AND RETIREMENT PROPERTIES TRUST SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. HEALTH AND RETIREMENT PROPERTIES TRUST (Registrant) DATE November 14, 1994 BY /s/ John G. Murray John G. Murray, Treasurer -----END PRIVACY-ENHANCED MESSAGE-----