WELLTOWER INC.
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2010
Commission File No. 1-8923
Commission File No. 1-8923
HEALTH CARE REIT,
INC.
(Exact name of registrant as
specified in its charter)
|
Delaware
|
34-1096634 | |
|
(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
4500 Dorr Street, Toledo, Ohio
|
43615 | |
| (Address of principal executive office) | (Zip Code) |
(419) 247-2800
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
|
Common Stock, $1.00 par value
|
New York Stock Exchange | |
|
7.875% Series D Cumulative
|
New York Stock Exchange | |
|
Redeemable Preferred Stock, $1.00 par value
|
||
|
7.625% Series F Cumulative
|
New York Stock Exchange | |
|
Redeemable Preferred Stock, $1.00 par value
|
Securities registered pursuant to Section 12(g) of the
Act:
None
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes
o
No
þ
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 the filing requirements for at least the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment of this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
The aggregate market value of the shares of voting common stock
held by non-affiliates of the registrant, computed by reference
to the closing sales price of such shares on the New York Stock
Exchange as of the last business day of the registrant’s
most recently completed second fiscal quarter was $5,204,141,431.
As of January 31, 2011, the registrant had
147,381,372 shares of common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for
the annual stockholders’ meeting to be held May 5,
2011, are incorporated by reference into Part III.
HEALTH
CARE REIT, INC.
2010 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
2010 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Table of Contents
| Item 1. | Business |
General
Health Care REIT, Inc. is a real estate investment trust
(“REIT”) that has been at the forefront of senior
housing and health care real estate since the company was
founded in 1970. We are an S&P 500 company
headquartered in Toledo, Ohio and our portfolio spans the full
spectrum of senior housing and health care real estate,
including senior housing communities, skilled nursing
facilities, medical office buildings, inpatient and outpatient
medical centers and life science facilities. Our capital
programs, when combined with comprehensive planning, development
and property management services, make us a single-source
solution for acquiring, planning, developing, managing,
repositioning and monetizing real estate assets. More
information is available on the Internet at www.hcreit.com.
Our primary objectives are to protect stockholder capital and
enhance stockholder value. We seek to pay consistent cash
dividends to stockholders and create opportunities to increase
dividend payments to stockholders as a result of annual
increases in rental and interest income and portfolio growth. To
meet these objectives, we invest in the full spectrum of senior
housing and health care real estate and diversify our investment
portfolio by property type, operator/tenant and geographic
location.
Depending upon the availability and cost of external capital, we
believe our liquidity is sufficient to fund operations, meet
debt service obligations (both principal and interest), make
dividend distributions and complete construction projects in
process. We also continue to evaluate opportunities to finance
future investments. New investments are generally funded from
temporary borrowings under our unsecured line of credit
arrangement, internally generated cash and the proceeds from
sales of real property. Our investments generate cash from rent
and interest receipts and principal payments on loans
receivable. Permanent capital for future investments, which
replaces funds drawn under the unsecured line of credit
arrangement, has historically been provided through a
combination of public and private offerings of debt and equity
securities and the incurrence or assumption of secured debt.
References herein to “we,” “us,”
“our” or the “Company” refer to Health Care
REIT, Inc. and its subsidiaries unless specifically noted
otherwise.
Portfolio
of Properties
The following table summarizes our portfolio as of
December 31, 2010:
|
Investments
|
Percentage of
|
Number of
|
# Beds/Units
|
Investment per
|
||||||||||||||||||||
|
Type of Property
|
(In thousands) | Investments | Properties | or Sq. Ft. | metric(1) | States | ||||||||||||||||||
|
Senior housing facilities
|
$ | 4,403,208 | 49.0 | % | 303 | 27,863 units | $ | 162,210 per unit | 36 | |||||||||||||||
|
Skilled nursing facilities
|
1,257,719 | 14.0 | % | 180 | 24,064 beds | 52,266 per bed | 26 | |||||||||||||||||
|
Hospitals
|
782,879 | 8.7 | % | 31 | 1,857 beds | 446,846 per bed | 13 | |||||||||||||||||
|
Medical office buildings(2)
|
2,195,435 | 24.4 | % | 162 | 9,047,167 sq. ft. | 254 per sq. ft. | 28 | |||||||||||||||||
|
Life science buildings(2)
|
346,562 | 3.9 | % | 7 | n/a | 1 | ||||||||||||||||||
|
Totals
|
$ | 8,985,803 | 100.0 | % | 683 | 41 | ||||||||||||||||||
| (1) | Investment per metric was computed by using the total investment amount of $8,860,164,000, which includes net real estate investments and unfunded construction commitments for which initial funding has commenced which amounted to $8,592,109,000 and $268,055,000, respectively. | |
| (2) | Includes our share of unconsolidated joint venture investments. Please see Note 7 to our consolidated financial statements for additional information. |
3
Table of Contents
Property
Types
We invest in senior housing and health care real estate. We
evaluate our business and make resource allocations on our two
business segments — senior housing and care and
medical facilities. For additional information regarding
business segments, see Note 17 to our consolidated
financial statements. The accounting policies of the segments
are the same as those described in the summary of significant
accounting policies (see Note 2 to our consolidated
financial statements). The following is a summary of our various
property types.
Senior
Housing and Care
Our senior housing and care properties include skilled nursing
facilities, assisted living facilities, independent
living/continuing care retirement communities and combinations
thereof. We invest in senior housing and care real estate
primarily through acquisition and development. Excluding our
operating partnerships (see Note 3 to our consolidated
financial statements), properties are primarily leased under
triple-net
leases and we are not involved in property management. Our
properties include stand-alone facilities that provide one level
of service, combination facilities that provide multiple levels
of service, and communities or campuses that provide a wide
range of services.
Independent Living Facilities.
Independent
living facilities are age-restricted, multifamily properties
with central dining facilities that provide residents access to
meals and other services such as housekeeping, linen service,
transportation and social and recreational activities.
Continuing Care Retirement
Communities.
Continuing care retirement
communities include a combination of detached homes, an
independent living facility, an assisted living facility
and/or
a
skilled nursing facility on one campus. These communities are
appealing to residents because there is no need for relocating
when health and medical needs change. Resident payment plans
vary, but can include entrance fees, condominium fees and rental
fees. Many of these communities also charge monthly maintenance
fees in exchange for a living unit, meals and some health
services.
Early Stage Senior Housing.
Early stage senior
housing communities contain primarily for-sale single-family
homes, townhomes, cluster homes, mobile homes
and/or
condominiums with no specialized services. These communities are
typically restricted or targeted to adults at least
55 years of age or older. Residents generally lead an
independent lifestyle. Communities may include amenities such as
a clubhouse, golf course and recreational spaces.
Assisted Living Facilities.
Assisted living
facilities are state regulated rental properties that provide
the same services as independent living facilities, but also
provide supportive care from trained employees to residents who
require assistance with activities of daily living, including
management of medications, bathing, dressing, toileting,
ambulating and eating.
Alzheimer’s/Dementia Care
Facilities.
Certain assisted living facilities
may include state licensed settings that specialize in caring
for those afflicted with Alzheimer’s disease
and/or
other
types of dementia.
Skilled Nursing Facilities.
Skilled nursing
facilities are licensed daily rate or rental properties where
the majority of individuals require
24-hour
nursing
and/or
medical care. Generally, these properties are licensed for
Medicaid
and/or
Medicare reimbursement.
Medical
Facilities
Our medical facilities include medical office buildings,
hospitals and life science buildings. Our medical office
buildings are typically leased to multiple tenants and generally
require a certain level of property management. Our hospital
investments are typically structured similar to our senior
housing and care investments. Our life science investments
represent investments in an unconsolidated joint venture (see
Note 7 to our consolidated financial statements).
Medical Office Buildings.
The medical office
building portfolio consists of health care related buildings
that include physician offices, ambulatory surgery centers,
diagnostic facilities, outpatient services
and/or
labs.
Our portfolio has a strong affiliation with health systems:
approximately 80% of the buildings are either located on campus
or affiliated with hospitals through a satellite location.
4
Table of Contents
Hospitals.
Our hospitals generally include
acute care hospitals, inpatient rehabilitation hospitals, and
long-term acute care hospitals. Acute care hospitals provide a
wide range of inpatient and outpatient services, including, but
not limited to, surgery, rehabilitation, therapy and clinical
laboratories. Inpatient rehabilitation hospitals provide
inpatient services for patients with intensive rehabilitation
needs. Long-term acute care hospitals provide inpatient services
for patients with complex medical conditions that require more
intensive care, monitoring or emergency support than is
available in most skilled nursing facilities.
Investments
We invest in senior housing and health care real estate
primarily through acquisitions and developments. We diversify
our investment portfolio by property type, operator/tenant and
geographic location. In determining whether to invest in a
property, we focus on the following: (1) the experience of
the obligor’s management team; (2) the historical and
projected financial and operational performance of the property;
(3) the credit of the obligor; (4) the security for
the lease or loan; (5) the real estate attributes of the
building and its location; and (6) the capital committed to
the property by the obligor. We conduct market research and
analysis for all potential investments. In addition, we review
the value of all properties, the interest rates and covenant
requirements of any facility-level debt to be assumed by us at
the time of the acquisition and the anticipated sources of
repayment of any of the obligor’s existing debt that is not
to be assumed by us at the time of the acquisition.
We monitor our investments through a variety of methods
determined by the type of property. Our asset management process
for senior housing and care properties generally includes review
of monthly financial statements and other operating data for
each property, periodic review of obligor creditworthiness,
periodic property inspections and review of covenant compliance
relating to licensure, real estate taxes, letters of credit and
other collateral. Our internal property management division
actively manages and monitors the medical office building
portfolio with a comprehensive process including tenant
relations, tenant lease expirations, the mix of health service
providers, hospital/health system relationships, property
performance, capital improvement needs and market conditions
among other things. In monitoring our portfolio, our personnel
use a proprietary database to collect and analyze
property-specific data. Additionally, we conduct extensive
research to ascertain industry trends and risks.
Through asset management and research, we evaluate the operating
environment in each property’s market to determine whether
payment risk is likely to increase. When we identify
unacceptable levels of payment risk, we seek to mitigate,
eliminate or transfer the risk. We categorize the risk as
obligor, property or market risk. For obligor risk, we typically
find a substitute operator/tenant to run the property. For
property risk, we usually work with the operator/tenant to
institute property-level management changes to address the risk.
Finally, for market risk, we often encourage an obligor to
change its capital structure, including refinancing the property
or raising additional equity. Through these asset management and
research efforts, we are generally able to intervene at an early
stage to address payment risk, and in so doing, support both the
collectability of revenue and the value of our investment.
Depending upon market conditions, we believe that new
investments will be available in the future with spreads over
our cost of capital that will generate appropriate returns to
our stockholders.
Investment
Types
Real Property.
Our hospitals and senior
housing and care properties are primarily comprised of land,
building, improvements and related rights. Excluding properties
in our senior housing operating partnerships (see Note 3 to
our consolidated financial statements), these properties are
generally leased to operators under long-term operating leases.
The leases generally have a fixed contractual term of 12 to
15 years and contain one or more five to
15-year
renewal options. Certain of our leases also contain purchase
options. Most of our rents are received under
triple-net
leases requiring the operator to pay rent and all additional
charges incurred in the operation of the leased property. The
tenants are required to repair, rebuild and maintain the leased
properties. Substantially all of these operating leases are
designed with either fixed or contingent escalating rent
structures. Leases with fixed annual rental escalators are
generally recognized on a straight-line basis over the initial
lease period, subject to a collectability assessment. Rental
income related to leases with contingent rental escalators is
generally recorded based on the contractual cash rental payments
due for the period.
5
Table of Contents
At December 31, 2010, approximately 91% of our hospitals
and senior housing and care properties were subject to master
leases. A master lease is a lease of multiple properties to one
tenant entity under a single lease agreement. From time to time,
we may acquire additional properties that are then leased to the
tenant under the master lease. The tenant is required to make
one monthly payment that represents rent on all the properties
that are subject to the master lease. Typically, the master
lease tenant can exercise its right to purchase the properties
or to renew the master lease only with respect to all leased
properties at the same time. This bundling feature benefits us
because the tenant cannot limit the purchase or renewal to the
better performing properties and terminate the leasing
arrangement with respect to the poorer performing properties.
This spreads our risk among the entire group of properties
within the master lease. The bundling feature should provide a
similar advantage if the master lease tenant is in bankruptcy.
Subject to certain restrictions, a debtor in bankruptcy has the
right to assume or reject each of its leases. It is our intent
that a tenant in bankruptcy would be required to assume or
reject the master lease as a whole, rather than deciding on a
property by property basis.
Our medical office building portfolio is primarily self-managed
and consists principally of multi-tenant properties leased to
health care providers. Our leases have favorable lease terms
that typically include fixed increasers and some form of
operating expense reimbursement by the tenant. As of
December 31, 2010, 88% of our portfolio included leases
with full pass through, 10% with a partial expense reimbursement
(modified gross) and 2% with no expense reimbursement (gross).
Our medical office building leases are non-cancellable operating
leases that have a weighted average remaining term of
8.5 years at December 31, 2010 and are normally credit
enhanced by guaranties
and/or
letters of credit.
Construction.
We currently provide for the
construction of properties for tenants generally as part of
long-term operating leases. We capitalize certain interest costs
associated with funds used to pay for the construction of
properties owned by us. The amount capitalized is based upon the
amount advanced during the construction period using the rate of
interest that approximates our cost of financing. Our interest
expense is reduced by the amount capitalized. We also typically
charge a transaction fee at the commencement of construction
which we defer and amortize to income over the term of the
resulting lease. The construction period commences upon funding
and terminates upon the earlier of the completion of the
applicable property or the end of a specified period. During the
construction period, we advance funds to the tenants in
accordance with agreed upon terms and conditions which require,
among other things, periodic site visits by a Company
representative. During the construction period, we generally
require an additional credit enhancement in the form of payment
and performance bonds
and/or
completion guaranties. At December 31, 2010, we had
outstanding construction investments of $356,793,000 and were
committed to providing additional funds of approximately
$268,055,000 to complete construction for investment properties.
Real Estate Loans.
Our real estate loans are
typically structured to provide us with interest income,
principal amortization and transaction fees and are generally
secured by a first, second or third mortgage lien, leasehold
mortgage, corporate guaranties
and/or
personal guaranties. At December 31, 2010, we had
outstanding real estate loans of $436,580,000. The interest
yield averaged approximately 9.1% per annum on our outstanding
real estate loan balances. Our yield on real estate loans
depends upon a number of factors, including the stated interest
rate, average principal amount outstanding during the term of
the loan and any interest rate adjustments. The real estate
loans outstanding at December 31, 2010 are generally
subject to three to
20-year
terms with principal amortization schedules
and/or
balloon payments of the outstanding principal balances at the
end of the term. Typically, real estate loans are
cross-defaulted and cross-collateralized with other real estate
loans, operating leases or agreements between us and the obligor
and its affiliates.
Principles
of Consolidation
The consolidated financial statements include the accounts of
our wholly-owned subsidiaries and joint ventures that we
control, through voting rights or other means. All material
intercompany transactions and balances have been eliminated in
consolidation.
6
Table of Contents
At inception of the joint venture transactions, we identify
entities for which control is achieved through means other than
voting rights (“variable interest entities” or
“VIEs”) and determine which business enterprise is the
primary beneficiary of its operations. A variable interest
entity is broadly defined as an entity where either (i) the
equity investors as a group, if any, do not have a controlling
financial interest, or (ii) the equity investment at risk
is insufficient to finance that entity’s activities without
additional subordinated financial support. We consolidate
investments in VIEs when we are determined to be the primary
beneficiary. ASC 810 requires enterprises to perform a
qualitative approach to determining whether or not a VIE will
need to be consolidated on a continuous basis. This evaluation
is based on an enterprise’s ability to direct and influence
the activities of a variable interest entity that most
significantly impact that entity’s economic performance.
For investments in joint ventures, we evaluate the type of
rights held by the limited partner(s), which may preclude
consolidation in circumstances in which the sole general partner
would otherwise consolidate the limited partnership. The
assessment of limited partners’ rights and their impact on
the presumption of control over a limited partnership by the
sole general partner should be made when an investor becomes the
sole general partner and should be reassessed if (i) there
is a change to the terms or in the exercisability of the rights
of the limited partners, (ii) the sole general partner
increases or decreases its ownership in the limited partnership
interests, or (iii) there is an increase or decrease in the
number of outstanding limited partnership interests. We
similarly evaluate the rights of managing members of limited
liability companies.
Equity
Investments
Equity investments at December 31, 2010 and 2009 include an
investment in a public company that has a readily determinable
fair market value. We classify this equity investment as
available-for-sale
and, accordingly, record this investment at its fair market
value with unrealized gains and losses included in accumulated
other comprehensive income, a separate component of
stockholders’ equity. Equity investments at
December 31, 2010 and 2009 also include an investment in a
private company. We do not have the ability to exercise
influence over the company, so the investment is accounted for
under the cost method. Under the cost method of accounting,
investments in private companies are carried at cost and are
adjusted only for
other-than-temporary
declines in fair value, return of capital and additional
investments. These equity investments represent a minimal
ownership interest in these companies. Additionally, equity
investments at December 31, 2010 include investments in
unconsolidated joint ventures.
Investments in Unconsolidated Joint
Ventures.
Investments in less than majority owned
entities where our interests represent a general partnership
interest but substantive participating rights or substantive
kick-out rights have been granted to the limited partners or
when our interests do not represent the general partnership
interest and we do not control the major operating and financial
policies of the entity are reported under the equity method of
accounting. Under the equity method of accounting, our share of
the investee’s earnings or losses is included in our
consolidated results of operations. The initial carrying value
of investments in unconsolidated joint ventures is based on the
amount paid to purchase the joint venture interest or the
estimated fair value of the assets prior to the sale of
interests in the joint venture. We evaluate our equity method
investments for impairment based upon a comparison of the
estimated fair value of the equity method investment to its
carrying value. When we determine a decline in the estimated
fair value of such an investment below its carrying value is
other-than-temporary,
an impairment is recorded.
Borrowing
Policies
We utilize a combination of debt and equity to fund investments.
Our debt and equity levels are determined by management to
maintain a conservative credit profile. Generally, we intend to
issue unsecured, fixed rate public debt with long-term
maturities to approximate the maturities on our leases and
loans. For short-term purposes, we may borrow on our unsecured
line of credit arrangement. We replace these borrowings with
long-term capital such as senior unsecured notes, common stock
or preferred stock. When terms are deemed favorable, we may
invest in properties subject to existing mortgage indebtedness.
In addition, we may obtain secured financing for unleveraged
properties in which we have invested or may refinance properties
acquired on a leveraged basis. In our agreements with our
lenders, we are subject to restrictions with respect to secured
and unsecured indebtedness.
7
Table of Contents
Competition
We compete with other real estate investment trusts, real estate
partnerships, private equity and hedge fund investors, banks,
insurance companies, finance/investment companies,
government-sponsored agencies, taxable and tax-exempt bond
funds, health care operators, developers and other investors in
the acquisition, development, leasing and financing of health
care and senior housing properties. Some of our competitors are
larger with greater resources and lower costs of capital than
us. Increased competition inhibits our ability to identify and
successfully complete investments. We compete for investments
based on a number of factors including rates, financings
offered, underwriting criteria and reputation. Our ability to
successfully compete is also impacted by economic and population
trends, availability of acceptable investment opportunities, our
ability to negotiate beneficial investment terms, availability
and cost of capital, construction and renovation costs and new
and existing laws and regulations.
The operators/tenants of our properties compete on a local and
regional basis with operators/tenants of properties that provide
comparable services. Operators/tenants compete for patients and
residents based on a number of factors including quality of
care, reputation, physical appearance of properties, services
offered, family preferences, physicians, staff and price. We
also face competition from other health care facilities for
tenants, such as physicians and other health care providers that
provide comparable facilities and services.
For additional information on the risks associated with our
business, please see “Item 1A — Risk
Factors” of this Annual Report on
Form 10-K.
Employees
As of December 31, 2010, we had 263 employees.
Customer
Concentrations
The following table summarizes certain information about our
customer concentrations as of December 31, 2010 (dollars in
thousands):
|
Number of
|
Total
|
Percent of
|
||||||||||
| Properties | Investment(2) | Investment(3) | ||||||||||
|
Concentration by investment:(1)
|
||||||||||||
|
Merrill Gardens LLC
|
38 | $ | 732,211 | 9 | % | |||||||
|
Brandywine Senior Living, LLC
|
19 | 612,598 | 7 | % | ||||||||
|
Senior Living Communities, LLC
|
12 | 595,223 | 7 | % | ||||||||
|
Senior Star Living
|
10 | 464,062 | 5 | % | ||||||||
|
Brookdale Senior Living, Inc.
|
86 | 334,946 | 4 | % | ||||||||
|
Remaining portfolio
|
518 | 5,853,069 | 68 | % | ||||||||
|
Totals
|
683 | $ | 8,592,109 | 100 | % | |||||||
| (1) | All of our top five customers are in our senior housing and care segment. | |
| (2) | Excludes our share of unconsolidated joint venture investments. Please see Note 7 for additional information. | |
| (3) | Investments with our top five customers comprised 24% of total investments at December 31, 2009. |
Certain
Government Regulations
Health
Law Matters — Generally
Typically, operators of senior housing facilities do not receive
significant funding from government programs and are largely
subject to state laws, as opposed to federal laws. Operators of
skilled nursing facilities and hospitals do receive significant
funding from government programs, and these facilities are
subject to the federal and state laws that regulate the type and
quality of the medical
and/or
nursing care provided, ancillary services (
e.g.
,
respiratory, occupational, physical and infusion therapies),
qualifications of the administrative personnel and nursing
staff, the adequacy of the physical plant and equipment,
reimbursement and rate setting and operating
8
Table of Contents
policies. In addition, as described below, operators of these
facilities are subject to extensive laws and regulations
pertaining to health care fraud and abuse, including, but not
limited to, the Federal Anti-kickback Statute, the Federal Stark
Law, and the Federal False Claims Act, as well as comparable
state law counterparts. Hospitals, physician group practice
clinics, and other health care providers that operate in our
portfolio are subject to extensive federal, state, and local
licensure, registration, certification, and inspection laws,
regulations, and industry standards. Our tenants’ failure
to comply with any of these, and other, laws could result in
loss of accreditation; denial of reimbursement; imposition of
fines; suspension, decertification, or exclusion from federal
and state health care programs; loss of license; or closure of
the facility.
Licensing
and Certification
The primary regulations that affect senior housing facilities
with assisted living are state licensing and registration laws.
In granting and renewing these licenses, the state regulatory
agencies consider numerous factors relating to a property’s
physical plant and operations including, but not limited to,
admission and discharge standards, staffing, and training. A
decision to grant or renew a license is also affected by a
property owner’s record with respect to patient and
consumer rights, medication guidelines, and rules. Certain of
the senior housing facilities mortgaged to or owned by us may
require the resident to pay an entrance or upfront fee, a
portion of which may be refundable. These entrance fee
communities are subject to significant state regulatory
oversight, including, for example, oversight of each
facility’s financial condition; establishment and
monitoring of reserve requirements, and other financial
restrictions; the right of residents to cancel their contracts
within a specified period of time; lien rights in favor of
residents; restrictions on change of ownership; and similar
matters. Such oversight, and the rights of residents within
these entrance fee communities, may have an effect on the
revenue or operations of the operators of such facilities, and,
therefore, may adversely affect us.
Certain health care facilities are subject to a variety of
licensure and certificate of need (“CON”) laws and
regulations. Where applicable, CON laws generally require, among
other requirements, that a facility demonstrate the need for
(1) constructing a new facility, (2) adding beds or
expanding an existing facility, (3) investing in major
capital equipment or adding new services, (4) changing the
ownership or control of an existing licensed facility, or
(5) terminating services that have been previously approved
through the CON process. Certain state CON laws and regulations
may restrict the ability of operators to add new properties or
expand an existing facility’s size or services. In
addition, CON laws may constrain the ability of an operator to
transfer responsibility for operating a particular facility to a
new operator. If we have to replace a property operator who is
excluded from participating in a federal or state health care
program (as discussed below), our ability to replace the
operator may be affected by a particular state’s CON laws,
regulations, and applicable guidance governing changes in
provider control.
With respect to licensure, generally our skilled nursing
facilities and acute care facilities are required to be licensed
and certified for participation in Medicare, Medicaid, and other
federal health care programs. This generally requires license
renewals and compliance surveys on an annual or bi-annual basis.
The failure of our operators to maintain or renew any required
license or regulatory approval, as well as the failure of our
operators to correct serious deficiencies identified in a
compliance survey could require those operators to discontinue
operations at a property. In addition, if a property is found to
be out of compliance with the Medicare, Medicaid, or other
health care program conditions of participation in, the property
operator may be excluded from participating in those government
health care programs. Any such occurrence may impair an
operators’ ability to meet their financial obligations to
us. If we have to replace an excluded property operator, our
ability to replace the operator may be affected by federal and
state laws, regulations, and applicable guidance governing
changes in provider control. This may result in payment delays,
an inability to find a replacement operator, a significant
working capital commitment from us to a new operator or other
difficulties.
Reimbursement
Senior Housing Facilities.
Approximately 37%
of our rental revenues for the year ended December 31, 2010
were attributable to senior housing facilities. The majority of
the revenues received by the operators of our senior housing
facilities are from private pay sources. The remaining revenue
source is primarily Medicaid under certain waiver programs. As a
part of the Omnibus Budget Reconciliation Act (“OBRA”)
of 1981, Congress established a waiver program enabling some
states to offer Medicaid reimbursement to assisted living
providers as an alternative
9
Table of Contents
to institutional long-term care services. The provisions of OBRA
and the subsequent OBRA Acts of 1987 and 1990 permit states to
seek a waiver from typical Medicaid requirements to develop
cost-effective alternatives to long-term care, including
Medicaid payments for assisted living and home health. As of
December 31, 2010, four of our 41 senior housing operators
received Medicaid reimbursement pursuant to Medicaid waiver
programs. For the twelve months ended September 30, 2010,
approximately 9% of the revenues at our senior housing
facilities were from Medicaid reimbursement. There can be no
guarantee that a state Medicaid program operating pursuant to a
waiver will be able to maintain its waiver status.
Rates paid by self-pay residents are set by the facilities and
are determined by local market conditions and operating costs.
Generally, facilities receive a higher payment per day for a
private pay resident than for a Medicaid beneficiary who
requires a comparable level of care. The level of Medicaid
reimbursement varies from state to state. Thus, the revenues
generated by operators of our assisted living facilities may be
adversely affected by payor mix, acuity level, changes in
Medicaid eligibility, and reimbursement levels. In addition, a
state could lose its Medicaid waiver and no longer be permitted
to utilize Medicaid dollars to reimburse for assisted living
services. Changes in revenues could in turn have a material
adverse effect on an operator’s ability to meet its
obligations to us.
Skilled Nursing Facilities and
Hospitals.
Skilled nursing facilities and
hospitals typically receive most of their revenues from the
Medicare and Medicaid programs, with the balance representing
reimbursement payments from private payors, including private
insurers. Consequently, changes in federal or state
reimbursement policies may also adversely affect an
operator’s ability to cover its expenses, including our
rent or debt service. Skilled nursing facilities and hospitals
are subject to periodic pre- and post-payment reviews, and other
audits by federal and state authorities. A review or audit of a
property operator’s claims could result in recoupments,
denials, or delay of payments in the future, which could have a
material adverse effect on the operator’s ability to meet
its financial obligations to us. Due to the significant
judgments and estimates inherent in payor settlement accounting,
no assurance can be given as to the adequacy of any reserves
maintained by our property operators to cover potential
adjustments to reimbursements, or to cover settlements made to
payors. In fact, in December 2010, the Department of Health and
Human Services Office of Inspector General (“OIG”)
released a report focusing on skilled nursing facilities’
billing practices for Medicare Part A payments, and found
that between
2006-2008
skilled nursing facilities increasingly billed for higher paying
Resource Utilization Groups (“RUGs”), the payment
classification mechanism for the Medicare program, even though
beneficiary characteristics remained largely unchanged. In
particular, from 2006 to 2008, OIG found that the percentage of
RUGs for ultra high therapy increased from 17% to 28%, despite
the fact that beneficiaries’ ages and diagnoses at
admission were largely unchanged during that time period. As a
result of the recent attention on skilled nursing billing
practices and ongoing government pressure to reduce spending by
government health care programs, government health care programs
may limit or reduce payments to skilled nursing facilities and
hospitals, and, as a result, an operator’s ability to meet
its financial obligations to us may be significantly impaired.
Medicare Reimbursement and Skilled Nursing
Facilities.
For the twelve months ended
September 30, 2010, approximately 30% of the revenues at
our skilled nursing facilities (which comprised 27% of our
rental revenues for the year ended December 31,
2010) were paid by Medicare. Skilled nursing facilities are
reimbursed under the Medicare Skilled Nursing Facility
Prospective Payment System (“SNF PPS”). There is a
risk that some skilled nursing facilities’ costs will
exceed the fixed payments under the SNF PPS, and there is also a
risk that payments under the SNF PPS may be set below the costs
to provide certain items and services, which could result in
immediate financial difficulties for skilled nursing facilities,
and could cause operators to seek bankruptcy protection. Skilled
nursing facilities have faced these types of difficulties since
the implementation of the SNF PPS.
Skilled nursing facilities received a net 1.1% Medicare payment
rate decrease for federal fiscal year 2010. This 1.1% net
decrease is the result of a 3.3% decrease in payments due to
recalibration of the case-mix indexes combined with a 2.2%
increase in payments through “market basket” changes
for fiscal year 2010. The Centers for Medicare &
Medicaid Services (“CMS”), an agency of the
U.S. Department of Health and Human Services
(“HHS”), has announced its intention to make a
positive payment update for skilled nursing facilities for
fiscal year 2011 — a net 1.7% increase resulting from
a 2.3% market basket update less a 0.6% forecasting error
adjustment. Section 5008 of the Deficit Reduction Act of
2005 directs the Secretary of HHS to conduct a demonstration
program, for a three year period, beginning January 1,
2008, assessing the costs and outcomes of patients discharged
from hospitals in a variety of post-acute care settings,
including skilled nursing facilities. The outcome of that
10
Table of Contents
demonstration program could lead to changes in Medicare coverage
and reimbursement for post-acute care. Because the results of
the demonstration have not yet been finalized, we cannot predict
the potential financial implications those results, or any other
proposed changes to the Medicare program, may have on our
operators or tenants.
The Balanced Budget Act of 1997 mandated caps on Medicare
reimbursement for certain therapy services. However, Congress
imposed various moratoriums on the implementation of those caps.
For 2011, the annual payment cap of $1,870 per patient applies
to occupational therapy and a separate $1,870 cap applies to
speech and physical therapy. Congress has permitted patients
exceeding the cap to obtain additional Medicare coverage through
a waiver program if the therapy is deemed medically necessary.
The waiver program was historically extended, most recently, on
December 15, 2010, by the Medicare and Medicaid Extenders
Act (HR 4994), which extended the waiver program through
December 31, 2011. Prior to the recent legislation, the
program was scheduled to expire December 31, 2010. If the
exception expires, patients will need to use private funds to
pay for the cost of therapy above the caps. If patients are
unable to satisfy their
out-of-pocket
cost responsibility to reimburse an operator for services
rendered, the operator’s ability to meet its financial
obligations to us could be adversely impacted.
Medicare Reimbursement and Hospitals.
For the
twelve months ended September 30, 2010, approximately 56%
of the revenues at our hospitals (which comprised 8% of our
rental revenues for the year ended December 31,
2010) were from Medicare reimbursements. Hospitals,
generally, are reimbursed by Medicare under the Hospital
Inpatient Prospective Payment System (“PPS”), the
Hospital Outpatient Prospective Payment System
(“OPPS”), the Long Term Care Hospital Prospective
Payment System (“LTCH PPS”), or the Inpatient
Rehabilitation Facility Prospective Payment System (“IRF
PPS”). Acute care hospitals provide a wide range of
inpatient and outpatient services including, but not limited to,
surgery, rehabilitation, therapy, and clinical laboratory
services. Long-term acute care hospitals provide inpatient
services for patients with medical conditions that are often
complex and that require more intensive care, monitoring or
emergency support than that available in most skilled nursing
facilities. Inpatient rehabilitation facilities provide
intensive rehabilitation services in an inpatient setting for
patients requiring at least three hours of rehabilitation
services a day.
With respect to Medicare’s PPS for regular hospitals,
reimbursement for inpatient services is made on the basis of a
fixed, prospective rate, based on the principal diagnosis of the
patient. Hospitals may be at risk to the extent that their costs
in treating a specific case exceed the fixed payment amount. The
diagnosis related group (“DRG”) reimbursement system
was updated in 2008 to expand the number of DRGs from 538 to 745
in order to better distinguish more severe conditions. One
additional DRG was added in 2009, for a new total of 746. In
some cases, a hospital might be able to qualify for an outlier
payment if the hospital’s losses exceed a threshold.
Medicaid Reimbursement.
Medicaid is a major
payor source for residents in our skilled nursing facilities and
hospitals. For the twelve months ended September 30, 2010,
approximately 51% of the revenues of our skilled nursing
facilities and 4% of the revenues of our hospitals were
attributable to Medicaid reimbursement payments. The federal and
state governments share responsibility for financing Medicaid.
The federal matching rate, known as the Federal Medical
Assistance Percentage (“FMAP”), varies by state based
on relative per capita income, but is at least 50% in all
states. On average, Medicaid is the largest component of total
state spending, representing approximately 21% of total state
spending. The percentage of Medicaid dollars used for long-term
care varies from state to state, due in part to different ratios
of elderly population and eligibility requirements. Within
certain federal guidelines, states have a fairly wide range of
discretion to determine eligibility and reimbursement
methodology. Many states reimburse long-term care facilities
using fixed daily rates, which are applied prospectively based
on patient acuity and the historical costs incurred in providing
patient care. Reasonable costs typically include allowances for
staffing, administrative and general expenses, property, and
equipment (
e.g.
, real estate taxes, depreciation and fair
rental).
In most states, Medicaid does not fully reimburse the cost of
providing skilled nursing services. Certain states are
attempting to slow the rate of growth in Medicaid expenditures
by freezing rates or restricting eligibility and benefits. As of
the beginning of state fiscal year 2011, states in which we have
skilled nursing property investments held rates flat on average
for the year. Our skilled nursing portfolio’s average
Medicaid rate will likely vary throughout the year as states
continue to make interim changes to their budgets and Medicaid
funding. In addition, Medicaid reimbursement rates may decline
if revenues in a particular state are not sufficient to fund
budgeted expenditures. President Obama’s proposed fiscal
year budget for 2012, released on February 14, 2011, has
the
11
Table of Contents
potential to further impact Medicaid reimbursement rates. The
President’s budget includes a proposal to phase down the
Medicaid provider tax, a tax paid by health care providers to
help fund state Medicaid programs, beginning with a reduction of
4.5% in fiscal year 2015. If the President’s proposal is
implemented, the various state Medicaid programs will receive
less funds, which could adversely affect our operators and
tenants.
The Medicare Part D drug benefit became effective
January 1, 2006. Since that date, low-income Medicare
beneficiaries (eligible for both Medicare and full Medicaid
benefits), including those nursing home residents who are dually
eligible for both programs, may enroll and receive outpatient
prescription drugs under Medicare, not Medicaid. Medicare
Part D has resulted in increased administrative
responsibilities for nursing home operators because enrollment
in Medicare Part D is voluntary and residents must choose
between multiple prescription drug plans. Operators may also
experience increased expenses to the extent that a particular
drug prescribed to a patient is not listed on the Medicare
Part D drug plan formulary for the plan in which the
patient is enrolled.
The reimbursement methodologies applied to health care
facilities continue to evolve. Federal and state authorities
have considered and may seek to implement new or modified
reimbursement methodologies that may negatively impact health
care property operations. The impact of any such changes, if
implemented, may result in a material adverse effect on our
skilled nursing and hospital property operations. No assurance
can be given that current revenue sources or levels will be
maintained. Accordingly, there can be no assurance that payments
under a government health care program are currently, or will be
in the future, sufficient to fully reimburse the property
operators for their operating and capital expenses. As a result,
an operator’s ability to meet its financial obligations to
us could be adversely impacted.
Finally, the Patient Protection and Affordable Care Act
(“PPACA”) and the Health Care and Education
Reconciliation Act of 2010, which amends the PPACA
(collectively, the “Health Reform Laws”) (further
discussed below).may have a significant impact on Medicare,
Medicaid, other federal health care programs, and private
insurers, which impact the reimbursement amounts received by
skilled nursing facilities and other health care providers. The
Health Reform Laws could have a substantial and material adverse
effect on all parties directly or indirectly involved in the
health care system.
Other
Related Laws
Skilled nursing facilities and hospitals (and senior housing
facilities that receive Medicaid payments) are subject to
federal, state, and local laws, regulations, and applicable
guidance that govern the operations and financial and other
arrangements that may be entered into by health care providers.
Certain of these laws prohibit direct or indirect payments of
any kind for the purpose of inducing or encouraging the referral
of patients for medical products or services reimbursable by
government health care programs. Other laws require providers to
furnish only medically necessary services and submit to the
government valid and accurate statements for each service.
Still, other laws require providers to comply with a variety of
safety, health and other requirements relating to the condition
of the licensed property and the quality of care provided.
Sanctions for violations of these laws, regulations, and other
applicable guidance may include, but are not limited to,
criminal
and/or
civil
penalties and fines, loss of licensure, immediate termination of
government payments, and exclusion from any government health
care program. In certain circumstances, violation of these rules
(such as those prohibiting abusive and fraudulent behavior) with
respect to one property may subject other facilities under
common control or ownership to sanctions, including exclusion
from participation in the Medicare and Medicaid programs, as
well as other government health care programs. In the ordinary
course of its business, a property operator is regularly
subjected to inquiries, investigations, and audits by the
federal and state agencies that oversee these laws and
regulations.
All health care providers, including, but not limited to skilled
nursing facilities and hospitals (and senior housing facilities
that receives Medicaid payments) are also subject to the Federal
Anti-kickback Statute, which generally prohibits persons from
offering, providing, soliciting, or receiving remuneration to
induce either the referral of an individual or the furnishing of
a good or service for which payment may be made under a federal
health care program, such as Medicare or Medicaid. Skilled
nursing facilities and hospitals are also subject to the Federal
Ethics in Patient Referral Act of 1989, commonly referred to as
the Stark Law. The Stark Law generally prohibits the submission
of claims to Medicare for payment if the claim results from a
physician referral for certain designated services and the
physician has a financial relationship with the health service
provider that does not
12
Table of Contents
qualify under one of the exceptions for a financial relationship
under the Stark Law. Similar prohibitions on physician
self-referrals and submission of claims apply to state Medicaid
programs. Further, health care providers, including, but not
limited to, skilled nursing facilities and hospitals (and senior
housing facilities that receive Medicaid payments), are subject
to substantial financial penalties under the Civil Monetary
Penalties Act and the Federal False Claims Act and, in
particular, actions under the Federal False Claims Act’s
“whistleblower” provisions. Private enforcement of
health care fraud has increased due in large part to amendments
to the Federal False Claims Act that encourage private
individuals to sue on behalf of the government. These
whistleblower suits brought by private individuals, known as qui
tam actions, may be filed by almost anyone, including present
and former patients, nurses and other employees. Such
whistleblower actions have been brought against nursing
facilities on the basis of the alleged failure of the nursing
facility to meet applicable regulations relating to its
operations. Significantly, if a claim is successfully
adjudicated, the Federal False Claims Act provides for treble
damages up to $11,000 per claim.
Prosecutions, investigations, or whistleblower actions could
have a material adverse effect on a property operator’s
liquidity, financial condition, and operations, which could
adversely affect the ability of the operator to meet its
financial obligations to us. Finally, various state false claim
act and anti-kickback laws may also apply to each property
operator. Violation of any of the foregoing statutes can result
in criminal
and/or
civil
penalties that could have a material adverse effect on the
ability of an operator to meet its financial obligations to us.
Other legislative developments over the past several years,
including the Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”), have greatly expanded the
definition of health care fraud and related offenses and
broadened its scope to include private health care plans in
addition to government payors. Congress also has greatly
increased funding for the Department of Justice, Federal Bureau
of Investigation and the Office of the Inspector General of the
Department of Health and Human Services to audit, investigate
and prosecute suspected health care fraud. Moreover, a
significant portion of the billions in health care fraud
recoveries over the past several years has also been returned to
government agencies to further fund their fraud investigation
and prosecution efforts.
Additionally, other HIPAA provisions and regulations provide for
communication of health information through standard electronic
transaction formats and for the privacy and security of health
information. In order to comply with the regulations, health
care providers often must undertake significant operational and
technical implementation efforts. Operators also may face
significant financial exposure if they fail to maintain the
privacy and security of medical records and other personal
health information about individuals. The Health Information
Technology for Economic and Clinical Health (“HITECH”)
Act, passed in February 2009, strengthened the HHS
Secretary’s authority to impose civil money penalties for
HIPAA violations occurring after February 18, 2009. HITECH
directs the HHS Secretary to provide for periodic audits to
ensure covered entities and their business associates (as that
term is defined under HIPAA) comply with the applicable HITECH
requirements, increasing the likelihood that a HIPAA violation
will result in an enforcement action. CMS issued an interim
Final Rule which conformed HIPAA enforcement regulations to the
HITECH Act, increasing the maximum penalty for multiple
violations of a single requirement or prohibition to
$1.5 million. Higher penalties may accrue for violations of
multiple requirements or prohibitions. HIPAA violations are also
potentially subject to criminal penalties.
In November 2002, CMS began an ongoing national Nursing Home
Quality Initiative (NHQI). Under this initiative, historical
survey information, the NHQI Pilot Evaluation Report and the
NHQI Overview is made available to the public on-line. The NHQI
website provides consumer and provider information regarding the
quality of care in nursing homes. The data allows consumers,
providers, states, and researchers to compare quality
information that shows how well nursing homes are caring for
their residents’ physical and clinical needs. The posted
nursing home quality measures come from resident assessment data
that nursing homes routinely collect on the residents at
specified intervals during their stay. If the operators of
nursing facilities are unable to achieve quality of care ratings
that are comparable or superior to those of their competitors,
they may lose market share to other facilities, reducing their
revenues and adversely impacting their ability to make rental
payments.
Finally, government investigations and enforcement actions
brought against the health care industry have increased
dramatically over the past several years and are expected to
continue. Some of these enforcement actions represent novel
legal theories and expansions in the application of the Federal
False Claims Act. The costs for an operator of a health care
property associated with both defending such enforcement actions
and the undertakings in
13
Table of Contents
settling these actions can be substantial and could have a
material adverse effect on the ability of an operator to meet
its obligations to us.
Taxation
Federal
Income Tax Considerations
The following summary of the taxation of the Company and the
material federal tax consequences to the holders of our debt and
equity securities is for general information only and is not tax
advice. This summary does not address all aspects of taxation
that may be relevant to certain types of holders of stock or
securities (including, but not limited to, insurance companies,
tax-exempt entities, financial institutions or broker-dealers,
persons holding shares of common stock as part of a hedging,
integrated conversion, or constructive sale transaction or a
straddle, traders in securities that use a
mark-to-market
method of accounting for their securities, investors in
pass-through entities and foreign corporations and persons who
are not citizens or residents of the United States).
This summary does not discuss all of the aspects of
U.S. federal income taxation that may be relevant to you in
light of your particular investment or other circumstances. In
addition, this summary does not discuss any state or local
income taxation or foreign income taxation or other tax
consequences. This summary is based on current U.S. federal
income tax law. Subsequent developments in U.S. federal
income tax law, including changes in law or differing
interpretations, which may be applied retroactively, could have
a material effect on the U.S. federal income tax
consequences of purchasing, owning and disposing of our
securities as set forth in this summary. Before you purchase our
securities, you should consult your own tax advisor regarding
the particular U.S. federal, state, local, foreign and
other tax consequences of acquiring, owning and selling our
securities.
General
We elected to be taxed as a real estate investment trust (a
“REIT”) commencing with our first taxable year. We
intend to continue to operate in such a manner as to qualify as
a REIT, but there is no guarantee that we will qualify or remain
qualified as a REIT for subsequent years. Qualification and
taxation as a REIT depends upon our ability to meet a variety of
qualification tests imposed under federal income tax law with
respect to income, assets, distribution level and diversity of
share ownership as discussed below under
“— Qualification as a REIT.” There can be no
assurance that we will be owned and organized and will operate
in a manner so as to qualify or remain qualified.
In any year in which we qualify as a REIT, in general, we will
not be subject to federal income tax on that portion of our REIT
taxable income or capital gain that is distributed to
stockholders. We may, however, be subject to tax at normal
corporate rates on any taxable income or capital gain not
distributed. If we elect to retain and pay income tax on our net
long-term capital gain, stockholders are required to include
their proportionate share of our undistributed long-term capital
gain in income, but they will receive a refundable credit for
their share of any taxes paid by us on such gain.
Despite the REIT election, we may be subject to federal income
and excise tax as follows:
| • | To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates; | |
| • | We may be subject to the “alternative minimum tax” (the “AMT”) on certain tax preference items to the extent that the AMT exceeds our regular tax; | |
| • | If we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, such income will be taxed at the highest corporate rate; | |
| • | Any net income from prohibited transactions (which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than dispositions of foreclosure property and dispositions of property due to an involuntary conversion) will be subject to a 100% tax; |
14
Table of Contents
| • | If we fail to satisfy either the 75% or 95% gross income tests (as discussed below), but nonetheless maintain our qualification as a REIT because certain other requirements are met, we will be subject to a 100% tax on an amount equal to (1) the gross income attributable to the greater of (i) 75% of our gross income over the amount of qualifying gross income for purposes of the 75% gross income test (discussed below) or (ii) 95% of our gross income (90% of our gross income for taxable years beginning on or before October 22, 2004) over the amount of qualifying gross income for purposes of the 95% gross income test (discussed below) multiplied by (2) a fraction intended to reflect our profitability; | |
| • | If we fail to distribute during each year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for such year (other than capital gain that we elect to retain and pay tax on) and (3) any undistributed taxable income from preceding periods, we will be subject to a 4% excise tax on the excess of such required distribution over amounts actually distributed; and | |
| • | We will be subject to a 100% tax on the amount of any rents from real property, deductions or excess interest paid to us by any of our “taxable REIT subsidiaries” that would be reduced through reallocation under certain federal income tax principles in order to more clearly reflect income of the taxable REIT subsidiary. See “— Qualification as a REIT — Investments in Taxable REIT Subsidiaries.” |
If we acquire any assets from a corporation, which is or has
been a “C” corporation, in a carryover basis
transaction, we could be liable for specified liabilities that
are inherited from the “C” corporation. A
“C” corporation is generally defined as a corporation
that is required to pay full corporate level federal income tax.
If we recognize gain on the disposition of the assets during the
ten-year period beginning on the date on which the assets were
acquired by us, then, to the extent of the assets’
“built-in gain” (i.e., the excess of the fair market
value of the asset over the adjusted tax basis in the asset, in
each case determined as of the beginning of the ten-year
period), we will be subject to tax on the gain at the highest
regular corporate rate applicable. The results described in this
paragraph with respect to the recognition of built-in gain
assume that the built-in gain assets, at the time the built-in
gain assets were subject to a conversion transaction (either
where a “C” corporation elected REIT status or a REIT
acquired the assets from a “C” corporation), were not
treated as sold to an unrelated party and gain recognized.
Effective December 30, 2010, we acquired 19 assets that are
subject to built-in gains tax until December 2020. See
Note 18 to our consolidated financial statements for
additional information regarding the built-in gains tax.
Qualification
as a REIT
A REIT is defined as a corporation, trust or association:
| (1) | which is managed by one or more trustees or directors; | |
| (2) | the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; | |
| (3) | which would be taxable as a domestic corporation but for the federal income tax law relating to REITs; | |
| (4) | which is neither a financial institution nor an insurance company; | |
| (5) | the beneficial ownership of which is held by 100 or more persons in each taxable year of the REIT except for its first taxable year; | |
| (6) | not more than 50% in value of the outstanding stock of which is owned during the last half of each taxable year, excluding its first taxable year, directly or indirectly, by or for five or fewer individuals (which includes certain entities) (the “Five or Fewer Requirement”); and | |
| (7) | which meets certain income and asset tests described below. |
Conditions (1) to (4), inclusive, must be met during the
entire taxable year and condition (5) must be met during at
least 335 days of a taxable year of 12 months or
during a proportionate part of a taxable year of less than
12 months. For purposes of conditions (5) and (6),
pension funds and certain other tax-exempt entities are treated
as individuals, subject to a “look-through” exception
in the case of condition (6).
15
Table of Contents
Based on publicly available information, we believe we have
satisfied the share ownership requirements set forth in
(5) and (6) above. In addition, Article VI of our
Amended and Restated By-Laws provides for restrictions regarding
ownership and transfer of shares. These restrictions are
intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above.
These restrictions, however, may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements
described in (5) and (6) above.
We have complied with, and will continue to comply with,
regulatory rules to send annual letters to certain of our
stockholders requesting information regarding the actual
ownership of our stock. If, despite sending the annual letters,
we do not know, or after exercising reasonable diligence would
not have known, whether we failed to meet the Five or Fewer
Requirement, we will be treated as having met the Five or Fewer
Requirement. If we fail to comply with these regulatory rules,
we will be subject to a monetary penalty. If our failure to
comply was due to intentional disregard of the requirement, the
penalty would be increased. However, if our failure to comply
were due to reasonable cause and not willful neglect, no penalty
would be imposed.
We may own a number of properties through wholly owned
subsidiaries. A corporation will qualify as a “qualified
REIT subsidiary” if 100% of its stock is owned by a REIT,
and the REIT does not elect to treat the subsidiary as a taxable
REIT subsidiary. A “qualified REIT subsidiary” will
not be treated as a separate corporation, and all assets,
liabilities and items of income, deductions and credits of a
“qualified REIT subsidiary” will be treated as assets,
liabilities and items (as the case may be) of the REIT. A
“qualified REIT subsidiary” is not subject to federal
income tax, and our ownership of the voting stock of a qualified
REIT subsidiary will not violate the restrictions against
ownership of securities of any one issuer which constitute more
than 10% of the value or total voting power of such issuer or
more than 5% of the value of our total assets, as described
below under “— Asset Tests.”
If we invest in a partnership, a limited liability company or a
trust taxed as a partnership or as a disregarded entity, we will
be deemed to own a proportionate share of the
partnership’s, limited liability company’s or
trust’s assets. Likewise, we will be treated as receiving
our share of the income and loss of the partnership, limited
liability company or trust, and the gross income will retain the
same character in our hands as it has in the hands of the
partnership, limited liability company or trust. These
“look-through” rules apply for purposes of the income
tests and assets tests described below.
Income Tests.
There are two separate
percentage tests relating to our sources of gross income that we
must satisfy for each taxable year.
| • | At least 75% of our gross income (excluding gross income from certain sales of property held primarily for sale) must be directly or indirectly derived each taxable year from “rents from real property,” other income from investments relating to real property or mortgages on real property or certain income from qualified temporary investments. | |
| • | At least 95% of our gross income (excluding gross income from certain sales of property held primarily for sale) must be directly or indirectly derived each taxable year from any of the sources qualifying for the 75% gross income test and from dividends (including dividends from taxable REIT subsidiaries) and interest. |
For taxable years beginning on or before October 22, 2004,
(1) payments to us under an interest rate swap or cap
agreement, option, futures contract, forward rate agreement or
any similar financial instrument entered into by us to reduce
interest rate risk on indebtedness incurred or to be incurred
and (2) gain from the sale or other disposition of any such
investment are treated as income qualifying under the 95% gross
income test. As to transactions entered into in taxable years
beginning after October 22, 2004, any of our income from a
“clearly identified” hedging transaction that is
entered into by us in the normal course of business, directly or
indirectly, to manage the risk of interest rate movements, price
changes or currency fluctuations with respect to borrowings or
obligations incurred or to be incurred by us, or such other
risks that are prescribed by the Internal Revenue Service, is
excluded from the 95% gross income test.
For transactions entered into after July 30, 2008, any of
our income from a “clearly identified” hedging
transaction that is entered into by us in the normal course of
business, directly or indirectly, to manage the risk of interest
rate movements, price changes or currency fluctuations with
respect to borrowings or obligations incurred or to be incurred
by us is excluded from the 95% and 75% gross income tests.
16
Table of Contents
For transactions entered into after July 30, 2008, any of
our income from a “clearly identified” hedging
transaction entered into by us primarily to manage risk of
currency fluctuations with respect to any item of income or gain
that is included in gross income in the 95% and 75% gross income
tests is excluded from the 95% and 75% gross income tests.
In general, a hedging transaction is “clearly
identified” if (1) the transaction is identified as a
hedging transaction before the end of the day on which it is
entered into and (2) the items or risks being hedged are
identified “substantially contemporaneously” with the
hedging transaction. An identification is not substantially
contemporaneous if it is made more than 35 days after
entering into the hedging transaction.
As to gains and items of income recognized after July 30,
2008, “passive foreign exchange gain” for any taxable
year will not constitute gross income for purposes of the 95%
gross income test and “real estate foreign exchange
gain” for any taxable year will not constitute gross income
for purposes of the 75% gross income test. Real estate foreign
exchange gain is foreign currency gain (as defined in Internal
Revenue Code section 988(b)(1)) which is attributable to:
(i) any qualifying item of income or gain for purposes of
the 75% gross income test; (ii) the acquisition or
ownership of obligations secured by mortgages on real property
or interests in real property; or (iii) becoming or being
the obligor under obligations secured by mortgages on real
property or on interests in real property. Real estate foreign
exchange gain also includes Internal Revenue Code
section 987 gain attributable to a qualified business unit
(a “QBU”) of a REIT if the QBU itself meets the 75%
income test for the taxable year and the 75% asset test at the
close of each quarter that the REIT has directly or indirectly
held the QBU. Real estate foreign exchange gain also includes
any other foreign currency gain as determined by the Secretary
of the Treasury. Passive foreign exchange gain includes all real
estate foreign exchange gain and foreign currency gain which is
attributable to: (i) any qualifying item of income or gain
for purposes of the 95% gross income test; (ii) the
acquisition or ownership of obligations; (iii) becoming or
being the obligor under obligations; and (iv) any other
foreign currency gain as determined by the Secretary of the
Treasury.
Generally, other than income from “clearly identified”
hedging transactions entered into by us in the normal course of
business, any foreign currency gain derived by us from dealing,
or engaging in substantial and regular trading, in securities
will constitute gross income which does not qualify under the
95% or 75% gross income tests.
Rents received by us will qualify as “rents from real
property” for purposes of satisfying the gross income tests
for a REIT only if several conditions are met:
| • | The amount of rent must not be based in whole or in part on the income or profits of any person, although rents generally will not be excluded merely because they are based on a fixed percentage or percentages of receipts or sales. | |
| • | Rents received from a tenant will not qualify as rents from real property if the REIT, or an owner of 10% or more of the REIT, also directly or constructively owns 10% or more of the tenant, unless the tenant is our taxable REIT subsidiary and certain other requirements are met with respect to the real property being rented. | |
| • | If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as “rents from real property.” | |
| • | For rents to qualify as rents from real property, we generally must not furnish or render services to tenants, other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no income, except that we may directly provide services that are “usually or customarily rendered” in the geographic area in which the property is located in connection with the rental of real property for occupancy only, or are not otherwise considered “rendered to the occupant for his convenience.” | |
| • | For taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an arm’s-length basis to a taxable REIT subsidiary if the property is operated on behalf of such subsidiary by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating health care facilities for any person unrelated to us or our taxable REIT subsidiary, an “eligible independent contractor.” Generally, the rent that the REIT receives |
17
Table of Contents
| from the taxable REIT subsidiary will be treated as “rents from real property.” A “qualified health care property” includes any real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients and which is operated by a provider of such services which is eligible for participation in the Medicare program with respect to such facility. |
For taxable years beginning after August 5, 1997, a REIT
has been permitted to render a de minimis amount of
impermissible services to tenants and still treat amounts
received with respect to that property as rent from real
property. The amount received or accrued by the REIT during the
taxable year for the impermissible services with respect to a
property may not exceed 1% of all amounts received or accrued by
the REIT directly or indirectly from the property. The amount
received for any service or management operation for this
purpose shall be deemed to be not less than 150% of the direct
cost of the REIT in furnishing or rendering the service or
providing the management or operation. Furthermore,
impermissible services may be furnished to tenants by a taxable
REIT subsidiary subject to certain conditions, and we may still
treat rents received with respect to the property as rent from
real property.
The term “interest” generally does not include any
amount if the determination of the amount depends in whole or in
part on the income or profits of any person, although an amount
generally will not be excluded from the term
“interest” solely by reason of being based on a fixed
percentage of receipts or sales.
If we fail to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, we may nevertheless qualify as a
REIT for such year if we are eligible for relief. For taxable
years beginning on or before October 22, 2004, these relief
provisions generally will be available if: (1) our failure
to meet such tests was due to reasonable cause and not due to
willful neglect; (2) we attach a schedule of the sources of
our income to our return; and (3) any incorrect information
on the schedule was not due to fraud with intent to evade tax.
For taxable years beginning after October 22, 2004, these
relief provisions generally will be available if
(1) following our identification of the failure, we file a
schedule for such taxable year describing each item of our gross
income, and (2) the failure to meet such tests was due to
reasonable cause and not due to willful neglect.
It is not now possible to determine the circumstances under
which we may be entitled to the benefit of these relief
provisions. If these relief provisions apply, a 100% tax is
imposed on an amount equal to (a) the gross income
attributable to (1) 75% of our gross income over the amount
of qualifying gross income for purposes of the 75% income test
and (2) 95% of our gross income (90% of our gross income
for taxable years beginning on or before October 22,
2004) over the amount of qualifying gross income for
purposes of the 95% income test, multiplied by (b) a
fraction intended to reflect our profitability.
The Secretary of the Treasury is given broad authority to
determine whether particular items of income or gain qualify or
not under the 75% and 95% gross income tests, or are to be
excluded from the measure of gross income for such purposes.
Asset Tests.
Within 30 days after the
close of each quarter of our taxable year, we must also satisfy
several tests relating to the nature and diversification of our
assets determined in accordance with generally accepted
accounting principles. At least 75% of the value of our total
assets must be represented by real estate assets, cash, cash
items (including receivables arising in the ordinary course of
our operation), government securities and qualified temporary
investments. Although the remaining 25% of our assets generally
may be invested without restriction, we are prohibited from
owning securities representing more than 10% of either the vote
(the “10% vote test”) or value (the “10% value
test”) of the outstanding securities of any issuer other
than a qualified REIT subsidiary, another REIT or a taxable REIT
subsidiary. Further, no more than 25% of the total assets may be
represented by securities of one or more taxable REIT
subsidiaries (the “25% asset test”) and no more than
5% of the value of our total assets may be represented by
securities of any non-governmental issuer other than a qualified
REIT subsidiary (the “5% asset test”), another REIT or
a taxable REIT subsidiary. Each of the 10% vote test, the 10%
value test and the 25% and 5% asset tests must be satisfied at
the end of each quarter. There are special rules which provide
relief if the value related tests are not satisfied due to
changes in the value of the assets of a REIT.
For taxable years beginning after December 31, 2000,
certain items are excluded from the 10% value test, including:
(1) straight debt securities of an issuer (including
straight debt that provides certain contingent
18
Table of Contents
payments); (2) any loan to an individual or an estate;
(3) any rental agreement described in Section 467 of
the Internal Revenue Code, other than with a “related
person”; (4) any obligation to pay rents from real
property; (5) certain securities issued by a state or any
subdivision thereof, the District of Columbia, a foreign
government, or any political subdivision thereof, or the
Commonwealth of Puerto Rico; (6) any security issued by a
REIT; and (7) any other arrangement that, as determined by
the Secretary of the Treasury, is excepted from the definition
of security (“excluded securities”). Special rules
apply to straight debt securities issued by corporations and
entities taxable as partnerships for federal income tax
purposes. If a REIT, or its taxable REIT subsidiary, holds
(1) straight debt securities of a corporate or partnership
issuer and (2) securities of such issuer that are not
excluded securities and have an aggregate value greater than 1%
of such issuer’s outstanding securities, the straight debt
securities will be included in the 10% value test.
For taxable years beginning after December 31, 2000, a
REIT’s interest as a partner in a partnership is not
treated as a security for purposes of applying the 10% value
test to securities issued by the partnership. Further, any debt
instrument issued by a partnership will not be a security for
purposes of applying the 10% value test (1) to the extent
of the REIT’s interest as a partner in the partnership and
(2) if at least 75% of the partnership’s gross income
(excluding gross income from prohibited transactions) would
qualify for the 75% gross income test. For taxable years
beginning after October 22, 2004, for purposes of the 10%
value test, a REIT’s interest in a partnership’s
assets is determined by the REIT’s proportionate interest
in any securities issued by the partnership (other than the
excluded securities described in the preceding paragraph).
For taxable years beginning after July 30, 2008, if the
REIT or its QBU uses a foreign currency as its functional
currency, the term “cash” includes such foreign
currency, but only to the extent such foreign currency is
(i) held for use in the normal course of the activities of
the REIT or QBU which give rise to items of income or gain that
are included in the 95% and 75% gross income tests or are
directly related to acquiring or holding assets qualifying under
the 75% asset test, and (ii) not held in connection with
dealing or engaging in substantial and regular trading in
securities.
With respect to corrections of failures for which the
requirements for corrections are satisfied after
October 22, 2004, regardless of whether such failures
occurred in taxable years beginning on, before or after such
date, as to violations of the 10% vote test, the 10% value test
or the 5% asset test, a REIT may avoid disqualification as a
REIT by disposing of sufficient assets to cure a violation that
does not exceed the lesser of 1% of the REIT’s assets at
the end of the relevant quarter or $10,000,000, provided that
the disposition occurs within six months following the last day
of the quarter in which the REIT first identified the assets.
For violations of any of the REIT asset tests due to reasonable
cause and not willful neglect that exceed the thresholds
described in the preceding sentence, a REIT can avoid
disqualification as a REIT after the close of a taxable quarter
by taking certain steps, including disposition of sufficient
assets within the six month period described above to meet the
applicable asset test, paying a tax equal to the greater of
$50,000 or the highest corporate tax rate multiplied by the net
income generated by the non-qualifying assets during the period
of time that the assets were held as non-qualifying assets and
filing a schedule with the Internal Revenue Service that
describes the non-qualifying assets.
Investments in Taxable REIT Subsidiaries.
For
taxable years beginning after December 31, 2000, REITs may
own more than 10% of the voting power and value of securities in
taxable REIT subsidiaries. We and any taxable corporate entity
in which we own an interest are allowed to jointly elect to
treat such entity as a “taxable REIT subsidiary.”
Certain of our subsidiaries have elected to be treated as a
taxable REIT subsidiary. Taxable REIT subsidiaries are subject
to full corporate level federal taxation on their earnings but
are permitted to engage in certain types of activities that
cannot be performed directly by REITs without jeopardizing their
REIT status. Our taxable REIT subsidiaries will attempt to
minimize the amount of these taxes, but there can be no
assurance whether or the extent to which measures taken to
minimize taxes will be successful. To the extent our taxable
REIT subsidiaries are required to pay federal, state or local
taxes, the cash available for distribution as dividends to us
from our taxable REIT subsidiaries will be reduced.
The amount of interest on related-party debt that a taxable REIT
subsidiary may deduct is limited. Further, a 100% tax applies to
any interest payments by a taxable REIT subsidiary to its
affiliated REIT to the extent the
19
Table of Contents
interest rate is not commercially reasonable. A taxable REIT
subsidiary is permitted to deduct interest payments to unrelated
parties without any of these restrictions.
The Internal Revenue Service may reallocate costs between a REIT
and its taxable REIT subsidiary where there is a lack of
arm’s-length dealing between the parties. Any deductible
expenses allocated away from a taxable REIT subsidiary would
increase its tax liability. Further, any amount by which a REIT
understates its deductions and overstates those of its taxable
REIT subsidiary will, subject to certain exceptions, be subject
to a 100% tax. Additional taxable REIT subsidiary elections may
be made in the future for additional entities in which we own an
interest.
Annual Distribution Requirements.
In order to
avoid being taxed as a regular corporation, we are required to
make distributions (other than capital gain distributions) to
our stockholders which qualify for the dividends paid deduction
in an amount at least equal to (1) the sum of (i) 90%
of our “REIT taxable income” (computed without regard
to the dividends paid deduction and our net capital gain) and
(ii) 90% of the after-tax net income, if any, from
foreclosure property, minus (2) a portion of certain items
of non-cash income. These distributions must be paid in the
taxable year to which they relate, or in the following taxable
year if declared before we timely file our tax return for that
year and if paid on or before the first regular distribution
payment after such declaration. The amount distributed must not
be preferential. This means that every stockholder of the class
of stock to which a distribution is made must be treated the
same as every other stockholder of that class, and no class of
stock may be treated otherwise than in accordance with its
dividend rights as a class. To the extent that we do not
distribute all of our net capital gain or distribute at least
90%, but less than 100%, of our “REIT taxable income,”
as adjusted, we will be subject to tax on the undistributed
amount at regular corporate tax rates. Finally, as discussed
above, we may be subject to an excise tax if we fail to meet
certain other distribution requirements. We intend to make
timely distributions sufficient to satisfy these annual
distribution requirements.
It is possible that, from time to time, we may not have
sufficient cash or other liquid assets to meet the 90%
distribution requirement, or to distribute such greater amount
as may be necessary to avoid income and excise taxation, due to,
among other things, (1) timing differences between
(i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of income and
deduction of expenses in arriving at our taxable income, or
(2) the payment of severance benefits that may not be
deductible to us. In the event that timing differences occur, we
may find it necessary to arrange for borrowings or, if possible,
pay dividends in the form of taxable stock dividends in order to
meet the distribution requirement.
Under certain circumstances, in the event of a deficiency
determined by the Internal Revenue Service, we may be able to
rectify a resulting failure to meet the distribution requirement
for a year by paying “deficiency dividends” to
stockholders in a later year, which may be included in our
deduction for distributions paid for the earlier year. Thus, we
may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, we will be required to pay
applicable penalties and interest based upon the amount of any
deduction taken for deficiency dividend distributions.
The Internal Revenue Service issued Revenue Procedure
2008-68,
which provided temporary relief to publicly traded REITs seeking
to preserve liquidity by electing cash/stock dividends. Under
Revenue Procedure
2008-68,
a
REIT may treat the entire dividend, including the stock portion,
as a taxable dividend distribution, thereby qualifying for the
dividends-paid deduction, provided certain requirements are
satisfied. The cash portion of the dividend may be as low as
10%. Revenue Procedure
2008-68,
as
amplified by Revenue Procedure
2010-12,
applies to dividends declared on or before December 31,
2012, and with respect to a taxable year ending on or before
December 31, 2011.
Failure
to Qualify as a REIT
If we fail to qualify for taxation as a REIT in any taxable
year, we will be subject to federal income tax, including any
applicable alternative minimum tax, on our taxable income at
regular corporate rates. Distributions to stockholders in any
year in which we fail to qualify as a REIT will not be
deductible nor will any particular amount of distributions be
required to be made in any year. All distributions to
stockholders will be taxable as ordinary income to the extent of
current and accumulated earnings and profits allocable to these
distributions and, subject to certain limitations, will be
eligible for the dividends received deduction for corporate
stockholders. Unless entitled
20
Table of Contents
to relief under specific statutory provisions, we also will be
disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is
not possible to state whether in all circumstances we would be
entitled to statutory relief. Failure to qualify for even one
year could result in our need to incur indebtedness or liquidate
investments in order to pay potentially significant resulting
tax liabilities.
In addition to the relief described above under
“— Income Tests” and “— Asset
Tests,” relief is available in the event that we violate a
provision of the Internal Revenue Code that would result in our
failure to qualify as a REIT if: (1) the violation is due
to reasonable cause and not due to willful neglect; (2) we
pay a penalty of $50,000 for each failure to satisfy the
provision; and (3) the violation does not include a
violation described under “— Income Tests”
or “— Asset Tests” above. It is not now
possible to determine the circumstances under which we may be
entitled to the benefit of these relief provisions.
Federal
Income Taxation of Holders of Our Stock
Treatment of Taxable
U.S. Stockholders.
The following summary
applies to you only if you are a
“U.S. stockholder.” A
“U.S. stockholder” is a holder of shares of stock
who, for United States federal income tax purposes, is:
| • | a citizen or resident of the United States; | |
| • | a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state; | |
| • | an estate, the income of which is subject to United States federal income taxation regardless of its source; or | |
| • | a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all of the trust’s substantial decisions. |
So long as we qualify for taxation as a REIT, distributions on
shares of our stock made out of the current or accumulated
earnings and profits allocable to these distributions (and not
designated as capital gain dividends) will be includable as
ordinary income for federal income tax purposes. None of these
distributions will be eligible for the dividends received
deduction for U.S. corporate stockholders.
Generally, for taxable years ending after May 6, 2003
through December 31, 2012, the maximum marginal rate of tax
payable by individuals on dividends received from corporations
that are subject to a corporate level of tax is 15%. Except in
limited circumstances, this tax rate will not apply to dividends
paid to you by us on our shares, because generally we are not
subject to federal income tax on the portion of our REIT taxable
income or capital gains distributed to our stockholders. The
reduced maximum federal income tax rate will apply to that
portion, if any, of dividends received by you with respect to
our shares that are attributable to: (1) dividends received
by us from non-REIT corporations or other taxable REIT
subsidiaries; (2) income from the prior year with respect
to which we were required to pay federal corporate income tax
during the prior year (if, for example, we did not distribute
100% of our REIT taxable income for the prior year); or
(3) the amount of any earnings and profits that were
distributed by us and accumulated in a non-REIT year.
Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not
exceed our actual net capital gain for the taxable year),
without regard to the period for which you held our stock.
However, if you are a corporation, you may be required to treat
a portion of some capital gain dividends as ordinary income.
If we elect to retain and pay income tax on any net long-term
capital gain, you would include in income, as long-term capital
gain, your proportionate share of this net long-term capital
gain. You would also receive a refundable tax credit for your
proportionate share of the tax paid by us on such retained
capital gains, and you would have an increase in the basis of
your shares of our stock in an amount equal to your includable
capital gains less your share of the tax deemed paid.
21
Table of Contents
You may not include in your federal income tax return any of our
net operating losses or capital losses. Federal income tax rules
may also require that certain minimum tax adjustments and
preferences be apportioned to you. In addition, any distribution
declared by us in October, November or December of any year on a
specified date in any such month shall be treated as both paid
by us and received by you on December 31 of that year, provided
that the distribution is actually paid by us no later than
January 31 of the following year.
We will be treated as having sufficient earnings and profits to
treat as a dividend any distribution up to the amount required
to be distributed in order to avoid imposition of the 4% excise
tax discussed under “— General” and
“— Qualification as a REIT — Annual
Distribution Requirements” above. As a result, you may be
required to treat as taxable dividends certain distributions
that would otherwise result in a tax-free return of capital.
Moreover, any “deficiency dividend” will be treated as
a dividend (an ordinary dividend or a capital gain dividend, as
the case may be), regardless of our earnings and profits. Any
other distributions in excess of current or accumulated earnings
and profits will not be taxable to you to the extent these
distributions do not exceed the adjusted tax basis of your
shares of our stock. You will be required to reduce the tax
basis of your shares of our stock by the amount of these
distributions until the basis has been reduced to zero, after
which these distributions will be taxable as capital gain, if
the shares of our stock are held as capital assets. The tax
basis as so reduced will be used in computing the capital gain
or loss, if any, realized upon sale of the shares of our stock.
Any loss upon a sale or exchange of shares of our stock which
were held for six months or less (after application of certain
holding period rules) will generally be treated as a long-term
capital loss to the extent you previously received capital gain
distributions with respect to these shares of our stock.
Upon the sale or exchange of any shares of our stock to or with
a person other than us or a sale or exchange of all shares of
our stock (whether actually or constructively owned) with us,
you will generally recognize capital gain or loss equal to the
difference between the amount realized on the sale or exchange
and your adjusted tax basis in these shares of our stock. This
gain will be capital gain if you held these shares of our stock
as a capital asset.
If we redeem any of your shares in us, the treatment can only be
determined on the basis of particular facts at the time of
redemption. In general, you will recognize gain or loss (as
opposed to dividend income) equal to the difference between the
amount received by you in the redemption and your adjusted tax
basis in your shares redeemed if such redemption:
(1) results in a “complete termination” of your
interest in all classes of our equity securities; (2) is a
“substantially disproportionate redemption”; or
(3) is “not essentially equivalent to a dividend”
with respect to you. In applying these tests, you must take into
account your ownership of all classes of our equity securities
(e.g., common stock, preferred stock, depositary shares and
warrants). You also must take into account any equity securities
that are considered to be constructively owned by you.
If, as a result of a redemption by us of your shares, you no
longer own (either actually or constructively) any of our equity
securities or only own (actually and constructively) an
insubstantial percentage of our equity securities, then it is
probable that the redemption of your shares would be considered
“not essentially equivalent to a dividend” and, thus,
would result in gain or loss to you. However, whether a
distribution is “not essentially equivalent to a
dividend” depends on all of the facts and circumstances,
and if you rely on any of these tests at the time of redemption,
you should consult your tax advisor to determine their
application to the particular situation.
Generally, if the redemption does not meet the tests described
above, then the proceeds received by you from the redemption of
your shares will be treated as a distribution taxable as a
dividend to the extent of the allocable portion of current or
accumulated earnings and profits. If the redemption is taxed as
a dividend, your adjusted tax basis in the redeemed shares will
be transferred to any other shareholdings in us that you own. If
you own no other shareholdings in us, under certain
circumstances, such basis may be transferred to a related
person, or it may be lost entirely.
Gain from the sale or exchange of our shares held for more than
one year is taxed at a maximum long-term capital gain rate,
which is currently 15%. Pursuant to Internal Revenue Service
guidance, we may classify portions of our capital gain dividends
as gains eligible for the long-term capital gains rate or as
gain taxable to individual stockholders at a maximum rate of 25%.
On March 30, 2010, the President signed into law the Health
Care and Education Reconciliation Act of 2010, which requires
U.S. stockholders who meet certain requirements and are
individuals, estates or certain trusts to pay
22
Table of Contents
an additional 3.8% tax on, among other things, dividends on and
capital gains from the sale or other disposition of stock for
taxable years beginning after December 31, 2012.
U.S. stockholders should consult their tax advisors
regarding the effect, if any, of this legislation on their
ownership and disposition of shares of our stock.
Treatment of Tax-Exempt
U.S. Stockholders.
Tax-exempt entities,
including qualified employee pension and profit sharing trusts
and individual retirement accounts (“Exempt
Organizations”), generally are exempt from federal income
taxation. However, they are subject to taxation on their
unrelated business taxable income (“UBTI”). The
Internal Revenue Service has issued a published revenue ruling
that dividend distributions from a REIT to an exempt employee
pension trust do not constitute UBTI, provided that the shares
of the REIT are not otherwise used in an unrelated trade or
business of the exempt employee pension trust. Based on this
ruling, amounts distributed by us to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of the shares of our stock
with debt, a portion of its income from us will constitute UBTI
pursuant to the “debt financed property” rules.
Likewise, a portion of the Exempt Organization’s income
from us would constitute UBTI if we held a residual interest in
a real estate mortgage investment conduit.
In addition, in certain circumstances, a pension trust that owns
more than 10% of our stock is required to treat a percentage of
our dividends as UBTI. This rule applies to a pension trust
holding more than 10% of our stock only if: (1) the
percentage of our income that is UBTI (determined as if we were
a pension trust) is at least 5%; (2) we qualify as a REIT
by reason of the modification of the Five or Fewer Requirement
that allows beneficiaries of the pension trust to be treated as
holding shares in proportion to their actuarial interests in the
pension trust; and (3) either (i) one pension trust
owns more than 25% of the value of our stock, or (ii) a
group of pension trusts individually holding more than 10% of
the value of our stock collectively own more than 50% of the
value of our stock.
Backup Withholding and Information
Reporting.
Under certain circumstances, you may
be subject to backup withholding at applicable rates on payments
made with respect to, or cash proceeds of a sale or exchange of,
shares of our stock. Backup withholding will apply only if you:
(1) fail to provide a correct taxpayer identification
number, which if you are an individual, is ordinarily your
social security number; (2) furnish an incorrect taxpayer
identification number; (3) are notified by the Internal
Revenue Service that you have failed to properly report payments
of interest or dividends; or (4) fail to certify, under
penalties of perjury, that you have furnished a correct taxpayer
identification number and that the Internal Revenue Service has
not notified you that you are subject to backup withholding.
Backup withholding will not apply with respect to payments made
to certain exempt recipients, such as corporations and
tax-exempt organizations. You should consult with a tax advisor
regarding qualification for exemption from backup withholding,
and the procedure for obtaining an exemption. Backup withholding
is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a stockholder will be
allowed as a credit against such stockholder’s United
States federal income tax liability and may entitle such
stockholder to a refund, provided that the required information
is provided to the Internal Revenue Service. In addition,
withholding a portion of capital gain distributions made to
stockholders may be required for stockholders who fail to
certify their non-foreign status.
Taxation of Foreign Stockholders.
The
following summary applies to you only if you are a foreign
person. The federal taxation of foreign persons is a highly
complex matter that may be affected by many considerations.
Except as discussed below, distributions to you of cash
generated by our real estate operations in the form of ordinary
dividends, but not by the sale or exchange of our capital
assets, generally will be subject to U.S. withholding tax
at a rate of 30%, unless an applicable tax treaty reduces that
tax and you file with us the required form evidencing the lower
rate.
In general, you will be subject to United States federal income
tax on a graduated rate basis rather than withholding with
respect to your investment in our stock if such investment is
“effectively connected” with your conduct of a trade
or business in the United States. A corporate foreign
stockholder that receives income that is, or is treated as,
effectively connected with a United States trade or business may
also be subject to the branch profits tax, which is payable in
addition to regular United States corporate income tax. The
following discussion will apply to foreign stockholders whose
investment in us is not so effectively connected. We expect to
withhold United States
23
Table of Contents
income tax, as described below, on the gross amount of any
distributions paid to you unless (1) you file an Internal
Revenue Service
Form W-8ECI
with us claiming that the distribution is “effectively
connected” or (2) certain other exceptions apply.
Distributions by us that are attributable to gain from the sale
or exchange of a United States real property interest will be
taxed to you under the Foreign Investment in Real Property Tax
Act of 1980 (“FIRPTA”) as if these distributions were
gains “effectively connected” with a United States
trade or business. Accordingly, you will be taxed at the normal
capital gain rates applicable to a U.S. stockholder on
these amounts, subject to any applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident
alien individuals. Distributions subject to FIRPTA may also be
subject to a branch profits tax in the hands of a corporate
foreign stockholder that is not entitled to treaty exemption.
We will be required to withhold from distributions subject to
FIRPTA, and remit to the Internal Revenue Service, 35% of
designated capital gain dividends, or, if greater, 35% of the
amount of any distributions that could be designated as capital
gain dividends. In addition, if we designate prior distributions
as capital gain dividends, subsequent distributions, up to the
amount of the prior distributions not withheld against, will be
treated as capital gain dividends for purposes of withholding.
For taxable years beginning after October 22, 2004, any
capital gain dividend with respect to any class of stock that is
“regularly traded” on an established securities market
will be treated as an ordinary dividend if the foreign
stockholder did not own more than 5% of such class of stock at
any time during the taxable year. Once this provision takes
effect, foreign stockholders generally will not be required to
report distributions received from us on U.S. federal
income tax returns and all distributions treated as dividends
for U.S. federal income tax purposes including any capital
gain dividend will be subject to a 30% U.S. withholding tax
(unless reduced under an applicable income tax treaty) as
discussed above. In addition, the branch profits tax will no
longer apply to such distributions.
Unless our shares constitute a “United States real property
interest” within the meaning of FIRPTA or are effectively
connected with a U.S. trade or business, a sale of our
shares by you generally will not be subject to United States
taxation. Our shares will not constitute a United States real
property interest if we qualify as a “domestically
controlled REIT.” We believe that we, and expect to
continue to, qualify as a domestically controlled REIT. A
domestically controlled REIT is a REIT in which at all times
during a specified testing period less than 50% in value of its
shares is held directly or indirectly by foreign stockholders.
However, if you are a nonresident alien individual who is
present in the United States for 183 days or more during
the taxable year and certain other conditions apply, you will be
subject to a 30% tax on such capital gains. In any event, a
purchaser of our shares from you will not be required under
FIRPTA to withhold on the purchase price if the purchased shares
are “regularly traded” on an established securities
market or if we are a domestically controlled REIT. Otherwise,
under FIRPTA, the purchaser may be required to withhold 10% of
the purchase price and remit such amount to the Internal Revenue
Service.
Backup withholding tax and information reporting will generally
not apply to distributions paid to you outside the United States
that are treated as: (1) dividends to which the 30% or
lower treaty rate withholding tax discussed above applies;
(2) capital gains dividends; or (3) distributions
attributable to gain from the sale or exchange by us of
U.S. real property interests. Payment of the proceeds of a
sale of stock within the United States or conducted through
certain U.S. related financial intermediaries is subject to
both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that he or
she is not a U.S. person (and the payor does not have
actual knowledge that the beneficial owner is a
U.S. person) or otherwise established an exemption. You may
obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund
with the Internal Revenue Service.
Recently enacted legislation will require, after
December 31, 2012, withholding at a rate of 30% on
dividends in respect of, and gross proceeds from the sale of,
shares of our stock held by or through certain foreign financial
institutions (including investment funds), unless such
institution enters into an agreement with the Secretary of the
Treasury to report, on an annual basis, information with respect
to shares in the institution held by certain U.S. persons
and by certain
non-U.S. entities
that are wholly or partially owned by U.S. persons, and to
withhold on certain payments. Accordingly, the entity through
which shares of stock is held will affect the determination of
24
Table of Contents
whether such withholding is required. Similarly, dividends in
respect of, and gross proceeds from the sale of, shares of our
stock held by an investor that is a non-financial
non-U.S. entity
will be subject to withholding at a rate of 30%, unless such
entity either (i) certifies to us that such entity does not
have any “substantial United States owners” or
(ii) provides certain information regarding the
entity’s “substantial United States owners,”
which we will in turn provide to the Secretary of the Treasury.
We will not pay any additional amounts to any stockholders in
respect of any amounts withheld. Foreign persons are encouraged
to consult with their tax advisors regarding the possible
implications of the legislation on their investment in shares of
our stock.
U.S.
Federal Income Taxation of Holders of Depositary
Shares
Owners of our depositary shares will be treated as if you were
owners of the series of preferred stock represented by the
depositary shares. Thus, you will be required to take into
account the income and deductions to which you would be entitled
if you were a holder of the underlying series of preferred stock.
Conversion or Exchange of Shares for Preferred
Stock.
No gain or loss will be recognized upon
the withdrawal of preferred stock in exchange for depositary
shares and the tax basis of each share of preferred stock will,
upon exchange, be the same as the aggregate tax basis of the
depositary shares exchanged. If you held your depositary shares
as a capital asset at the time of the exchange for shares of
preferred stock, the holding period for your shares of preferred
stock will include the period during which you owned the
depositary shares.
U.S.
Federal Income and Estate Taxation of Holders of Our Debt
Securities
The following is a general summary of the United States federal
income tax consequences and, in the case that you are a holder
that is a
non-U.S. holder,
as defined below, the United States federal estate tax
consequences, of purchasing, owning and disposing of debt
securities periodically offered under one or more indentures
(the “notes”). This summary assumes that you hold the
notes as capital assets. This summary applies to you only if you
are the initial holder of the notes and you acquire the notes
for a price equal to the issue price of the notes. The issue
price of the notes is the first price at which a substantial
amount of the notes is sold other than to bond houses, brokers
or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. In addition, this
summary does not consider any foreign, state, local or other tax
laws that may be applicable to us or a purchaser of the notes.
U.S.
Holders
The following summary applies to you only if you are a
U.S. holder, as defined below.
Definition of a U.S. Holder.
A
“U.S. holder” is a beneficial owner of a note or
notes that is for United States federal income tax purposes:
| • | a citizen or resident of the United States; | |
| • | a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state; | |
| • | an estate, the income of which is subject to United States federal income taxation regardless of its source; or | |
| • | a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all of the trust’s substantial decisions. |
Payments of Interest.
Stated interest on the
notes generally will be taxed as ordinary interest income from
domestic sources at the time it is paid or accrues in accordance
with your method of accounting for tax purposes.
25
Table of Contents
Sale, Exchange or Other Disposition of
Notes.
The adjusted tax basis in your note
acquired at a premium will generally be your cost. You generally
will recognize taxable gain or loss when you sell or otherwise
dispose of your notes equal to the difference, if any, between:
| • | the amount realized on the sale or other disposition, less any amount attributable to any accrued interest, which will be taxable in the manner described under “— Payments of Interest” above; and | |
| • | your adjusted tax basis in the notes. |
Your gain or loss generally will be capital gain or loss. This
capital gain or loss will be long-term capital gain or loss if
at the time of the sale or other disposition you have held the
notes for more than one year. Subject to limited exceptions,
your capital losses cannot be used to offset your ordinary
income.
Backup Withholding and Information
Reporting.
In general, “backup
withholding” may apply to any payments made to you of
principal and interest on your note, and to payment of the
proceeds of a sale or other disposition of your note before
maturity, if you are a non-corporate U.S. holder and:
(1) fail to provide a correct taxpayer identification
number, which if you are an individual, is ordinarily your
social security number; (2) furnish an incorrect taxpayer
identification number; (3) are notified by the Internal
Revenue Service that you have failed to properly report payments
of interest or dividends; or (4) fail to certify, under
penalties of perjury, that you have furnished a correct taxpayer
identification number and that the Internal Revenue Service has
not notified you that you are subject to backup withholding.
The amount of any reportable payments, including interest, made
to you (unless you are an exempt recipient) and the amount of
tax withheld, if any, with respect to such payments will be
reported to you and to the Internal Revenue Service for each
calendar year. You should consult your tax advisor regarding
your qualification for an exemption from backup withholding and
the procedures for obtaining such an exemption, if applicable.
The backup withholding tax is not an additional tax and will be
credited against your U.S. federal income tax liability,
provided that correct information is provided to the Internal
Revenue Service.
Non-U.S.
Holders
The following summary applies to you if you are a beneficial
owner of a note and are not a U.S. holder, as defined above
(a
“non-U.S. holder”).
Special rules may apply to certain
non-U.S. holders
such as “controlled foreign corporations,”
“passive foreign investment companies” and
“foreign personal holding companies.” Such entities
are encouraged to consult their tax advisors to determine the
United States federal, state, local and other tax consequences
that may be relevant to them.
U.S. Federal Withholding Tax.
Subject to
the discussion below, U.S. federal withholding tax will not
apply to payments by us or our paying agent, in its capacity as
such, of principal and interest on your notes under the
“portfolio interest” exception of the Internal Revenue
Code, provided that:
| • | you do not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our stock entitled to vote; | |
| • | you are not (1) a controlled foreign corporation for U.S. federal income tax purposes that is related, directly or indirectly, to us through sufficient stock ownership, as provided in the Internal Revenue Code, or (2) a bank receiving interest described in Section 881(c)(3)(A) of the Internal Revenue Code; | |
| • | such interest is not effectively connected with your conduct of a U.S. trade or business; and | |
| • | you provide a signed written statement, under penalties of perjury, which can reliably be related to you, certifying that you are not a U.S. person within the meaning of the Internal Revenue Code and providing your name and address to: | |
| • | us or our paying agent; or | |
| • | a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds your notes on your behalf and that certifies to us or our paying agent under penalties of perjury that it, or the bank or financial institution between it and you, has received from you your signed, written statement and provides us or our paying agent with a copy of such statement. |
26
Table of Contents
Treasury regulations provide that:
| • | if you are a foreign partnership, the certification requirement will generally apply to your partners, and you will be required to provide certain information; | |
| • | if you are a foreign trust, the certification requirement will generally be applied to you or your beneficial owners depending on whether you are a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the Treasury regulations; and | |
| • | look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts. |
If you are a foreign partnership or a foreign trust, you should
consult your own tax advisor regarding your status under these
Treasury regulations and the certification requirements
applicable to you.
If you cannot satisfy the portfolio interest requirements
described above, payments of interest will be subject to the 30%
United States withholding tax, unless you provide us with a
properly executed (1) Internal Revenue Service
Form W-8BEN
claiming an exemption from or reduction in withholding under the
benefit of an applicable treaty or (2) Internal Revenue
Service
Form W-8ECI
stating that interest paid on the note is not subject to
withholding tax because it is effectively connected with your
conduct of a trade or business in the United States. Alternative
documentation may be applicable in certain circumstances.
If you are engaged in a trade or business in the United States
and interest on a note is effectively connected with the conduct
of that trade or business, you will be required to pay United
States federal income tax on that interest on a net income basis
(although you will be exempt from the 30% withholding tax
provided the certification requirement described above is met)
in the same manner as if you were a U.S. person, except as
otherwise provided by an applicable tax treaty. If you are a
foreign corporation, you may be required to pay a branch profits
tax on the earnings and profits that are effectively connected
to the conduct of your trade or business in the United States.
Recent legislation generally will impose U.S. withholding
tax at a 30% rate on payments of interest (including original
issue discount) and proceeds of sale in respect of debt
instruments to certain
non-U.S. holders
if certain additional disclosure requirements related to
U.S. ownership of such
non-U.S. holders
or U.S. accounts maintained by such
non-U.S. holders
are not satisfied. However, the withholding tax will not be
imposed on payments pursuant to debt or other obligations
outstanding as of March 18, 2012. If payment of withholding
taxes is required,
non-U.S. holders
that are otherwise eligible for an exemption from, or reduction
of, U.S. withholding taxes with respect to such
distributions and proceeds of a sale of such notes will be
entitled to seek a refund from the Internal Revenue Service
(“IRS”) to obtain the benefit of such exemption or
reduction. We will not pay any additional amounts to
non-U.S. holders
in respect of any amounts withheld. These new withholding rules
are generally effective for payments made after
December 31, 2012.
Sale, Exchange or other Disposition of
Notes.
You generally will not have to pay
U.S. federal income tax on any gain or income realized from
the sale, redemption, retirement at maturity or other
disposition of your notes, unless:
| • | in the case of gain, you are an individual who is present in the United States for 183 days or more during the taxable year of the sale or other disposition of your notes, and specific other conditions are met; | |
| • | you are subject to tax provisions applicable to certain United States expatriates; or | |
| • | the gain is effectively connected with your conduct of a U.S. trade or business. |
If you are engaged in a trade or business in the United States,
and gain with respect to your notes is effectively connected
with the conduct of that trade or business, you generally will
be subject to U.S. income tax on a net basis on the gain.
In addition, if you are a foreign corporation, you may be
subject to a branch profits tax on your effectively connected
earnings and profits for the taxable year, as adjusted for
certain items.
U.S. Federal Estate Tax.
If you are an
individual and are not a U.S. citizen or a resident of the
United States, as specially defined for U.S. federal estate
tax purposes, at the time of your death, your notes will
generally not be subject to the U.S. federal estate tax,
unless, at the time of your death (1) you owned actually or
constructively 10%
27
Table of Contents
or more of the total combined voting power of all our classes of
stock entitled to vote, or (2) interest on the notes is
effectively connected with your conduct of a U.S. trade or
business.
Backup Withholding and Information
Reporting.
Backup withholding will not apply to
payments of principal or interest made by us or our paying
agent, in its capacity as such, to you if you have provided the
required certification that you are a
non-U.S. holder
as described in “— U.S. Federal Withholding
Tax” above, and provided that neither we nor our paying
agent have actual knowledge that you are a U.S. holder, as
described in “— U.S. Holders” above. We
or our paying agent may, however, report payments of interest on
the notes.
The gross proceeds from the disposition of your notes may be
subject to information reporting and backup withholding tax. If
you sell your notes outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to you outside the United
States, then the U.S. backup withholding and information
reporting requirements generally will not apply to that payment.
However, U.S. information reporting, but not backup
withholding, will apply to a payment of sales proceeds, even if
that payment is made outside the United States, if you sell
your notes through a
non-U.S. office
of a broker that:
| • | is a U.S. person, as defined in the Internal Revenue Code; | |
| • | derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States; | |
| • | is a “controlled foreign corporation” for U.S. federal income tax purposes; or | |
| • | is a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons who in the aggregate hold more than 50% of the income or capital interests in the partnership, or the foreign partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence in its files that you are a non-U.S. person and certain other conditions are met or you otherwise establish an exemption. If you receive payments of the proceeds of a sale of your notes to or through a U.S. office of a broker, the payment is subject to both U.S. backup withholding and information reporting unless you provide a Form W-8BEN certifying that you are a non-U.S. person or you otherwise establish an exemption. |
You should consult your own tax advisor regarding application of
backup withholding in your particular circumstance and the
availability of and procedure for obtaining an exemption from
backup withholding. Any amounts withheld under the backup
withholding rules from a payment to you will be allowed as a
refund or credit against your U.S. federal income tax
liability, provided the required information is furnished to the
Internal Revenue Service.
U.S.
Federal Income and Estate Taxation of Holders of Our
Warrants
Exercise of Warrants.
You will not generally
recognize gain or loss upon the exercise of a warrant. Your
basis in the debt securities, preferred stock, depositary shares
or common stock, as the case may be, received upon the exercise
of the warrant will be equal to the sum of your adjusted tax
basis in the warrant and the exercise price paid. Your holding
period in the debt securities, preferred stock, depositary
shares or common stock, as the case may be, received upon the
exercise of the warrant will not include the period during which
the warrant was held by you.
Expiration of Warrants.
Upon the expiration of
a warrant, you will recognize a capital loss in an amount equal
to your adjusted tax basis in the warrant.
Sale or Exchange of Warrants.
Upon the sale or
exchange of a warrant to a person other than us, you will
recognize gain or loss in an amount equal to the difference
between the amount realized on the sale or exchange and your
adjusted tax basis in the warrant. Such gain or loss will be
capital gain or loss and will be long-term capital gain or loss
if the warrant was held for more than one year. Upon the sale of
the warrant to us, the Internal Revenue Service may argue that
you should recognize ordinary income on the sale. You are
advised to consult your own tax advisors as to the consequences
of a sale of a warrant to us.
28
Table of Contents
Potential
Legislation or Other Actions Affecting Tax
Consequences
Current and prospective securities holders should recognize that
the present federal income tax treatment of an investment in us
may be modified by legislative, judicial or administrative
action at any time and that any such action may affect
investments and commitments previously made. The rules dealing
with federal income taxation are constantly under review by
persons involved in the legislative process and by the Internal
Revenue Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in
federal tax laws and interpretations of these laws could
adversely affect the tax consequences of an investment in us.
Internet
Access to Our SEC Filings
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports, as well as our proxy statements
and other materials that are filed with, or furnished to, the
Securities and Exchange Commission are made available, free of
charge, on the Internet at www.hcreit.com, as soon as reasonably
practicable after they are filed with, or furnished to, the
Securities and Exchange Commission.
| Item 1A. | Risk Factors |
Forward-Looking
Statements and Risk Factors
This section discusses the most significant factors that affect
our business, operations and financial condition. It does not
describe all risks and uncertainties applicable to us, our
industry or ownership of our securities. If any of the following
risks, as well as other risks and uncertainties that are not yet
identified or that we currently think are not material, actually
occur, we could be materially adversely affected. In that event,
the value of our securities could decline.
This Annual Report on
Form 10-K
and the documents incorporated by reference contain statements
that constitute “forward-looking statements” as that
term is defined in the federal securities laws. These
forward-looking statements include, but are not limited to,
those regarding:
| • | the possible expansion of our portfolio; | |
| • | the sale of properties; | |
| • | the performance of our operators/tenants and properties; | |
| • | our ability to enter into agreements with new viable tenants for vacant space or for properties that we take back from financially troubled tenants, if any; | |
| • | our occupancy rates; | |
| • | our ability to acquire, develop and/or manage properties; | |
| • | our ability to make distributions to stockholders; | |
| • | our policies and plans regarding investments, financings and other matters; | |
| • | our tax status as a real estate investment trust; | |
| • | our critical accounting policies; | |
| • | our ability to appropriately balance the use of debt and equity; | |
| • | our ability to access capital markets or other sources of funds; and | |
| • | our ability to meet our earnings guidance. |
When we use words such as “may,” “will,”
“intend,” “should,” “believe,”
“expect,” “anticipate,” “project,”
“estimate” or similar expressions, we are making
forward-looking statements. Forward-looking statements are not
guarantees of future performance and involve risks and
uncertainties. Our expected results may not be achieved, and
29
Table of Contents
actual results may differ materially from our expectations. This
may be a result of various factors, including, but not limited
to:
| • | the status of the economy; | |
| • | the status of capital markets, including availability and cost of capital; | |
| • | issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; | |
| • | changes in financing terms; | |
| • | competition within the health care, senior housing and life science industries; | |
| • | negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; | |
| • | our ability to transition or sell facilities with profitable results; | |
| • | the failure to make new investments as and when anticipated; | |
| • | acts of God affecting our properties; | |
| • | our ability to re-lease space at similar rates as vacancies occur; | |
| • | our ability to timely reinvest sale proceeds at similar rates to assets sold; | |
| • | operator/tenant or joint venture partner bankruptcies or insolvencies; | |
| • | the cooperation of joint venture partners; | |
| • | government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; | |
| • | regulatory approval and market acceptance of the products and technologies of life science tenants; | |
| • | liability or contract claims by or against operators/tenants; | |
| • | unanticipated difficulties and/or expenditures relating to future acquisitions; | |
| • | environmental laws affecting our properties; | |
| • | changes in rules or practices governing our financial reporting; | |
| • | other legal and operational matters, including REIT qualification and key management personnel recruitment and retention; and | |
| • | the risks described below: |
Risk
factors related to our operators’ revenues and
expenses
Our investment property operators’ revenues are primarily
driven by occupancy, Medicare and Medicaid reimbursement, if
applicable, and private pay rates. Expenses for these facilities
are primarily driven by the costs of labor, food, utilities,
taxes, insurance and rent or debt service. Revenues from
government reimbursement have, and may continue to, come under
pressure due to reimbursement cuts and state budget shortfalls.
Liability insurance and staffing costs continue to increase for
our operators. To the extent that any decrease in revenues
and/or
any
increase in operating expenses result in a property not
generating enough cash to make payments to us, the credit of our
operator and the value of other collateral would have to be
relied upon.
The recent credit and liquidity crisis, and the weakened
economy, may have a lingering adverse effect on our operators
and tenants, including their ability to access credit or
maintain occupancy rates. If the operations, cash flows or
financial condition of our operators are materially adversely
impacted by economic conditions, our revenue and operations may
be adversely affected.
30
Table of Contents
Increased
competition may affect our operators’ ability to meet their
obligations to us
The operators of our properties compete on a local and regional
basis with operators of properties and other health care
providers that provide comparable services. We cannot be certain
that the operators of all of our facilities will be able to
achieve and maintain occupancy and rate levels that will enable
them to meet all of their obligations to us. Our operators are
expected to encounter increased competition in the future that
could limit their ability to attract residents or expand their
businesses.
Risk
factors related to obligor bankruptcies
We are exposed to the risk that our obligors may not be able to
meet the rent, principal and interest or other payments due us,
which may result in an obligor bankruptcy or insolvency, or that
an obligor might become subject to bankruptcy or insolvency
proceedings for other reasons. Although our operating lease
agreements provide us with the right to evict a tenant, demand
immediate payment of rent and exercise other remedies, and our
loans provide us with the right to terminate any funding
obligation, demand immediate repayment of principal and unpaid
interest, foreclose on the collateral and exercise other
remedies, the bankruptcy and insolvency laws afford certain
rights to a party that has filed for bankruptcy or
reorganization. An obligor in bankruptcy or subject to
insolvency proceedings may be able to limit or delay our ability
to collect unpaid rent in the case of a lease or to receive
unpaid principal and interest in the case of a loan, and to
exercise other rights and remedies.
We may be required to fund certain expenses (e.g., real estate
taxes and maintenance) to preserve the value of an investment
property, avoid the imposition of liens on a property
and/or
transition a property to a new tenant. In some instances, we
have terminated our lease with a tenant and relet the property
to another tenant. In some of those situations, we have provided
working capital loans to and limited indemnification of the new
obligor. If we cannot transition a leased property to a new
tenant, we may take possession of that property, which may
expose us to certain successor liabilities. Should such events
occur, our revenue and operating cash flow may be adversely
affected.
Transfers
of health care facilities may require regulatory approvals and
these facilities may not have efficient alternative
uses
Transfers of health care facilities to successor operators
frequently are subject to regulatory approvals or notifications,
including, but not limited to, change of ownership approvals
under certificate of need (“CON”) laws, state
licensure laws and Medicare and Medicaid provider arrangements,
that are not required for transfers of other types of real
estate. The replacement of a health care facility operator could
be delayed by the approval process of any federal, state or
local agency necessary for the transfer of the facility or the
replacement of the operator licensed to manage the facility.
Alternatively, given the specialized nature of our facilities,
we may be required to spend substantial time and funds to adapt
these properties to other uses. If we are unable to timely
transfer properties to successor operators or find efficient
alternative uses, our revenue and operations may be adversely
affected.
Risk
factors related to government regulations
Our obligors’ businesses are affected by government
reimbursement and private payor rates. To the extent that an
operator/tenant receives a significant portion of its revenues
from government payors, primarily Medicare and Medicaid, such
revenues may be subject to statutory and regulatory changes,
retroactive rate adjustments, recovery of program overpayments
or set-offs, administrative rulings, policy interpretations,
payment or other delays by fiscal intermediaries or carriers,
government funding restrictions (at a program level or with
respect to specific facilities) and interruption or delays in
payments due to any ongoing government investigations and audits
at such property. In recent years, government payors have frozen
or reduced payments to health care providers due to budgetary
pressures. Health care reimbursement will likely continue to be
of paramount importance to federal and state authorities. We
cannot make any assessment as to the ultimate timing or effect
any future legislative reforms may have on the financial
condition of our obligors and properties. There can be no
assurance that adequate reimbursement levels will be available
for services provided by any property operator, whether the
property receives reimbursement from Medicare, Medicaid or
private payors. Significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a
material adverse effect on an obligor’s liquidity,
financial
31
Table of Contents
condition and results of operations, which could adversely
affect the ability of an obligor to meet its obligations to us.
See “Item 1 — Business — Certain
Government Regulations — Reimbursement” above.
Our operators and tenants generally are subject to extensive
federal, state, local, and industry-regulated licensure,
certification and inspection laws, regulations, and standards.
Our operators’ or tenants’ failure to comply with any
of these laws, regulations, or standards could result in loss of
accreditation, denial of reimbursement, imposition of fines,
suspension or decertification from federal and state health care
programs, loss of license or closure of the facility. Such
actions may have an effect on our operators’ or
tenants’ ability to make lease payments to us and,
therefore, adversely impact us. See
“Item 1 — Business — Certain
Government Regulations — Other Related Laws”
above.
Many of our properties may require a license, registration,
and/or
CON
to operate. Failure to obtain a license, registration, or CON,
or loss of a required license, registration, or CON would
prevent a facility from operating in the manner intended by the
operators or tenants. These events could materially adversely
affect our operators’ or tenants’ ability to make rent
payments to us. State and local laws also may regulate the
expansion, including the addition of new beds or services or
acquisition of medical equipment, and the construction or
renovation of health care facilities, by requiring a CON or
other similar approval from a state agency. See
“Item 1 — Business — Certain
Government Regulations — Licensing and
Certification” above.
The American Recovery and Reinvestment Act of 2009
(“ARRA”), which was signed into law on
February 17, 2009, provides $87 billion in additional
federal Medicaid funding for states’ Medicaid expenditures
between October 1, 2008 and December 31, 2010. On
August 10, 2010, the President signed into law H.R. 1586,
which mandates a six-month extension of the increase in federal
Medicaid funding for states through June 30, 2011, although
the enhanced federal Medicaid funding is scaled back for the
first two quarters of 2011. Under both the ARRA and H.R. 1586,
states meeting certain eligibility requirements will temporarily
receive additional money in the form of an increase in the
federal medical assistance percentage (“FMAP”). Thus,
for a limited period of time, the share of Medicaid costs that
are paid for by the federal government will go up, and each
state’s share will go down. We cannot predict whether
states are, or will remain, eligible to receive the additional
federal Medicaid funding, or whether the states will have
sufficient funds for their Medicaid programs. We also cannot
predict the impact that such broad-based, far-reaching
legislation will have on the U.S. economy or our business.
Risk
factors related to liability claims and insurance
costs
In recent years, skilled nursing and seniors housing operators
have experienced substantial increases in both the number and
size of patient care liability claims. As a result, general and
professional liability costs have increased in some markets.
However, a recent report and state survey found that the
liability insurance market is beginning to stabilize in most
markets. In 2008, national average liability loss costs were
stable for the first time in nearly a decade. State-led tort
reform efforts have greatly contributed to decreasing costs. In
some markets general and professional liability insurance
coverage continues to be restricted or very costly, which in
some cases has caused operators to self-insure. These
developments may adversely affect the property operators’
future operations, cash flows and financial condition, and may
have a material adverse effect on the property operators’
ability to meet their obligations to us.
Risk
factors related to acquisitions
We are exposed to the risk that some of our acquisitions may not
prove to be successful. We could encounter unanticipated
difficulties and expenditures relating to any acquired
properties, including contingent liabilities, and acquired
properties might require significant management attention that
would otherwise be devoted to our ongoing business. If we agree
to provide construction funding to an operator/tenant and the
project is not completed, we may need to take steps to ensure
completion of the project. Moreover, if we issue equity
securities or incur additional debt, or both, to finance future
acquisitions, it may reduce our per share financial results.
These costs may negatively affect our results of operations.
32
Table of Contents
Risk
factors related to joint ventures
We have entered into, and may continue in the future to enter
into, partnerships or joint ventures with other persons or
entities. Joint venture investments involve risks that may not
be present with other methods of ownership, including the
possibility that our partner might become insolvent, refuse to
make capital contributions when due or otherwise fail to meet
its obligations, which may result in certain liabilities to us
for guarantees and other commitments; that our partner might at
any time have economic or other business interests or goals that
are or become inconsistent with our interests or goals; that we
could become engaged in a dispute with our partner, which could
require us to expend additional resources to resolve such
disputes and could have an adverse impact on the operations and
profitability of the joint venture; and that our partner may be
in a position to take action or withhold consent contrary to our
instructions or requests. In addition, our ability to transfer
our interest in a joint venture to a third party may be
restricted. In some instances, we
and/or
our
partner may have the right to trigger a buy-sell arrangement,
which could cause us to sell our interest, or acquire our
partner’s interest, at a time when we otherwise would not
have initiated such a transaction. Our ability to acquire our
partner’s interest may be limited if we do not have
sufficient cash, available borrowing capacity or other capital
resources. In such event, we may be forced to sell our interest
in the joint venture when we would otherwise prefer to retain
it. Joint ventures may require us to share decision-making
authority with our partners, which could limit our ability to
control the properties in the joint ventures. Even when we have
a controlling interest, certain major decisions may require
partner approval, such as the sale, acquisition or financing of
a property.
Risk
factors related to life sciences facilities
Our tenants in the life sciences industry face high levels of
regulation, expense and uncertainty that may adversely affect
their ability to make payments to us. Research, development and
clinical testing of products and technologies can be very
expensive and sources of funds may not be available to our life
sciences tenants in the future. The products and technologies
that are developed and manufactured by our life sciences tenants
may require regulatory approval prior to being made, marketed,
sold and used. The regulatory process can be costly, long and
unpredictable. Even after a tenant gains regulatory approval and
market acceptance, the product still presents regulatory and
liability risks, such as safety concerns, competition from new
products and eventually the expiration of patent protection.
These factors may affect the ability of our life sciences
tenants to make timely payments to us, which may adversely
affect our revenue and operations.
Permanent financing for our investments is typically provided
through a combination of public and private offerings of debt
and equity securities and the incurrence or assumption of
secured debt. The incurrence or assumption of indebtedness may
cause us to become more leveraged, which could (1) require
us to dedicate a greater portion of our cash flow to the payment
of debt service, (2) make us more vulnerable to a downturn
in the economy, (3) limit our ability to obtain additional
financing, or (4) negatively affect our credit ratings or
outlook by one or more of the noted rating agencies.
Our debt agreements contain various covenants, restrictions and
events of default. Among other things, these provisions require
us to maintain certain financial ratios and minimum net worth
and impose certain limits on our ability to incur indebtedness,
create liens and make investments or acquisitions. Breaches of
these covenants could result in defaults under the instruments
governing the applicable indebtedness, in addition to any other
indebtedness cross-defaulted against such instruments. These
defaults could have a material adverse impact on our business,
results of operations and financial condition.
Risk
factors related to our credit ratings
We plan to manage the Company to maintain a capital structure
consistent with our current profile, but there can be no
assurance that we will be able to maintain our current credit
ratings. Any downgrades in terms of ratings or outlook by any or
all of the noted rating agencies could have a material adverse
impact on our cost and availability of capital, which could in
turn have a material adverse impact on our consolidated results
of operations, liquidity
and/or
financial condition.
33
Table of Contents
Risk
factors related to interest rate swaps
We enter into interest rate swap agreements from time to time to
manage some of our exposure to interest rate volatility. These
swap agreements involve risks, such as the risk that
counterparties may fail to honor their obligations under these
arrangements. In addition, these arrangements may not be
effective in reducing our exposure to changes in interest rates.
When we use forward-starting interest rate swaps, there is a
risk that we will not complete the long-term borrowing against
which the swap is intended to hedge. If such events occur, our
results of operations may be adversely affected.
Risk
factors related to environmental laws
Under various federal and state laws, owners or operators of
real estate may be required to respond to the presence or
release of hazardous substances on the property and may be held
liable for property damage, personal injuries or penalties that
result from environmental contamination or exposure to hazardous
substances. We may become liable to reimburse the government for
damages and costs it incurs in connection with the
contamination. Generally, such liability attaches to a person
based on the person’s relationship to the property. Our
tenants or borrowers are primarily responsible for the condition
of the property. Moreover, we review environmental site
assessments of the properties that we own or encumber prior to
taking an interest in them. Those assessments are designed to
meet the “all appropriate inquiry” standard, which we
believe qualifies us for the innocent purchaser defense if
environmental liabilities arise. Based upon such assessments, we
do not believe that any of our properties are subject to
material environmental contamination. However, environmental
liabilities may be present in our properties and we may incur
costs to remediate contamination, which could have a material
adverse effect on our business or financial condition or the
business or financial condition of our obligors.
Risk
factors related to facilities that require entrance
fees
Certain of our senior housing facilities require the payment of
an upfront entrance fee by the resident, a portion of which may
be refundable by the operator. Some of these facilities are
subject to substantial oversight by state regulators relating to
these funds. As a result of this oversight, residents of these
facilities may have a variety of rights, including, for example,
the right to cancel their contracts within a specified period of
time and certain lien rights. The oversight and rights of
residents within these facilities may have an effect on the
revenue or operations of the operators of such facilities and
therefore may negatively impact us.
Risk
factors related to facilities under construction or
development
At any given time, we may be in the process of constructing one
or more new facilities that ultimately will require a CON and
license before they can be utilized by the operator for their
intended use. The operator also may need to obtain Medicare and
Medicaid certification and enter into Medicare and Medicaid
provider agreements
and/or
third
party payor contracts. In the event that the operator is unable
to obtain the necessary CON, licensure, certification, provider
agreements or contracts after the completion of construction,
there is a risk that we will not be able to earn any revenues on
the facility until either the initial operator obtains a license
or certification to operate the new facility and the necessary
provider agreements or contracts or we can find and contract
with a new operator that is able to obtain a license to operate
the facility for its intended use and the necessary provider
agreements or contracts.
In connection with our renovation, redevelopment, development
and related construction activities, we may be unable to obtain,
or suffer delays in obtaining, necessary zoning, land-use,
building, occupancy and other required governmental permits and
authorizations. These factors could result in increased costs or
our abandonment of these projects. In addition, we may not be
able to obtain financing on favorable terms, which may render us
unable to proceed with our development activities, and we may
not be able to complete construction and
lease-up
of
a property on schedule, which could result in increased debt
service expense or construction costs.
Additionally, the time frame required for development,
construction and
lease-up
of
these properties means that we may have to wait years for
significant cash returns. Because we are required to make cash
distributions to our stockholders, if the cash flow from
operations or refinancing is not sufficient, we may be forced to
borrow
34
Table of Contents
additional money to fund such distributions. Newly developed and
acquired properties may not produce the cash flow that we
expect, which could adversely affect our overall financial
performance.
In deciding whether to acquire or develop a particular property,
we make assumptions regarding the expected future performance of
that property. In particular, we estimate the return on our
investment based on expected occupancy and rental rates. If our
financial projections with respect to a new property are
inaccurate, and the property is unable to achieve the expected
occupancy and rental rates, it may fail to perform as we
expected in analyzing our investment. Our estimate of the costs
of repositioning or redeveloping an acquired property may prove
to be inaccurate, which may result in our failure to meet our
profitability goals. Additionally, we may acquire new properties
that are not fully leased, and the cash flow from existing
operations may be insufficient to pay the operating expenses and
debt service associated with that property.
We do
not know if our tenants will renew their existing leases, and if
they do not, we may be unable to lease the properties on as
favorable terms, or at all
We cannot predict whether our tenants will renew existing leases
at the end of their lease terms, which expire at various times.
If these leases are not renewed, we would be required to find
other tenants to occupy those properties or sell them. There can
be no assurance that we would be able to identify suitable
replacement tenants or enter into leases with new tenants on
terms as favorable to us as the current leases or that we would
be able to lease those properties at all.
Our
ownership of properties through ground leases exposes us to the
loss of such properties upon breach or termination of the ground
leases
We have acquired an interest in certain of our properties by
acquiring a leasehold interest in the property on which the
building is located, and we may acquire additional properties in
the future through the purchase of interests in ground leases.
As the lessee under a ground lease, we are exposed to the
possibility of losing the property upon termination of the
ground lease or an earlier breach of the ground lease by us.
Illiquidity
of real estate investments could significantly impede our
ability to respond to adverse changes in the performance of our
properties
Real estate investments are relatively illiquid. Our ability to
quickly sell or exchange any of our properties in response to
changes in economic and other conditions will be limited. No
assurances can be given that we will recognize full value for
any property that we are required to sell for liquidity reasons.
Our inability to respond rapidly to changes in the performance
of our investments could adversely affect our financial
condition and results of operations. In addition, we are exposed
to the risks inherent in concentrating investments in real
estate, and in particular, the seniors housing and health care
industries. A downturn in the real estate industry could
adversely affect the value of our properties and our ability to
sell properties for a price or on terms acceptable to us.
Risk
factors related to reinvestment of sale proceeds
From time to time, we will have cash available from (1) the
proceeds of sales of our securities, (2) principal payments
on our loans receivable and (3) the sale of properties,
including non-elective dispositions, under the terms of master
leases or similar financial support arrangements. In order to
maintain current revenues and continue generating attractive
returns, we expect to re-invest these proceeds in a timely
manner. We compete for real estate investments with a broad
variety of potential investors. This competition for attractive
investments may negatively affect our ability to make timely
investments on terms acceptable to us.
Failure
to properly manage our rapid growth could distract our
management or increase our expenses
We have experienced rapid growth and development in a relatively
short period of time and expect to continue this rapid growth in
the future. This growth has resulted in increased levels of
responsibility for our management. Future property acquisitions
could place significant additional demands on, and require us to
expand, our management, resources and personnel. Our failure to
manage any such rapid growth effectively could harm our business
and, in particular, our financial condition, results of
operations and cash flows, which could negatively
35
Table of Contents
affect our ability to make distributions to stockholders. Our
growth could also increase our capital requirements, which may
require us to issue potentially dilutive equity securities and
incur additional debt.
We
might fail to qualify or remain qualified as a
REIT
We intend to operate as a REIT under the Internal Revenue Code
and believe we have and will continue to operate in such a
manner. If we lose our status as a REIT, we will face serious
income tax consequences that will substantially reduce the funds
available for satisfying our obligations and for distribution to
our stockholders because:
| • | we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates; | |
| • | we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and | |
| • | unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we were disqualified. |
Since REIT qualification requires us to meet a number of complex
requirements, it is possible that we may fail to fulfill them,
and if we do, our earnings will be reduced by the amount of
U.S. federal and other income taxes owed. A reduction in
our earnings would affect the amount we could distribute to our
stockholders. If we do not qualify as a REIT, we would not be
required to make distributions to stockholders since a non-REIT
is not required, in order to maintain REIT status or avoid an
excise tax, to pay dividends to stockholders. See
“Item 1 — Business —
Taxation — Federal Income Tax Considerations” for
a discussion of the provisions of the Internal Revenue Code that
apply to us and the effects of failure to qualify as a REIT.
In addition, if we fail to qualify as a REIT, all distributions
to stockholders would continue to be treated as dividends to the
extent of our current and accumulated earnings and profits,
although corporate stockholders may be eligible for the
dividends received deduction, and individual stockholders may be
eligible for taxation at the rates generally applicable to
long-term capital gains (currently at a maximum rate of 15%)
with respect to distributions.
As a result of all these factors, our failure to qualify as a
REIT also could impair our ability to implement our business
strategy and would adversely affect the value of our common
stock.
Qualification as a REIT involves the application of highly
technical and complex Internal Revenue Code provisions for which
there are only limited judicial and administrative
interpretations. The determination of various factual matters
and circumstances not entirely within our control may affect our
ability to remain qualified as a REIT. Although we believe that
we qualify as a REIT, we cannot assure you that we will continue
to qualify or remain qualified as a REIT for U.S. federal
income tax purposes. See “Item 1 —
Business — Taxation — Federal Income Tax
Considerations” included in this Annual Report on
Form 10-K.
The
90% annual distribution requirement will decrease our liquidity
and may limit our ability to engage in otherwise beneficial
transactions
To comply with the 90% distribution requirement applicable to
REITs and to avoid the nondeductible excise tax, we must make
distributions to our stockholders. See
“Item 1 — Business
— Taxation — Federal Income Tax
Considerations — Qualification as a REIT —
Annual Distribution Requirements” included in this Annual
Report on
Form 10-K.
Although we anticipate that we generally will have sufficient
cash or liquid assets to enable us to satisfy the REIT
distribution requirement, it is possible that, from time to
time, we may not have sufficient cash or other liquid assets to
meet the 90% distribution requirement, or we may decide to
retain cash or distribute such greater amount as may be
necessary to avoid income and excise taxation. This may be due
to timing differences between the actual receipt of income and
actual payment of deductible expenses, on the one hand, and the
inclusion of that income and deduction of those expenses in
arriving at our taxable income, on the other hand. In addition,
non-deductible expenses such as principal amortization or
repayments or capital expenditures in excess of non-cash
deductions may cause us to fail to have sufficient cash or
liquid assets to enable us to satisfy the 90% distribution
requirement. In the event that timing differences occur, or we
deem it appropriate to retain cash, we may borrow funds, issue
additional equity securities (although we cannot assure you that
we will be able to do so), pay taxable
36
Table of Contents
stock dividends, if possible, distribute other property or
securities or engage in another transaction intended to enable
us to meet the REIT distribution requirements. This may require
us to raise additional capital to meet our obligations.
The amount of additional indebtedness we may incur is limited by
the terms of our line of credit arrangement and the indentures
governing our senior unsecured notes. In addition, adverse
economic conditions may impact the availability of additional
funds or could cause the terms on which we are able to borrow
additional funds to become unfavorable. In those circumstances,
we may be required to raise additional equity in the capital
markets. Our access to capital depends upon a number of factors
over which we have little or no control, including rising
interest rates, inflation and other general market conditions
and the market’s perception of our growth potential and our
current and potential future earnings and cash distributions and
the market price of the shares of our capital stock. We cannot
assure you that we will be able to raise the capital necessary
to make future investments or to meet our obligations and
commitments as they mature.
The
lease of qualified health care properties to a taxable REIT
subsidiary is subject to special requirements
We intend to lease certain qualified health care properties we
acquire from operators to a taxable REIT subsidiary (or a
limited liability company of which the taxable REIT subsidiary
is a member), which lessee will contract with such operators (or
a related party) to operate the health care operations at these
properties. The rents from this taxable REIT subsidiary lessee
structure will be treated as qualifying rents from real property
if (1) they are paid pursuant to an arms-length lease of a
qualified health care property with a taxable REIT subsidiary
and (2) the operator qualifies as an eligible independent
contractor. If any of these conditions are not satisfied, then
the rents will not be qualifying rents. See
“Item 1 — Business —
Taxation — Federal Income Tax
Considerations — Qualification as a REIT —
Income Tests.”
If
certain sale-leaseback transactions are not characterized by the
IRS as “true leases,” we may be subject to adverse tax
consequences
We may purchase properties and lease them back to the sellers of
such properties. We intend for any such sale-leaseback
transaction to be structured in such a manner that the lease
will be characterized as a “true lease,” thereby
allowing us to be treated as the owner of the property for
U.S. federal income tax purposes. However, depending on the
terms of any specific transaction, the IRS might take the
position that the transaction is not a “true lease”
but is more properly treated in some other manner. In the event
any sale-leaseback transaction is challenged and successfully
re-characterized by the IRS, we would not be entitled to claim
the deductions for depreciation and cost recovery generally
available to an owner of property. Furthermore, if a
sale-leaseback transaction were so re-characterized, we might
fail to satisfy the REIT asset tests or income tests and,
consequently, could lose our REIT status effective with the year
of re-characterization. See “Item 1 —
Business — Taxation — Federal Income Tax
Considerations — Qualification as a REIT —
Asset Tests” and “— Income Tests.”
Alternatively, the amount of our REIT taxable income could be
recalculated, which may cause us to fail to meet the REIT annual
distribution requirements for a taxable year. See
“Item 1 — Business —
Taxation — Federal Income Tax
Considerations — Qualification as a REIT —
Annual Distribution Requirements.”
Other
risk factors
We are also subject to other risks. First, our Second Restated
Certificate of Incorporation and Second Amended and Restated
By-Laws contain anti-takeover provisions (staggered board
provisions, restrictions on share ownership and transfer and
super majority stockholder approval requirements for business
combinations) that could make it more difficult for or even
prevent a third party from acquiring us without the approval of
our incumbent Board of Directors. Provisions and agreements that
inhibit or discourage takeover attempts could reduce the market
value of our common stock.
Additionally, we are dependent on key personnel. Although we
have entered into employment agreements with our executive
officers, losing any one of them could, at least temporarily,
have an adverse impact on our operations. We believe that losing
more than one could have a material adverse impact on our
business.
37
Table of Contents
| Item 1B. | Unresolved Staff Comments |
None.
| Item 2. | Properties |
We own our corporate headquarters located at 4500 Dorr Street,
Toledo, Ohio 43615. We also own corporate offices in Tennessee,
lease corporate offices in Florida and have ground leases
relating to certain of our properties. The following table sets
forth certain information regarding the properties that comprise
our consolidated real property and real estate loan investments
as of December 31, 2010 (dollars in thousands):
| Senior Housing and Care | Medical Facilities | |||||||||||||||||||||||
|
Number of
|
Total
|
Annualized
|
Number of
|
Total
|
Annualized
|
|||||||||||||||||||
|
Property Location
|
Properties | Investment | Income(1) | Properties | Investment | Income(1) | ||||||||||||||||||
|
Alabama
|
3 | $ | 23,717 | $ | 6,914 | 5 | $ | 39,620 | $ | 3,621 | ||||||||||||||
|
Alaska
|
— | — | — | 1 | 26,612 | 2,464 | ||||||||||||||||||
|
Arizona
|
6 | 37,427 | 7,592 | 5 | 89,527 | 7,763 | ||||||||||||||||||
|
California
|
26 | 423,882 | 101,957 | 16 | 464,923 | 23,688 | ||||||||||||||||||
|
Colorado
|
6 | 100,713 | 10,659 | 1 | 6,552 | 590 | ||||||||||||||||||
|
Connecticut
|
12 | 77,259 | 8,865 | — | — | — | ||||||||||||||||||
|
Delaware
|
3 | 70,198 | 6,161 | — | — | — | ||||||||||||||||||
|
Florida
|
53 | 513,736 | 52,119 | 30 | 401,991 | 23,881 | ||||||||||||||||||
|
Georgia
|
8 | 89,563 | 15,938 | 7 | 67,885 | 5,049 | ||||||||||||||||||
|
Idaho
|
4 | 39,506 | 5,394 | 1 | 22,711 | 2,522 | ||||||||||||||||||
|
Illinois
|
13 | 174,681 | 22,688 | 2 | 9,235 | 329 | ||||||||||||||||||
|
Indiana
|
18 | 256,614 | 22,617 | 3 | 44,017 | 4,682 | ||||||||||||||||||
|
Iowa
|
2 | 47,060 | 7,295 | — | — | — | ||||||||||||||||||
|
Kansas
|
4 | 92,753 | 7,245 | 1 | 16,553 | 1,122 | ||||||||||||||||||
|
Kentucky
|
10 | 55,818 | 7,831 | 2 | 39,092 | 3,553 | ||||||||||||||||||
|
Louisiana
|
5 | 25,709 | 3,161 | 1 | 10,807 | 744 | ||||||||||||||||||
|
Maryland
|
2 | 13,636 | 1,537 | — | — | — | ||||||||||||||||||
|
Massachusetts
|
19 | 289,816 | 33,613 | 2 | 11,120 | — | ||||||||||||||||||
|
Michigan
|
6 | 93,677 | 5,653 | — | — | — | ||||||||||||||||||
|
Minnesota
|
— | — | — | 3 | 45,956 | 3,246 | ||||||||||||||||||
|
Mississippi
|
6 | 53,029 | 5,623 | — | — | — | ||||||||||||||||||
|
Missouri
|
7 | 114,580 | 12,098 | 4 | 83,905 | 7,099 | ||||||||||||||||||
|
Montana
|
3 | 12,939 | 1,970 | — | — | — | ||||||||||||||||||
|
Nebraska
|
4 | 39,260 | 3,252 | 3 | 155,597 | 13,143 | ||||||||||||||||||
|
Nevada
|
5 | 83,854 | 14,598 | 9 | 106,722 | 7,627 | ||||||||||||||||||
|
New Hampshire
|
1 | 4,178 | 531 | — | — | — | ||||||||||||||||||
|
New Jersey
|
13 | 301,232 | 21,487 | 7 | 165,805 | 13,220 | ||||||||||||||||||
|
New Mexico
|
1 | 22,107 | 1,430 | — | — | — | ||||||||||||||||||
|
New York
|
6 | 187,852 | 13,076 | 7 | 56,366 | 4,922 | ||||||||||||||||||
|
North Carolina
|
44 | 204,050 | 25,148 | 10 | 23,889 | 1,670 | ||||||||||||||||||
|
Ohio
|
30 | 426,483 | 37,978 | 4 | 53,480 | 4,780 | ||||||||||||||||||
|
Oklahoma
|
23 | 102,575 | 11,850 | 3 | 22,535 | 2,201 | ||||||||||||||||||
|
Oregon
|
2 | 7,420 | 1,358 | — | — | — | ||||||||||||||||||
|
Pennsylvania
|
11 | 192,047 | 15,752 | 1 | 21,609 | 2,028 | ||||||||||||||||||
|
South Carolina
|
8 | 241,233 | 14,782 | 1 | 16,103 | 917 | ||||||||||||||||||
|
Tennessee
|
25 | 233,041 | 29,334 | 8 | 95,318 | 7,006 | ||||||||||||||||||
|
Texas
|
46 | 309,060 | 42,716 | 26 | 396,230 | 33,796 | ||||||||||||||||||
|
Utah
|
1 | 5,916 | 944 | — | — | — | ||||||||||||||||||
|
Virginia
|
14 | 89,092 | 10,359 | 2 | 22,939 | 2,454 | ||||||||||||||||||
|
Washington
|
20 | 466,642 | 91,082 | 3 | 88,091 | 1,753 | ||||||||||||||||||
|
Wisconsin
|
13 | 138,572 | 13,168 | 19 | 325,992 | 27,844 | ||||||||||||||||||
|
Total
|
483 | $ | 5,660,927 | $ | 695,775 | 187 | $ | 2,931,182 | $ | 213,714 | ||||||||||||||
| (1) | Reflects annualized recent month of resident fees and services, contract rate of interest for loans, annual straight-line rent for leases with fixed escalators or annual cash rent for leases with contingent escalators, net of collectibility reserves if applicable. |
38
Table of Contents
The following table sets forth occupancy and average annualized
income for these property types:
| Occupancy(1) | Average Annualized Income(2) | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Senior housing facilities-operating
|
91.9 | % | n/a | $ | 30,458 | $ | n/a per unit | |||||||||
|
Senior housing facilities-triple net
|
88.9 | % | 89.2 | % | 16,241 | 12,351 per unit | ||||||||||
|
Skilled nursing facilities
|
84.9 | % | 84.2 | % | 6,519 | 6,244 per bed | ||||||||||
|
Medical office buildings
|
93.1 | % | 91.3 | % | 20 | 20 per sq.ft. | ||||||||||
|
Hospitals
|
62.9 | % | 56.5 | % | 30,951 | 26,063 per bed | ||||||||||
| (1) | Medical office building occupancy represents the percentage of total rentable square feet leased and occupied (including month-to-month and holdover leases and excluding terminations and discontinued operations) as of December 31, 2010 and 2009. Occupancy for other properties represents average quarterly operating occupancy based on the quarters ended September 30, 2010 and 2009 and excludes properties that are unstabilized, closed or for which data is not available or meaningful. The Company uses unaudited, periodic financial information provided solely by tenants/borrowers to calculate occupancy for properties other than medical office buildings and has not independently verified the information. | |
| (2) | Average annualized income represents annualized income divided by total beds, units or square feet. |
The following table sets forth information regarding lease
expirations as of December 31, 2010 (dollars in thousands):
|
Senior Housing
|
Skilled Nursing
|
Medical Office
|
Total Rental
|
|||||||||||||||||
|
Year
|
Facilities(1) | Facilities | Hospitals | Buildings | Income(2) | |||||||||||||||
|
2011
|
$ | 9,499 | $ | — | $ | — | $ | 9,631 | $ | 19,130 | ||||||||||
|
2012
|
5,549 | 6,887 | — | 11,903 | 24,339 | |||||||||||||||
|
2013
|
42,678 | — | — | 10,222 | 52,900 | |||||||||||||||
|
2014
|
2,149 | 6,349 | — | 10,718 | 19,216 | |||||||||||||||
|
2015
|
— | 2,014 | — | 11,410 | 13,424 | |||||||||||||||
|
2016
|
— | 3,367 | — | 13,602 | 16,969 | |||||||||||||||
|
2017
|
12,688 | 3,875 | 2,350 | 9,927 | 28,840 | |||||||||||||||
|
2018
|
38,459 | 7,084 | — | 4,498 | 50,041 | |||||||||||||||
|
2019
|
9,463 | 18,465 | — | 10,262 | 38,190 | |||||||||||||||
|
2020
|
27,473 | 23,619 | 5,980 | 8,651 | 65,723 | |||||||||||||||
|
Thereafter
|
180,799 | 70,951 | 45,165 | 55,412 | 352,327 | |||||||||||||||
|
Total
|
$ | 328,757 | $ | 142,611 | $ | 53,495 | $ | 156,236 | $ | 681,099 | ||||||||||
| (1) | Excludes facilities in our senior housing operating partnerships. | |
| (2) | Rental income represents annualized base rent for effective lease agreements. The amounts are derived from the current contracted monthly base rent including straight-line for leases with fixed escalators or annual cash rent for leases with contingent escalators, net of collectability reserves, if applicable. Rental income does not include common area maintenance charges or the amortization of above/below market lease intangibles. |
| Item 3. | Legal Proceedings |
From time to time, there are various legal proceedings pending
to which we are a party or to which some of our properties are
subject arising in the normal course of business. We do not
believe that the ultimate resolution of these proceedings will
have a material adverse effect on our consolidated financial
position or results of operations.
| Item 4. | (Removed and Reserved) |
39
Table of Contents
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
There were 5,013 stockholders of record as of January 31,
2011. The following table sets forth, for the periods indicated,
the high and low prices of our common stock on the New York
Stock Exchange, as reported on the Composite Tape, and common
dividends paid per share:
| Sales Price |
Dividends
|
|||||||||||
| High | Low | Paid | ||||||||||
|
2010
|
||||||||||||
|
First Quarter
|
$ | 46.79 | $ | 39.82 | $ | 0.68 | ||||||
|
Second Quarter
|
46.44 | 38.42 | 0.69 | |||||||||
|
Third Quarter
|
48.54 | 40.85 | 0.69 | |||||||||
|
Fourth Quarter
|
52.06 | 44.07 | 0.69 | |||||||||
|
2009
|
||||||||||||
|
First Quarter
|
$ | 42.32 | $ | 25.86 | $ | 0.68 | ||||||
|
Second Quarter
|
36.41 | 29.62 | 0.68 | |||||||||
|
Third Quarter
|
44.40 | 32.64 | 0.68 | |||||||||
|
Fourth Quarter
|
46.74 | 40.53 | 0.68 | |||||||||
Our Board of Directors has approved a new quarterly cash
dividend rate of $0.715 per share of common stock per quarter,
commencing with the May 2011 dividend. Our dividend policy is
reviewed annually by the Board of Directors. The declaration and
payment of quarterly dividends remains subject to the review and
approval of the Board of Directors.
40
Table of Contents
Stockholder
Return Performance Presentation
Set forth below is a line graph comparing the yearly percentage
change and the cumulative total stockholder return on our shares
of common stock against the cumulative total return of the
S & P Composite-500 Stock Index and the FTSE NAREIT
Equity Index. As of December 31, 2010, 119 companies
comprised the FTSE NAREIT Equity Index. The Index consists of
REITs identified by NAREIT as equity (those REITs which have at
least 75% of their investments in real property). Upon written
request sent to the Senior Vice President-Administration and
Corporate Secretary, Health Care REIT, Inc., 4500 Dorr Street,
Toledo, Ohio,
43615-4040,
we will provide stockholders with the names of the component
issuers. The data are based on the closing prices as of December
31 for each of the five years. 2005 equals $100 and dividends
are assumed to be reinvested.
| 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | 12/31/10 | |||||||||||||||||||||||||
|
S & P 500
|
100.0 | 115.79 | 122.16 | 76.96 | 97.33 | 111.99 | ||||||||||||||||||||||||
|
Health Care REIT, Inc.
|
100.0 | 136.99 | 150.22 | 150.66 | 170.03 | 194.40 | ||||||||||||||||||||||||
|
FTSE NAREIT Equity
|
100.0 | 135.06 | 113.87 | 70.91 | 90.76 | 116.12 | ||||||||||||||||||||||||
Except to the extent that we specifically incorporate this
information by reference, the foregoing Stockholder Return
Performance Presentation shall not be deemed incorporated by
reference by any general statement incorporating by reference
this Annual Report on
Form 10-K
into any filing under the Securities Act of 1933, as amended, or
under the Securities Exchange Act of 1934, as amended. This
information shall not otherwise be deemed filed under such acts.
41
Table of Contents
| Item 6. | Selected Financial Data |
The following selected financial data for the five years ended
December 31, 2010 are derived from our audited consolidated
financial statements (in thousands, except per share data):
| Year Ended December 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
|
Operating Data
|
||||||||||||||||||||
|
Revenues(1)
|
$ | 248,061 | $ | 409,051 | $ | 504,525 | $ | 546,092 | $ | 680,530 | ||||||||||
|
Expenses:
|
||||||||||||||||||||
|
Interest expense(1)
|
77,087 | 125,714 | 125,276 | 102,117 | 157,108 | |||||||||||||||
|
Depreciation and amortization(1)
|
66,069 | 118,159 | 138,136 | 150,728 | 197,118 | |||||||||||||||
|
Property operating expenses(1)
|
1,003 | 33,410 | 42,634 | 45,896 | 83,120 | |||||||||||||||
|
General and administrative(1)
|
25,922 | 37,465 | 47,193 | 49,691 | 54,626 | |||||||||||||||
|
Transaction costs
|
— | — | — | — | 46,660 | |||||||||||||||
|
Provision for loan losses
|
1,000 | — | 94 | 23,261 | 29,684 | |||||||||||||||
|
Realized loss on derivatives
|
— | — | 23,393 | — | — | |||||||||||||||
|
Loss (gain) on extinguishment of debt
|
— | (1,081 | ) | (2,094 | ) | 25,107 | 34,171 | |||||||||||||
|
Total expenses
|
171,081 | 313,667 | 374,632 | 396,800 | 602,487 | |||||||||||||||
|
Income from continuing operations before income taxes and income
from unconsolidated joint ventures
|
76,980 | 95,384 | 129,893 | 149,292 | 78,043 | |||||||||||||||
|
Income tax expense
|
(82 | ) | (188 | ) | (1,306 | ) | (168 | ) | (364 | ) | ||||||||||
|
Income from unconsolidated joint ventures
|
— | — | — | — | 6,673 | |||||||||||||||
|
Income from continuing operations
|
76,898 | 95,196 | 128,587 | 149,124 | 84,352 | |||||||||||||||
|
Income from discontinued operations, net(1)
|
25,758 | 43,397 | 154,838 | 43,803 | 44,532 | |||||||||||||||
|
Net income
|
102,656 | 138,593 | 283,425 | 192,927 | 128,884 | |||||||||||||||
|
Preferred stock dividends
|
21,463 | 25,130 | 23,201 | 22,079 | 21,645 | |||||||||||||||
|
Net income (loss) attributable to noncontrolling interests
|
13 | 238 | 126 | (342 | ) | 357 | ||||||||||||||
|
Net income attributable to common stockholders
|
$ | 81,180 | $ | 113,225 | $ | 260,098 | $ | 171,190 | $ | 106,882 | ||||||||||
|
Other Data
|
||||||||||||||||||||
|
Average number of common shares outstanding:
|
||||||||||||||||||||
|
Basic
|
61,661 | 78,861 | 93,732 | 114,207 | 127,656 | |||||||||||||||
|
Diluted
|
62,045 | 79,409 | 94,309 | 114,612 | 128,208 | |||||||||||||||
|
Per Share Data
|
||||||||||||||||||||
|
Basic:
|
||||||||||||||||||||
|
Income from continuing operations attributable to common
stockholders
|
$ | 0.90 | $ | 0.89 | $ | 1.12 | $ | 1.12 | $ | 0.49 | ||||||||||
|
Discontinued operations, net
|
0.42 | 0.55 | 1.65 | 0.38 | 0.35 | |||||||||||||||
|
Net income attributable to common stockholders*
|
$ | 1.32 | $ | 1.44 | $ | 2.77 | $ | 1.50 | $ | 0.84 | ||||||||||
|
Diluted:
|
||||||||||||||||||||
|
Income from continuing operations attributable to common
stockholders
|
$ | 0.89 | $ | 0.88 | $ | 1.12 | $ | 1.11 | $ | 0.49 | ||||||||||
|
Discontinued operations, net
|
0.42 | 0.55 | 1.64 | 0.38 | 0.35 | |||||||||||||||
|
Net income attributable to common stockholders*
|
$ | 1.31 | $ | 1.43 | $ | 2.76 | $ | 1.49 | $ | 0.83 | ||||||||||
|
Cash distributions per common share
|
$ | 2.8809 | $ | 2.2791 | $ | 2.70 | $ | 2.72 | $ | 2.74 | ||||||||||
| * | Amounts may not sum due to rounding |
| (1) | We have reclassified the income and expenses attributable to properties sold prior to or held for sale at December 31, 2010, to discontinued operations for all periods presented. See Note 5 to our audited consolidated financial statements. |
42
Table of Contents
| December 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
|
Balance Sheet Data
|
||||||||||||||||||||
|
Net real estate investments
|
$ | 4,122,893 | $ | 5,012,620 | $ | 5,854,179 | $ | 6,080,620 | $ | 8,590,833 | ||||||||||
|
Total assets
|
4,282,885 | 5,219,240 | 6,215,031 | 6,367,186 | 9,451,734 | |||||||||||||||
|
Total long-term obligations
|
2,191,698 | 2,683,760 | 2,847,676 | 2,414,022 | 4,469,736 | |||||||||||||||
|
Total liabilities
|
2,295,561 | 2,784,289 | 2,976,746 | 2,559,735 | 4,714,081 | |||||||||||||||
|
Total preferred stock
|
338,993 | 330,243 | 289,929 | 288,683 | 291,667 | |||||||||||||||
|
Total equity
|
1,987,324 | 2,434,951 | 3,238,285 | 3,807,451 | 4,733,100 | |||||||||||||||
43
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis is based primarily on the
consolidated financial statements of Health Care REIT, Inc. for
the periods presented and should be read together with the notes
thereto contained in this Annual Report on
Form 10-K.
Other important factors are identified in
“Item 1 — Business” and
“Item 1A — Risk Factors” above.
Executive
Summary
Company
Overview
Health Care REIT, Inc. is a real estate investment trust
(“REIT”) that has been at the forefront of senior
housing and health care real estate since the company was
founded in 1970. We are an S&P 500 company
headquartered in Toledo, Ohio and our portfolio spans the full
spectrum of senior housing and health care real estate,
including senior housing communities, skilled nursing
facilities, medical office buildings, inpatient and outpatient
medical centers and life science facilities. Our capital
programs, when combined with comprehensive planning, development
and property management services, make us a single-source
solution for acquiring, planning, developing, managing,
repositioning and monetizing real estate assets. The following
table summarizes our portfolio as of December 31, 2010:
|
Investments
|
Percentage of
|
Number of
|
# Beds/Units
|
Investment per
|
||||||||||||||||||||
|
Type of Property
|
(in thousands) | Investments | Properties | or Sq. Ft. | metric(1) | States | ||||||||||||||||||
|
Senior housing facilities
|
$ | 4,403,208 | 49.0 | % | 303 | 27,863 units | $ | 162,210 per unit | 36 | |||||||||||||||
|
Skilled nursing facilities
|
1,257,719 | 14.0 | % | 180 | 24,064 beds | 52,266 per bed | 26 | |||||||||||||||||
|
Hospitals
|
782,879 | 8.7 | % | 31 | 1,857 beds | 446,846 per bed | 13 | |||||||||||||||||
|
Medical office buildings(2)
|
2,195,435 | 24.4 | % | 162 | 9,047,167 sq. ft. | 254 per sq. ft. | 28 | |||||||||||||||||
|
Life science buildings(2)
|
346,562 | 3.9 | % | 7 | n/a | 1 | ||||||||||||||||||
|
Totals
|
$ | 8,985,803 | 100.0 | % | 683 | 41 | ||||||||||||||||||
| (1) | Investment per metric was computed by using the total investment amount of $8,860,164,000, which includes net real estate investments and unfunded construction commitments for which initial funding has commenced which amounted to $8,592,109,000 and $268,055,000, respectively. | |
| (2) | Includes our share of unconsolidated joint venture investments. Please see Note 7 to our consolidated financial statements for additional information. |
Health
Care Industry
The demand for health care services, and consequently health
care properties, is projected to reach unprecedented levels in
the near future. The Centers for Medicare and Medicaid Services
(“CMS”) projects that national health expenditures
will rise to $3.5 trillion in 2015 or 18.2% of gross domestic
product (“GDP”). The average annual growth in national
health expenditures for 2009 through 2019 is expected to be
6.3%, which is 0.2% faster than pre-health care reform estimates.
While demographics are the primary driver of demand, economic
conditions and availability of services contribute to health
care service utilization rates. We believe the health care
property market may be less susceptible to fluctuations and
economic downturns relative to other property sectors. Investor
interest in the market remains strong, especially in specific
sectors such as medical office buildings, regardless of the
current stringent lending environment. As a REIT, we believe we
are situated to benefit from any turbulence in the capital
markets due to our access to capital.
The total U.S. population is projected to increase by 20.4%
through 2030. The elderly population aged 65 and over is
projected to increase by 79.2% through 2030. The elderly are an
important component of health care
44
Table of Contents
utilization, especially independent living services, assisted
living services, skilled nursing services, inpatient and
outpatient hospital services and physician ambulatory care. Most
health care services are provided within a health care facility
such as a hospital, a physician’s office or a senior
housing facility. Therefore, we believe there will be continued
demand for companies, such as ours, with expertise in health
care real estate.
The following chart illustrates the projected increase in the
elderly population aged 65 and over:
Source: U.S. Census Bureau
Health care real estate investment opportunities tend to
increase as demand for health care services increases. We
recognize the need for health care real estate as it correlates
to health care service demand. Health care providers require
real estate to house their businesses and expand their services.
We believe that investment opportunities in health care real
estate will continue to be present due to:
| • | The specialized nature of the industry, which enhances the credibility and experience of our company; | |
| • | The projected population growth combined with stable or increasing health care utilization rates, which ensures demand; and | |
| • | The on-going merger and acquisition activity. |
Health
Reform Laws
On March 23, 2010, the President signed into law the
Patient Protection and Affordable Care Act (“PPACA”)
and the Health Care and Education Reconciliation Act of 2010,
which amends the PPACA (collectively, the “Health Reform
Laws”). The Health Reform Laws contain various provisions
that may directly impact us or the operators and tenants of our
properties. Some provisions of the Health Reform Laws may have a
positive impact on our operators’ or tenants’
revenues, by, for example, increasing coverage of uninsured
individuals, while others may have a negative impact on the
reimbursement of our operators or tenants by, for example,
altering the market basket adjustments for certain types of
health care facilities. The Health Reform Laws also enhance
certain fraud and abuse penalty provisions that could apply to
our operators and tenants, in the event of one or more
violations of the federal health care regulatory laws. In
addition, there are provisions that impact the health coverage
that we and our operators and tenants provide to our respective
employees. We cannot predict whether the existing Health Reform
Laws, or future health care reform legislation or regulatory
changes, will have a material impact on our operators’ or
tenants’ property or business. If the operations, cash
flows or financial condition of our operators and tenants are
materially adversely impacted by the Health Reform Laws or
future legislation, our revenue and operations may be adversely
affected as well. Further, on February 2, 2011, the
U.S. Senate refused to pass an overhaul repeal of the
Health Reform Laws, and the focus has now shifted to attempts to
repeal or amend individual sections of the Health Reform Laws.
Further, federal courts are also considering, and in some cases
have ruled on, the legality of the Health Reform Laws. We cannot
predict whether any of these attempts to repeal or amend the
Health Reform Laws will be successful, nor can we predict the
impact that such a repeal or amendment would have on our
operators and tenants.
45
Table of Contents
Impact to Reimbursement of the Operators and Tenants of Our
Properties.
The Health Reform Laws provide for
various changes to the reimbursement that our operators and
tenants may receive. One such change is a reduction to the
market basket adjustments for inpatient acute hospitals,
long-term care hospitals, inpatient rehabilitation facilities,
home health agencies, psychiatric hospitals, hospice care and
outpatient hospitals. Beginning in 2010, the otherwise
applicable percentage increase to the market basket for
inpatient acute hospitals will decrease. Beginning in 2012,
inpatient acute hospitals will also face a downward adjustment
of the annual percentage increase to the market basket rate by a
“productivity adjustment.” The productivity adjustment
may cause the annual percentage increase to be less than zero,
which would mean that inpatient acute hospitals could face
payment rates for a fiscal year that are less than the payment
rates for the preceding year.
A similar productivity adjustment also applies to skilled
nursing facilities beginning in 2012, which means that the
payment rates for skilled nursing facilities may decrease from
one year to the next. Long-term care hospitals will face a
specified percentage decrease in their annual update for
discharges beginning in 2010. Additionally, beginning in 2012,
long-term care hospitals will be subject to the productivity
adjustments, which may decrease the federal payment rates for
long-term care hospitals. Similar productivity adjustments and
other adjustments to payment rates will apply to inpatient
rehabilitation facilities, psychiatric hospitals and outpatient
hospitals beginning in 2010.
The Health Reform Laws revise other reimbursement provisions
that may affect our business. For example, the Health Reform
Laws mandate a one-year extension of the exceptions for medical
therapy caps, which will be applicable though December 31,
2010. The Health Reform Laws also reduce states’ Medicaid
disproportionate share hospital (“DSH”) allotments,
starting in 2014 through 2020. These allotments would have
provided additional funding for DSH hospitals that are operators
or tenants of our properties, and thus, any reduction might
negatively impact these operators or tenants.
Additionally, beginning in fiscal year 2015, Medicare payments
will decrease to hospitals for treatment associated with
hospital acquired conditions. This decreased payment rate may
negatively impact our operators or tenants. The Health Reform
Laws also call for reductions in payments for discharges
beginning October 1, 2012, in order to account for excess
readmissions. While the exact amount of the reduction is not yet
known, a reduction in payments to our operators or tenants may
affect their ability to make payments to us.
PPACA additionally calls for the creation of the Independent
Payment Advisory Board (the “Board”), which will be
responsible for establishing payment polices, including
recommendations in the event that Medicare costs exceed a
certain threshold. Proposals for recommendations submitted by
the Board prior to December 31, 2018 may not include
recommendations that would reduce payments for hospitals,
skilled nursing facilities, and physicians, among other
providers, prior to December 31, 2019. The Health Reform
Laws also create other mechanisms that could permit significant
changes to payment. For example, PPACA establishes the Center
for Medicare and Medicaid Innovation to test innovative payment
and service delivery models to reduce program expenditures
through the use of demonstration programs that can waive
existing reimbursement methodologies. The Health Reform Laws
also provide additional Medicaid funding to allow states to
carry out mandated expansion of Medicaid coverage to certain
financially-eligible individuals beginning in 2014, and also
permits states to expand their Medicaid coverage to these
individuals as early as April 1, 2010, if certain
conditions are met.
Additionally, although the Health Reform Laws delayed until at
least October 1, 2011, the implementation of the Resource
Utilization Group, Version Four (“RUG-IV”), which
revises the payment classification system for skilled nursing
facilities, the recently enacted Medicare and Medicaid Extenders
Act of 2010 repealed this delay retroactively to October 1,
2010. The Health Reform Laws also extend certain payment rules
related to long-term acute care hospitals found in the Medicare,
Medicaid, and SCHIP Extension Act of 2007.
Finally, many other changes resulting from the Health Reform
Laws, or implementing regulations, or guidance may negatively
impact our operators and tenants. We will continue to monitor
and evaluate the Health Reform Laws and implementing regulations
and guidance to determine other potential effects of the reform.
Impact of Fraud and Abuse Provisions.
The
Health Reform Laws revise health care fraud and abuse provisions
that will affect our operators and tenants. Specifically, PPACA
allows for up to treble damages under the Federal False Claims
Act for violations related to state-based health insurance
exchanges authorized by the Health
46
Table of Contents
Reform Laws, which will be implemented beginning in 2014. The
Health Reform Laws also impose new civil monetary penalties for
false statements or actions that lead to delayed inspections,
with penalties of up to $15,000 per day for failure to grant
timely access and up to $50,000 for a knowing violation. The
Health Reform laws also provide for additional funding to
investigate and prosecute health care fraud and abuse.
Accordingly, the increased penalties under PPACA for fraud and
abuse violations may have a negative impact on our operators and
tenants in the event that the government brings an enforcement
action or subjects them to penalties.
Further, as recently as February 2, 2011, CMS published
final rulemaking to implement the enhanced provider and supplier
screening provisions called for in the Health Reform Laws. Under
the final rule, beginning March 25, 2011, all
enrolling and participating providers and suppliers will be
assessed an annual administrative fee and be placed in one of
three risk levels (limited, moderate, and high) based on an
assessment of the individual’s or entity’s overall
risk of fraud, waste and abuse. This rule also allows for the
temporary suspension of Medicare payments to providers or
suppliers in the event CMS receives credible information that an
overpayment, fraud, or willful misrepresentation has occurred.
The Health Reform Laws granted the Secretary of the Department
of Health and Human Services significant discretionary authority
to suspend, exclude, or impose fines on providers and suppliers
based on the agency’s determination that such a provider or
supplier is “high-risk,” and, as a result, this final
rulemaking has the potential to materially adversely affect our
operators and tenants who may be evaluated under the enhanced
screening process.
Additionally, provisions of Title VI of PPACA are designed
to increase transparency and program integrity by skilled
nursing facilities, other nursing facilities and similar
providers. Specifically, skilled nursing facilities and other
providers and suppliers will be required to institute compliance
and ethics programs. Additionally, PPACA makes it easier for
consumers to file complaints against nursing homes by mandating
that states establish complaint websites. The provisions calling
for enhanced transparency will increase the administrative
burden and costs on these providers.
Impact to the Health Care Plans Offered to Our
Employees.
The Health Reform Laws will affect
employers that provide health plans to their employees. The new
laws will change the tax treatment of the Medicare Part D
retiree drug subsidy and extend dependent coverage for
dependents up to age 26, among other changes. We are
evaluating our health care plans in light of these changes.
These changes may affect our operators and tenants as well.
Medicare
Program Reimbursement Changes
In recent months, CMS released a number of rulemakings that may
potentially increase or decrease the government reimbursement of
our operators and tenants. To the extent that any of these
rulemakings decrease government reimbursement to our operators
and tenants, our revenue and operations may be indirectly,
adversely affected.
On August 16, 2010, CMS issued a final rule updating the
long-term acute care hospital prospective payment system for
fiscal year 2011. Among other things, the final rule updates
payment rates for acute care and long-term care hospitals and
implements certain provisions of the Health Reform Laws. In the
rule, CMS finalized an update of 2.5% for inflation with a cut
of 0.5% as required by the Health Reform Laws and a negative
2.5% documentation and coding adjustment for long-term care
hospitals. CMS also released a notice and comment rulemaking for
the prospective payment system and consolidated billing for
skilled nursing facilities for fiscal year 2011 on July 22,
2010. CMS adjusts the nursing home payment rates for fiscal year
2011 by including a market basket increase factor of 2.3% and a
negative 0.6 percentage point forecast error adjustment,
which would result in a net increase update of 1.7% for nursing
home rates.
CMS annually adjusts the Medicare Physician Fee Schedule payment
rates based on an update formula that includes application of
the Sustainable Growth Rate (“SGR”). On
November 29, 2010, CMS published the calendar year 2011
Physician Fee Schedule final rule. Among other things, CMS
preliminary estimates in the final rule that the calendar year
2011 SGR formula will be negative 13.4%. This measure is a
significant change from the figure provided in the proposed
rule, and will replace the 21.3% reduction in physician Medicare
reimbursement in 2010 required by the SGR formula. Additionally,
in the final rule, CMS has eliminated certain CPT consultation
codes, which could negatively impact the reimbursement levels
received by our operators and tenants.
47
Table of Contents
Finally, on November 24, 2010, CMS published the calendar
year 2011 Hospital Outpatient Prospective Payment System
(“OPPS”) final rule. CMS estimates that the cumulative
effect of all changes to payment rates for calendar year 2011
will have a positive effect, resulting in a 2.5% estimated
increase in Medicare payments to providers paid under the HOPPS.
Economic
Outlook
The serious economic recession affecting the national and global
economy has continued to impact all sectors, including, to a
somewhat lesser degree, health care. Continuing mixed economic
signals have made it difficult to predict when there might be a
return to more normal and stable growth rates, employment levels
and overall economic performance.
Banks have remained cautious in their lending, but significant
liquidity has been injected into the senior housing and care
markets by various Government-Sponsored Enterprises. In
addition, there is significant equity investment capital
available for certain health care sectors, particularly medical
office buildings. This has had the effect of keeping
capitalization rates in these segments generally in line with or
even below historic rates. Debt costs for REITs have generally
declined over the past 12 months, and equity markets for
health care REITs have remained open for the most part.
As a consequence, while liquidity remained an important
consideration in 2010, we have been more aggressive in pursuing
attractive investment opportunities that meet our strategic and
underwriting criteria. We have also been more active in
accessing capital markets during this time. We believe the
markets in which we invest will continue to offer stable returns
during the economic downturn and significant growth potential as
and when the economy begins to rebound.
Business
Strategy
Our primary objectives are to protect stockholder capital and
enhance stockholder value. We seek to pay consistent cash
dividends to stockholders and create opportunities to increase
dividend payments to stockholders as a result of annual
increases in rental and interest income and portfolio growth. To
meet these objectives, we invest across the full spectrum of
senior housing and health care real estate and diversify our
investment portfolio by property type, customer and geographic
location.
Substantially all of our revenues and sources of cash flows from
operations are derived from operating lease rentals and interest
earned on outstanding loans receivable. These items represent
our primary source of liquidity to fund distributions and are
dependent upon our obligors’ continued ability to make
contractual rent and interest payments to us. To the extent that
our obligors experience operating difficulties and are unable to
generate sufficient cash to make payments to us, there could be
a material adverse impact on our consolidated results of
operations, liquidity
and/or
financial condition. To mitigate this risk, we monitor our
investments through a variety of methods determined by the type
of property and operator/tenant. Our asset management process
includes review of monthly financial statements for each
property, periodic review of obligor credit, periodic property
inspections and review of covenant compliance relating to
licensure, real estate taxes, letters of credit and other
collateral. In monitoring our portfolio, our personnel use a
proprietary database to collect and analyze property-specific
data. Additionally, we conduct extensive research to ascertain
industry trends and risks. Through these asset management and
research efforts, we are typically able to intervene at an early
stage to address payment risk, and in so doing, support both the
collectability of revenue and the value of our investment.
In addition to our asset management and research efforts, we
also structure our investments to help mitigate payment risk.
Operating leases and loans are normally credit enhanced by
guaranties
and/or
letters of credit. In addition, operating leases are typically
structured as master leases and loans are generally
cross-defaulted and cross-collateralized with other loans,
operating leases or agreements between us and the obligor and
its affiliates.
For the year ended December 31, 2010, rental income and
interest income represented 86% and 6% respectively, of total
gross revenues (including revenues from discontinued
operations). Substantially all of our operating leases are
designed with either fixed or contingent escalating rent
structures. Leases with fixed annual rental escalators are
generally recognized on a straight-line basis over the initial
lease period, subject to a
48
Table of Contents
collectability assessment. Rental income related to leases with
contingent rental escalators is generally recorded based on the
contractual cash rental payments due for the period. Our yield
on loans receivable depends upon a number of factors, including
the stated interest rate, the average principal amount
outstanding during the term of the loan and any interest rate
adjustments.
Depending upon the availability and cost of external capital, we
believe our liquidity is sufficient to fund operations, meet
debt service obligations (both principal and interest), make
dividend distributions and complete construction projects in
process. We also anticipate evaluating opportunities to finance
future investments. New investments are generally funded from
temporary borrowings under our unsecured line of credit
arrangement, internally generated cash and the proceeds from
sales of real property. Our investments generate cash from rent
and interest receipts and principal payments on loans
receivable. Permanent capital for future investments, which
replaces funds drawn under the unsecured line of credit
arrangement, has historically been provided through a
combination of public and private offerings of debt and equity
securities and the incurrence or assumption of secured debt.
Depending upon market conditions, we believe that new
investments will be available in the future with spreads over
our cost of capital that will generate appropriate returns to
our stockholders. We expect to complete gross new investments of
approximately $1.5 billion in 2011, comprised of
acquisitions/joint ventures totaling $1.3 billion and
funded new development of $212 million. We anticipate the
sale of real property and the repayment of loans receivable
totaling $300 million during 2011. It is possible that
additional loan repayments or sales of real property may occur
in the future. To the extent that loan repayments and real
property sales exceed new investments, our revenues and cash
flows from operations could be adversely affected. We expect to
reinvest the proceeds from any loan repayments and real property
sales in new investments. To the extent that new investment
requirements exceed our available cash on-hand, we expect to
borrow under our unsecured line of credit arrangement. At
December 31, 2010, we had $131,570,000 of cash and cash
equivalents, $79,069,000 of restricted cash and $850,000,000 of
available borrowing capacity under our unsecured line of credit
arrangement.
Key
Transactions in 2010
We completed the following key transactions during the year
ended December 31, 2010:
| • | our Board of Directors increased the quarterly cash dividend to $0.69 per common share, as compared to $0.68 per common share for 2009, beginning in August 2010. The dividend declared for the quarter ended December 31, 2010 represents the 159 th consecutive quarterly dividend payment; | |
| • | we completed $3,150,613,000 of gross investments and had $196,232,000 of investment payoffs; | |
| • | we issued $494,403,000 of 3.00% convertible senior unsecured notes due 2029 and repurchased $441,326,000 of 4.75% convertible senior unsecured notes due 2026 and 2027 in March and June; | |
| • | we issued $450,000,000 of 6.125% senior unsecured notes due 2020 with net proceeds of $446,328,000 in April and June; | |
| • | we raised $81,977,000 of HUD mortgage loans at an average rate of 5.10% in June; | |
| • | we issued $450,000,000 of 4.70% senior unsecured notes due 2017 with net proceeds of $445,768,000 in September; | |
| • | we completed a public offering of 9,200,000 shares of common stock with net proceeds of $403,921,000 in September; | |
| • | we issued $450,000,000 of 4.95% senior unsecured notes due 2021 with net proceeds of $443,502,000 in November; and | |
| • | we completed a public offering of 11,500,000 shares of common stock with net proceeds of $482,448,000 in December. |
49
Table of Contents
Key
Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the
various aspects of our business. These indicators are discussed
below and relate to operating performance, concentration risk
and credit strength. Management uses these key performance
indicators to facilitate internal and external comparisons to
our historical operating results, in making operating decisions
and for budget planning purposes.
Operating Performance.
We believe that net
income attributable to common stockholders (“NICS”) is
the most appropriate earnings measure. Other useful supplemental
measures of our operating performance include funds from
operations (“FFO”) and net operating income
(“NOI”); however, these supplemental measures are not
defined by U.S. generally accepted accounting principles
(“U.S. GAAP”). Please refer to the section
entitled “Non-GAAP Financial Measures” for
further discussion and reconciliations of FFO and NOI. These
earnings measures and their relative per share amounts are
widely used by investors and analysts in the valuation,
comparison and investment recommendations of companies. The
following table reflects the recent historical trends of our
operating performance measures for the periods presented (in
thousands, except per share data):
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Net income attributable to common stockholders
|
$ | 260,098 | $ | 171,190 | $ | 106,882 | ||||||
|
Funds from operations
|
258,868 | 291,754 | 279,075 | |||||||||
|
Net operating income(1)
|
526,136 | 547,678 | 640,346 | |||||||||
|
Per share data (fully diluted):
|
||||||||||||
|
Net income attributable to common stockholders
|
$ | 2.76 | $ | 1.49 | $ | 0.83 | ||||||
|
Funds from operations
|
2.74 | 2.55 | 2.18 | |||||||||
| (1) | Includes our share of net operating income from unconsolidated joint ventures. |
Credit Strength.
We measure our credit
strength both in terms of leverage ratios and coverage ratios.
Our leverage ratios include debt to book capitalization and debt
to market capitalization. The leverage ratios indicate how much
of our balance sheet capitalization is related to long-term
debt. The coverage ratios indicate our ability to service
interest and fixed charges (interest, secured debt principal
amortization and preferred dividends). We expect to maintain
capitalization ratios and coverage ratios sufficient to maintain
compliance with our debt covenants. The coverage ratios are
based on adjusted earnings before interest, taxes, depreciation
and amortization (“Adjusted EBITDA”) which is
discussed in further detail, and reconciled to net income, below
in “Non-GAAP Financial Measures.” Leverage ratios
and coverage ratios are widely used by investors, analysts and
rating agencies in the valuation, comparison, investment
recommendations and rating of companies. The following table
reflects the recent historical trends for our credit strength
measures for the periods presented:
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Debt to book capitalization ratio
|
47 | % | 39 | % | 49 | % | ||||||
|
Debt to undepreciated book capitalization ratio
|
43 | % | 35 | % | 45 | % | ||||||
|
Debt to market capitalization ratio
|
38 | % | 30 | % | 38 | % | ||||||
|
Adjusted interest coverage ratio
|
3.84 | x | 3.78 | x | 3.39 | x | ||||||
|
Adjusted fixed charge coverage ratio
|
3.20 | x | 3.09 | x | 2.76 | x | ||||||
Concentration Risk.
We evaluate our
concentration risk in terms of asset mix, investment mix,
customer mix and geographic mix. Concentration risk is a
valuable measure in understanding what portion of our
investments could be at risk if certain sectors were to
experience downturns. Asset mix measures the portion of our
investments that are real property. In order to qualify as an
equity REIT, at least 75% of our real estate investments must be
real property whereby each property, which includes the land,
buildings, improvements, intangibles and related rights, is
owned by us and leased to a tenant pursuant to a long-term
operating lease. Investment mix measures the portion of our
investments that relate to our various property types. Customer
mix measures the portion of our investments that
50
Table of Contents
relate to our top five customers. Geographic mix measures the
portion of our investments that relate to our top five states.
The following table reflects our recent historical trends of
concentration risk for the periods presented:
| December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Asset mix:
|
||||||||||||
|
Real property
|
92 | % | 93 | % | 91 | % | ||||||
|
Real estate loans receivable
|
8 | % | 7 | % | 5 | % | ||||||
|
Joint venture investments
|
4 | % | ||||||||||
|
Investment mix:(1)
|
||||||||||||
|
Senior housing facilities
|
39 | % | 42 | % | 49 | % | ||||||
|
Skilled nursing facilities
|
27 | % | 25 | % | 14 | % | ||||||
|
Hospitals
|
11 | % | 10 | % | 9 | % | ||||||
|
Medical office buildings
|
23 | % | 23 | % | 24 | % | ||||||
|
Life science buildings
|
4 | % | ||||||||||
|
Customer mix:(1)
|
||||||||||||
|
Merrill Gardens LLC
|
8 | % | ||||||||||
|
Brandywine Senior Living, LLC
|
7 | % | ||||||||||
|
Senior Living Communities, LLC
|
6 | % | 7 | % | 7 | % | ||||||
|
Senior Star Living
|
5 | % | ||||||||||
|
Brookdale Senior Living, Inc.
|
5 | % | 5 | % | 4 | % | ||||||
|
Signature Healthcare LLC
|
5 | % | 5 | % | ||||||||
|
Emeritus Corporation
|
4 | % | 4 | % | ||||||||
|
Life Care Centers of America, Inc.
|
5 | % | 3 | % | ||||||||
|
Remaining customers
|
75 | % | 76 | % | 69 | % | ||||||
|
Geographic mix:(1)
|
||||||||||||
|
Florida
|
14 | % | 12 | % | 10 | % | ||||||
|
California
|
8 | % | 9 | % | 10 | % | ||||||
|
Texas
|
11 | % | 11 | % | 8 | % | ||||||
|
Massachusetts
|
7 | % | 7 | % | 7 | % | ||||||
|
Washington
|
6 | % | ||||||||||
|
Ohio
|
6 | % | ||||||||||
|
Tennessee
|
6 | % | ||||||||||
|
Remaining states
|
54 | % | 55 | % | 59 | % | ||||||
| (1) | Includes our share of unconsolidated joint venture investments. |
We evaluate our key performance indicators in conjunction with
current expectations to determine if historical trends are
indicative of future results. Our expected results may not be
achieved and actual results may differ materially from our
expectations. Factors that may cause actual results to differ
from expected results are described in more detail in
“Forward-Looking Statements and Risk Factors” and
other sections of this Annual Report on
Form 10-K.
Management regularly monitors economic and other factors to
develop strategic and tactical plans designed to improve
performance and maximize our competitive position. Our ability
to achieve our financial objectives is dependent upon our
ability to effectively execute these plans and to appropriately
respond to emerging economic and company-specific trends. Please
refer to “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for further discussion
of these risk factors.
51
Table of Contents
Portfolio
Update
Net operating income.
The primary performance
measure for our properties is net operating income
(“NOI”) as discussed below in
“Non-GAAP Financial Measures.” The following
table summarizes our net operating income for the periods
indicated (in thousands):
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Net operating income:
|
||||||||||||
|
Senior housing and care
|
$ | 386,190 | $ | 399,363 | $ | 440,851 | ||||||
|
Medical facilities(1)
|
138,254 | 147,145 | 196,621 | |||||||||
|
Non-segment/corporate
|
1,692 | 1,170 | 2,874 | |||||||||
|
Net operating income
|
$ | 526,136 | $ | 547,678 | $ | 640,346 | ||||||
| (1) | Includes our share of net operating income from unconsolidated joint ventures. |
Payment coverage.
Payment coverage of our
operators continues to remain strong. Our overall payment
coverage is at 2.12 times. The table below reflects our recent
historical trends of portfolio coverage. Coverage data reflects
the 12 months ended for the periods presented. CBMF
represents the ratio of our customers’ earnings before
interest, taxes, depreciation, amortization, rent and management
fees to contractual rent or interest due us. CAMF represents the
ratio of our customers’ earnings before interest, taxes,
depreciation, amortization and rent (but after imputed
management fees) to contractual rent or interest due us.
| September 30, 2008 | September 30, 2009 | September 30, 2010 | ||||||||||||||||||||||
| CBMF | CAMF | CBMF | CAMF | CBMF | CAMF | |||||||||||||||||||
|
Senior housing facilities
|
1.49 | x | 1.27 | x | 1.51 | x | 1.30 | x | 1.54 | x | 1.32 | x | ||||||||||||
|
Skilled nursing facilities
|
2.26 | x | 1.66 | x | 2.29 | x | 1.69 | x | 2.42 | x | 1.79 | x | ||||||||||||
|
Hospitals
|
2.26 | x | 1.83 | x | 2.47 | x | 2.14 | x | 2.66 | x | 2.33 | x | ||||||||||||
|
Weighted averages
|
1.96 | x | 1.52 | x | 2.01 | x | 1.59 | x | 2.12 | x | 1.68 | x | ||||||||||||
Corporate
Governance
Maintaining investor confidence and trust has become
increasingly important in today’s business environment. Our
Board of Directors and management are strongly committed to
policies and procedures that reflect the highest level of
ethical business practices. Our corporate governance guidelines
provide the framework for our business operations and emphasize
our commitment to increase stockholder value while meeting all
applicable legal requirements. The Board of Directors adopted
and annually reviews its Corporate Governance Guidelines. These
guidelines meet the listing standards adopted by the New York
Stock Exchange and are available on the Internet at
www.hcreit.com.
Liquidity
and Capital Resources
Sources
and Uses of Cash
Our primary sources of cash include rent and interest receipts,
resident fees and services, borrowings under the unsecured line
of credit arrangement, public and private offerings of debt and
equity securities, proceeds from the sales of real property and
principal payments on loans receivable. Our primary uses of cash
include dividend distributions, debt service payments (including
principal and interest), real property investments (including
construction advances), loan advances, property operating
expenses and general and administrative expenses. These sources
and uses of cash are reflected in our Consolidated Statements of
Cash Flows and are discussed in further detail below.
52
Table of Contents
The following is a summary of our sources and uses of cash flows
(dollars in thousands):
| Year Ended |
One Year
|
Year Ended |
One Year
|
Two Year
|
||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
Change |
December 31,
|
Change | Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | $ | % | 2010 | $ | % | $ | % | ||||||||||||||||||||||||||||
|
Cash and cash equivalents at beginning of period
|
$ | 30,269 | $ | 23,370 | $ | (6,899 | ) | —23 | % | $ | 35,476 | $ | 12,106 | 52 | % | $ | 5,207 | 17 | % | |||||||||||||||||
|
Cash provided from operating activities
|
360,683 | 381,259 | 20,576 | 6 | % | 364,741 | (16,518 | ) | —4 | % | 4,058 | 1 | % | |||||||||||||||||||||||
|
Cash used in investing activities
|
(1,035,525 | ) | (270,060 | ) | 765,465 | —74 | % | (2,312,039 | ) | (2,041,979 | ) | 756 | % | (1,276,514 | ) | 123 | % | |||||||||||||||||||
|
Cash provided from (used in) financing activities
|
667,943 | (99,093 | ) | (767,036 | ) | n/a | 2,043,392 | 2,142,485 | n/a | 1,375,449 | 206 | % | ||||||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 23,370 | $ | 35,476 | $ | 12,106 | 52 | % | $ | 131,570 | $ | 96,094 | 271 | % | $ | 108,200 | 463 | % | ||||||||||||||||||
Operating Activities.
The change in net cash
provided from operating activities is primarily attributable to
an increase in net income, excluding gains/losses on sales of
properties, depreciation and amortization, transaction costs and
debt extinguishment charges. These items are discussed below in
“Results of Operations.” The following is a summary of
our straight-line rent and above/below market lease amortization
(dollars in thousands):
| Year Ended | Year Ended | |||||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
One Year Change |
December 31,
|
One Year Change | Two Year Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | $ | % | 2010 | $ | % | $ | % | ||||||||||||||||||||||||||||
|
Gross straight-line rental income
|
$ | 20,489 | $ | 19,415 | $ | (1,074 | ) | —5 | % | $ | 14,717 | $ | (4,698 | ) | —24 | % | $ | (5,772 | ) | —28 | % | |||||||||||||||
|
Cash receipts due to real property sales
|
(2,187 | ) | (4,422 | ) | (2,235 | ) | 102 | % | (1,341 | ) | 3,081 | —70 | % | 846 | —39 | % | ||||||||||||||||||||
|
Prepaid rent receipts
|
(26,095 | ) | (26,252 | ) | (157 | ) | 1 | % | (7,196 | ) | 19,056 | —73 | % | 18,899 | —72 | % | ||||||||||||||||||||
|
Amortization related to above (below) market leases, net
|
1,039 | 1,713 | 674 | 65 | % | 2,856 | 1,143 | 67 | % | 1,817 | 175 | % | ||||||||||||||||||||||||
| $ | (6,754 | ) | $ | (9,546 | ) | $ | (2,792 | ) | 41 | % | $ | 9,036 | $ | 18,582 | n/a | $ | 15,790 | n/a | ||||||||||||||||||
Gross straight-line rental income represents the non-cash
difference between contractual cash rent due and the average
rent recognized pursuant to U.S. GAAP for leases with fixed
rental escalators, net of collectability reserves. This amount
is positive in the first half of a lease term (but declining
every year due to annual increases in cash rent due) and is
negative in the second half of a lease term. The fluctuation in
cash receipts due to real property sales is attributable to less
significant straight-line rent receivable balances on properties
sold during the current year. The fluctuation in prepaid rent
receipts is primarily due to changes in prepaid rent received at
certain construction projects.
53
Table of Contents
Investing Activities.
The changes in net cash
used in investing activities are primarily attributable to net
changes in real property and real estate loans receivable. The
following is a summary of our investment and disposition
activities (dollars in thousands):
| Year Ended | ||||||||||||||||||||||||
| December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||||||||||||||
| Properties | Amount | Properties | Amount | Properties | Amount | |||||||||||||||||||
|
Real property acquisitions:
|
||||||||||||||||||||||||
|
Senior housing — operating
|
32 | $ | 816,000 | |||||||||||||||||||||
|
Senior housing — triple net
|
5 | $ | 113,790 | 44 | 1,011,229 | |||||||||||||||||||
|
Skilled nursing facilities
|
1 | 11,360 | 1 | $ | 11,650 | 2 | 17,300 | |||||||||||||||||
|
Hospitals
|
7 | 196,303 | 1 | 20,500 | ||||||||||||||||||||
|
Medical office buildings
|
7 | 121,809 | 1 | 35,523 | 36 | 626,414 | ||||||||||||||||||
|
Land parcels
|
1 | 10,000 | 1 | 4,300 | ||||||||||||||||||||
|
Total acquisitions
|
21 | 453,262 | 3 | 67,673 | 115 | 2,475,243 | ||||||||||||||||||
|
Less: Assumed debt
|
— | — | (559,508 | ) | ||||||||||||||||||||
|
Assumed other items, net
|
(1,899 | ) | — | (208,314 | ) | |||||||||||||||||||
|
Cash disbursed for acquisitions
|
451,363 | 67,673 | 1,707,421 | |||||||||||||||||||||
|
Construction in progress additions
|
595,452 | 492,897 | 306,832 | |||||||||||||||||||||
|
Capital improvements to existing properties
|
25,561 | 38,389 | 59,923 | |||||||||||||||||||||
|
Total cash invested in real property
|
1,072,376 | 598,959 | 2,074,176 | |||||||||||||||||||||
|
Real property dispositions:
|
||||||||||||||||||||||||
|
Senior housing — triple net
|
32 | 163,622 | 12 | 55,320 | 1 | 3,438 | ||||||||||||||||||
|
Skilled nursing facilities
|
4 | 6,290 | 9 | 45,835 | 30 | 166,852 | ||||||||||||||||||
|
Hospitals
|
1 | 8,735 | 2 | 40,841 | — | — | ||||||||||||||||||
|
Medical office buildings
|
1 | 6,781 | 13 | 44,717 | 7 | 14,092 | ||||||||||||||||||
|
Land parcels
|
73 | — | — | — | ||||||||||||||||||||
|
Total dispositions
|
38 | 185,501 | 36 | 186,713 | 38 | 184,382 | ||||||||||||||||||
|
Less: Gains (losses) on sales of real property
|
163,933 | 43,394 | 36,115 | |||||||||||||||||||||
|
LandAmerica settlement
|
2,500 | — | — | |||||||||||||||||||||
|
Extinguishment of other assets (liabilities)
|
(116 | ) | — | — | ||||||||||||||||||||
|
Seller financing on sales of real property
|
(64,771 | ) | (6,100 | ) | (1,470 | ) | ||||||||||||||||||
|
Proceeds from real property sales
|
287,047 | 224,007 | 219,027 | |||||||||||||||||||||
|
Net cash investments in real property
|
(17 | ) | $ | 785,329 | (33 | ) | $ | 374,952 | 77 | $ | 1,855,149 | |||||||||||||
54
Table of Contents
| Year Ended | ||||||||||||||||||||||||||||||||||||
| December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||||||||||||||||||||||||||
|
Senior
|
Senior
|
Senior
|
||||||||||||||||||||||||||||||||||
|
Housing
|
Medical
|
Housing
|
Medical
|
Housing
|
Medical
|
|||||||||||||||||||||||||||||||
| and Care | Facilities | Totals | and Care | Facilities | Totals | and Care | Facilities | Totals | ||||||||||||||||||||||||||||
|
Advances on real estate loans receivable:
|
||||||||||||||||||||||||||||||||||||
|
Investments in new loans
|
$ | 121,493 | $ | — | $ | 121,493 | $ | 20,036 | $ | — | $ | 20,036 | $ | 9,742 | $ | 41,644 | $ | 51,386 | ||||||||||||||||||
|
Draws on existing loans
|
21,265 | — | 21,265 | 52,910 | 1,471 | 54,381 | 46,113 | 1,236 | 47,349 | |||||||||||||||||||||||||||
|
Sub-total
|
142,758 | — | 142,758 | 72,946 | 1,471 | 74,417 | 55,855 | 42,880 | 98,735 | |||||||||||||||||||||||||||
|
Less: Seller financing on property sales
|
(59,649 | ) | — | (59,649 | ) | — | — | — | — | (1,470 | ) | (1,470 | ) | |||||||||||||||||||||||
|
Net cash advances on real estate loans
|
83,109 | — | 83,109 | 72,946 | 1,471 | 74,417 | 55,855 | 41,410 | 97,265 | |||||||||||||||||||||||||||
|
Receipts on real estate loans receivable:
|
||||||||||||||||||||||||||||||||||||
|
Loan payoffs
|
8,815 | — | 8,815 | 61,659 | 32,197 | 93,856 | 5,619 | 6,233 | 11,852 | |||||||||||||||||||||||||||
|
Principal payments on loans
|
9,354 | — | 9,354 | 15,890 | 2,033 | 17,923 | 24,203 | 7,440 | 31,643 | |||||||||||||||||||||||||||
|
Total receipts on real estate loans
|
18,169 | — | 18,169 | 77,549 | 34,230 | 111,779 | 29,822 | 13,673 | 43,495 | |||||||||||||||||||||||||||
|
Net advances (receipts) on real estate loans
|
$ | 64,940 | $ | — | $ | 64,940 | $ | (4,603 | ) | $ | (32,759 | ) | $ | (37,362 | ) | $ | 26,033 | $ | 27,737 | $ | 53,770 | |||||||||||||||
The contributions to unconsolidated joint ventures primarily
represent $174,692,000 and $21,321,000 of cash invested by us in
the joint ventures with Forest City Enterprises and a national
medical office building company, respectively. Please see
Note 7 to our consolidated financial statements for
additional information.
Financing Activities.
The changes in net cash
provided from or used in financing activities are primarily
attributable to changes related to our long-term debt
arrangements, proceeds from the issuance of common stock and
dividend payments.
The changes in our senior unsecured notes are due to
(i) the issuance of $494,403,000 of convertible senior
unsecured notes in March and June 2010; (ii) the repurchase
of $441,326,000 of convertible senior unsecured notes in March
and June 2010; (iii) the issuance of $450,000,000 of senior
unsecured notes in April and June 2010; (iv) the issuance
of $450,000,000 of senior unsecured notes in September 2010;
(v) the issuance of $450,000,000 of senior unsecured notes
in November 2010; (vi) the extinguishment of $183,147,000
of various senior unsecured notes in March and September 2009;
and (vii) the extinguishment of $42,330,000 of
7.625% senior unsecured notes in March 2008. We recognized
losses of $25,072,000 and $19,269,000 during the years ended
December 31, 2010 and 2009, respectively, in connection
with the aforementioned extinguishments.
During the year ended December 31, 2010, we extinguished 35
secured debt loans totaling $194,493,000 with a weighted-average
interest rate of 6.07% and recognized extinguishment losses of
$9,099,000. Also during the year ended December 31, 2010,
we issued $81,977,000 of secured debt loans at an average
interest rate of 5.10%. During the year ended December 31,
2009, we extinguished 20 secured debt loans totaling $81,715,000
with a weighted-average interest rate of 7.21% and recognized
extinguishment losses of $5,838,000. During the year ended
December 31, 2008, we extinguished eight secured debt loans
totaling $50,475,000 with a weighted-average interest rate of
6.67% and recognized extinguishment gains of $2,094,000.
We may repurchase, redeem or refinance convertible and
non-convertible senior unsecured notes from time to time, taking
advantage of favorable market conditions when available. We may
purchase senior notes for cash through open market purchases,
privately negotiated transactions, a tender offer or, in some
cases, through the early redemption of such securities pursuant
to their terms. The non-convertible senior unsecured notes are
redeemable at
55
Table of Contents
our option, at any time in whole or from time to time in part,
at a redemption price equal to the sum of (1) the principal
amount of the notes (or portion of such notes) being redeemed
plus accrued and unpaid interest thereon up to the redemption
date and (2) any “make-whole” amount due under
the terms of the notes in connection with early redemptions. We
cannot redeem the 3.00% convertible senior unsecured notes due
2029 prior to December 1, 2014 unless such redemption is
necessary to preserve our status as a REIT. However, on or after
December 1, 2014, we may from time to time at our option
redeem those notes, in whole or in part, for cash, at a
redemption price equal to 100% of the principal amount of the
notes we redeem, plus any accrued and unpaid interest to, but
excluding, the redemption date. Redemptions and repurchases of
debt, if any, will depend on prevailing market conditions, our
liquidity requirements, contractual restrictions and other
factors.
The following is a summary of our common stock issuances for the
years indicated (dollars in thousands, except average price):
| Shares Issued | Average Price | Gross Proceeds | Net Proceeds | |||||||||||||
|
March 2008 public issuance
|
3,000,000 | $ | 41.44 | $ | 124,320 | $ | 118,555 | |||||||||
|
July 2008 public issuance
|
4,600,000 | 44.50 | 204,700 | 193,157 | ||||||||||||
|
September 2008 public issuance
|
8,050,000 | 48.00 | 386,400 | 369,699 | ||||||||||||
|
2008 Dividend reinvestment plan issuances
|
1,546,074 | 43.37 | 67,055 | 67,055 | ||||||||||||
|
2008 Equity shelf program issuances
|
794,221 | 39.28 | 31,196 | 30,272 | ||||||||||||
|
2008 Option exercises
|
118,895 | 29.83 | 3,547 | 3,547 | ||||||||||||
|
2008 Totals
|
18,109,190 | $ | 817,218 | $ | 782,285 | |||||||||||
|
February 2009 public issuance
|
5,816,870 | $ | 36.85 | $ | 214,352 | $ | 210,880 | |||||||||
|
September 2009 public issuance
|
9,200,000 | 40.40 | 371,680 | 356,554 | ||||||||||||
|
2009 Dividend reinvestment plan issuances
|
1,499,497 | 37.22 | 55,818 | 55,818 | ||||||||||||
|
2009 Equity shelf program issuances
|
1,952,600 | 40.69 | 79,447 | 77,605 | ||||||||||||
|
2009 Option exercises
|
96,166 | 38.23 | 3,676 | 3,676 | ||||||||||||
|
2009 Totals
|
18,565,133 | $ | 724,973 | $ | 704,533 | |||||||||||
|
September 2010 public issuance
|
9,200,000 | $ | 45.75 | $ | 420,900 | $ | 403,921 | |||||||||
|
December 2010 public issuance
|
11,500,000 | 43.75 | 503,125 | 482,448 | ||||||||||||
|
2010 Dividend reinvestment plan issuances
|
1,957,364 | 43.95 | 86,034 | 86,034 | ||||||||||||
|
2010 Equity shelf program issuances
|
431,082 | 44.94 | 19,371 | 19,013 | ||||||||||||
|
2010 Option exercises
|
129,054 | 31.17 | 4,022 | 4,022 | ||||||||||||
|
2010 Totals
|
23,217,500 | $ | 1,033,452 | $ | 995,438 | |||||||||||
In order to qualify as a REIT for federal income tax purposes,
we must distribute at least 90% of our taxable income (including
100% of capital gains) to our stockholders. The increase in
dividends is primarily attributable to an increase in our common
shares outstanding. The following is a summary of our dividend
payments (in thousands, except per share amounts):
| Year Ended | ||||||||||||||||||||||||
| December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||||||||||||||
| Per Share | Amount | Per Share | Amount | Per Share | Amount | |||||||||||||||||||
|
Common Stock
|
$ | 2.70000 | $ | 253,659 | $ | 2.72000 | $ | 311,760 | $ | 2.74000 | $ | 348,578 | ||||||||||||
|
Series D Preferred Stock
|
1.96875 | 7,875 | 1.96875 | 7,875 | 1.96875 | 7,875 | ||||||||||||||||||
|
Series E Preferred Stock
|
1.50000 | 112 | 1.50000 | 112 | 1.12500 | 94 | ||||||||||||||||||
|
Series F Preferred Stock
|
1.90625 | 13,344 | 1.90625 | 13,344 | 1.90625 | 13,344 | ||||||||||||||||||
|
Series G Preferred Stock
|
1.87500 | 1,870 | 1.87500 | 748 | 1.40640 | 332 | ||||||||||||||||||
|
Totals
|
$ | 276,860 | $ | 333,839 | $ | 370,223 | ||||||||||||||||||
56
Table of Contents
Off-Balance
Sheet Arrangements
During the year ended December 31, 2010, we entered into a
joint venture investment with Forest City Enterprises
(NYSE:FCE.A and FCE.B). The portfolio is 100% leased and
includes affiliates of investment grade pharmaceutical and
research tenants such as Novartis, Genzyme, Millennium (a
subsidiary of Takeda Pharmaceuticals), and Brigham and
Women’s Hospital. Forest City Enterprises self-developed
the portfolio and will continue to manage it on behalf of the
joint venture. The life science campus is part of a mixed-use
project that includes a 210-room hotel, 674 residential units, a
grocery store, restaurants and retail. In connection with this
transaction, we invested $174,692,000 of cash which is recorded
as an equity investment on the balance sheet. Our share of the
non-recourse secured debt assumed by the joint venture was
approximately $156,729,000 with weighted-average interest rates
of 7.1%. Also, during the year ended December 31, 2010, we
entered into a joint venture investment with a national medical
office building company. In connection with this transaction, we
invested $21,321,000 of cash which is recorded as an equity
investment on the balance sheet. Our share of the non-recourse
secured debt assumed by the joint venture was approximately
$24,609,000 with weighted-average interest rates of 6.06%.
Please see Note 7 to our consolidated financial statements
for additional information.
We are exposed to various market risks, including the potential
loss arising from adverse changes in interest rates. We may or
may not elect to use financial derivative instruments to hedge
interest rate exposure. These decisions are principally based on
the general trend in interest rates at the applicable dates, our
perception of the future volatility of interest rates and our
relative levels of variable rate debt and variable rate
investments. Please see Note 11 to our consolidated
financial statements for additional information.
At December 31, 2010, we had five outstanding letter of
credit obligations totaling $5,482,932 and expiring between 2011
and 2013. Please see Note 12 to our consolidated financial
statements for additional information.
Contractual
Obligations
The following table summarizes our payment requirements under
contractual obligations as of December 31, 2010 (in
thousands):
| Payments Due by Period | ||||||||||||||||||||
|
Contractual Obligations
|
Total | 2011 | 2012-2013 | 2014-2015 | Thereafter | |||||||||||||||
|
Unsecured line of credit arrangement
|
$ | 300,000 | $ | — | $ | 300,000 | $ | — | $ | — | ||||||||||
|
Senior unsecured notes(1)
|
3,064,930 | — | 376,853 | 250,000 | 2,438,077 | |||||||||||||||
|
Secured debt(1)
|
1,133,715 | 24,048 | 177,487 | 338,320 | 593,860 | |||||||||||||||
|
Contractual interest obligations
|
1,832,761 | 222,393 | 425,509 | 344,841 | 840,018 | |||||||||||||||
|
Capital lease obligations
|
10,951 | 604 | 1,262 | 9,085 | — | |||||||||||||||
|
Operating lease obligations
|
230,189 | 5,380 | 10,612 | 10,370 | 203,827 | |||||||||||||||
|
Purchase obligations
|
301,668 | 199,172 | 84,450 | 18,046 | — | |||||||||||||||
|
Other long-term liabilities
|
4,890 | 1,614 | — | 866 | 2,410 | |||||||||||||||
|
Total contractual obligations
|
$ | 6,879,104 | $ | 453,211 | $ | 1,376,173 | $ | 971,528 | $ | 4,078,192 | ||||||||||
| (1) | Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. |
At December 31, 2010, we had an unsecured line of credit
arrangement with a consortium of sixteen banks in the amount of
$1.15 billion, which is scheduled to expire on
August 6, 2012. Borrowings under the agreement are subject
to interest payable in periods no longer than three months at
either the agent bank’s prime rate of interest or the
applicable margin over LIBOR interest rate, at our option (0.87%
at December 31, 2010). The applicable margin is based on
certain of our debt ratings and was 0.6% at December 31,
2010. In addition, we pay a facility fee annually to each bank
based on the bank’s commitment amount. The facility fee
depends on certain of our debt ratings and was 0.15% at
December 31, 2010. We also pay an annual agent’s fee
of $50,000. Principal is due upon expiration of the agreement.
At December 31, 2010, we had $300,000,000 outstanding under
the unsecured line of credit arrangement and estimated
contractual interest obligations of $4,133,000. Contractual
interest obligations are
57
Table of Contents
estimated based on the assumption that the balance of
$300,000,000 at December 31, 2010 is constant until
maturity at interest rates in effect at December 31, 2010.
We have $3,064,930,000 of senior unsecured notes principal
outstanding with fixed annual interest rates ranging from 3.00%
to 8.00%, payable semi-annually. Total contractual interest
obligations on senior unsecured notes totaled $1,391,673,000 at
December 31, 2010. A total of $788,077,000 of our senior
unsecured notes are convertible notes that also contain put
features. Please see Note 10 to our consolidated financial
statements for additional information.
Additionally, we have secured debt with total outstanding
principal of $1,133,715,000, collateralized by owned properties,
with annual interest rates ranging from 3.01% to 8.74%, payable
monthly. The carrying values of the properties securing the debt
totaled $2,054,820,000 at December 31, 2010. Total
contractual interest obligations on secured debt totaled
$436,955,000 at December 31, 2010.
At December 31, 2010, we had operating lease obligations of
$230,189,000 relating primarily to ground leases at certain of
our properties and office space leases.
Purchase obligations are comprised of unfunded construction
commitments and contingent purchase obligations. At
December 31, 2010, we had outstanding construction
financings of $356,793,000 for leased properties and were
committed to providing additional financing of approximately
$268,055,000 to complete construction. At December 31,
2010, we had contingent purchase obligations totaling
$33,613,000. These contingent purchase obligations relate to
unfunded capital improvement obligations. Upon funding, amounts
due from the tenant are increased to reflect the additional
investment in the property.
Other long-term liabilities relate to our Supplemental Executive
Retirement Plan (“SERP”) and certain non-compete
agreements. We have a SERP, a non-qualified defined benefit
pension plan, which provides certain executive officers with
supplemental deferred retirement benefits. The SERP provides an
opportunity for participants to receive retirement benefits that
cannot be paid under our tax-qualified plans because of the
restrictions imposed by ERISA and the Internal Revenue Code of
1986, as amended. Benefits are based on compensation and length
of service and the SERP is unfunded. We expect to contribute
$1,500,000 to the SERP during the 2011 fiscal year. Benefit
payments are expected to total $2,367,000 during the next five
fiscal years and $2,410,000 thereafter. We use a December 31
measurement date for the SERP. The accrued liability on our
balance sheet for the SERP was $4,066,000 and $3,287,000 at
December 31, 2010 and December 31, 2009, respectively.
In connection with the Windrose merger, we entered into a
consulting agreement with Frederick L. Farrar, which expired in
December 2008. We entered into a new consulting agreement with
Mr. Farrar in December 2008, which expired in December
2009. Mr. Farrar agreed not to compete with us for a period
of two years following the expiration of the agreement. In
exchange for complying with the covenant not to compete,
Mr. Farrar receives eight quarterly payments of $37,500,
with the first payment to be made on the date of expiration of
the agreement. The first payment to Mr. Farrar was made in
January 2010 and the final payment will be made in September
2011.
Capital
Structure
As of December 31, 2010, we had total equity of
$4,733,100,000 and a total outstanding debt balance of
$4,460,855,000, which represents a debt to total book
capitalization ratio of 49%. Our ratio of debt to market
capitalization was 38% at December 31, 2010. For the year
ended December 31, 2010, our adjusted interest coverage
ratio was 3.39x and our adjusted fixed charge coverage ratio was
2.76x. Also, at December 31, 2010, we had $131,570,000 of
cash and cash equivalents, $79,069,000 of restricted cash and
$850,000,000 of available borrowing capacity under our unsecured
line of credit arrangement.
Our debt agreements contain various covenants, restrictions and
events of default. Certain agreements require us to maintain
certain financial ratios and minimum net worth and impose
certain limits on our ability to incur indebtedness, create
liens and make investments or acquisitions. As of
December 31, 2010, we were in compliance with all of the
covenants under our debt agreements. Please refer to the section
entitled “Non-GAAP Financial Measures” for
further discussion. None of our debt agreements contain
provisions for acceleration which could be triggered by our debt
ratings. However, under our unsecured line of credit
arrangement, the ratings on our senior unsecured notes are used
to determine the fees and interest charged.
58
Table of Contents
We plan to manage the company to maintain compliance with our
debt covenants and with a capital structure consistent with our
current profile. Any downgrades in terms of ratings or outlook
by any or all of the rating agencies could have a material
adverse impact on our cost and availability of capital, which
could in turn have a material adverse impact on our consolidated
results of operations, liquidity
and/or
financial condition.
On May 7, 2009, we filed an open-ended automatic or
“universal” shelf registration statement with the
Securities and Exchange Commission covering an indeterminate
amount of future offerings of debt securities, common stock,
preferred stock, depositary shares, warrants and units. As of
January 31, 2011, we had an effective registration
statement on file in connection with our enhanced dividend
reinvestment plan under which we may issue up to
10,000,000 shares of common stock. As of January 31,
2011, 8,397,408 shares of common stock remained available
for issuance under this registration statement. We have entered
into separate Equity Distribution Agreements with each of UBS
Securities LLC, RBS Securities Inc., KeyBanc Capital Markets
Inc. and Credit Agricole Securities (USA) Inc. relating to the
offer and sale from time to time of up to $250,000,000 aggregate
amount of our common stock (“Equity Shelf Program”).
As of January 31, 2011, we had $119,985,000 of remaining
capacity under the Equity Shelf Program. Depending upon market
conditions, we anticipate issuing securities under our
registration statements to invest in additional properties and
to repay borrowings under our unsecured line of credit
arrangement.
Results
of Operations
Our primary sources of revenue include rent and interest. Our
primary expenses include interest expense, depreciation and
amortization, property operating expenses and general and
administrative expenses. These revenues and expenses are
reflected in our Consolidated Statements of Income and are
discussed in further detail below. The following is a summary of
our results of operations (dollars in thousands, except per
share amounts):
| Year Ended | Year Ended |
Two Year
|
||||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
One Year Change |
December 31,
|
One Year Change | Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | Amount | % | 2010 | Amount | % | Amount | % | ||||||||||||||||||||||||||||
|
Net income attributable to common stockholders
|
$ | 260,098 | $ | 171,190 | $ | (88,908 | ) | (34 | )% | $ | 106,882 | $ | (64,308 | ) | (38 | )% | $ | (153,216 | ) | (59 | )% | |||||||||||||||
|
Funds from operations
|
258,868 | 291,754 | 32,886 | 13 | % | 279,075 | (12,679 | ) | (4 | )% | 20,207 | 8 | % | |||||||||||||||||||||||
|
Adjusted EBITDA
|
595,365 | 525,791 | (69,574 | ) | (12 | )% | 568,429 | 42,638 | 8 | % | (26,936 | ) | (5 | )% | ||||||||||||||||||||||
|
Net operating income
|
526,136 | 547,678 | 21,542 | 4 | % | 640,346 | 92,668 | 17 | % | 114,210 | 22 | % | ||||||||||||||||||||||||
|
Per share data (fully diluted):
|
||||||||||||||||||||||||||||||||||||
|
Net income attributable to common stockholders
|
$ | 2.76 | $ | 1.49 | $ | (1.27 | ) | (46 | )% | $ | 0.83 | $ | (0.66 | ) | (44 | )% | $ | (1.93 | ) | (70 | )% | |||||||||||||||
|
Funds from operations
|
2.74 | 2.55 | (0.19 | ) | (7 | )% | 2.18 | (0.37 | ) | (15 | )% | (0.56 | ) | (20 | )% | |||||||||||||||||||||
|
Adjusted interest coverage ratio
|
3.84 | x | 3.78 | x | (0.06 | )x | (2 | )% | 3.39 | x | (0.39 | )x | (10 | )% | (0.45 | )x | (12 | )% | ||||||||||||||||||
|
Adjusted fixed charge coverage ratio
|
3.20 | x | 3.09 | x | (0.11 | )x | (3 | )% | 2.76 | x | (0.33 | )x | (11 | )% | (0.44 | )x | (14 | )% | ||||||||||||||||||
The components of the changes in revenues, expenses and other
items are discussed in detail below. The following is a summary
of certain items that impact the results of operations for the
year ended December 31, 2010:
| • | $3,853,000 ($0.03 per diluted share) of special stock compensation grants recognized as general and administrative expenses; | |
| • | $34,171,000 ($0.27 per diluted share) of net losses on extinguishments of debt; | |
| • | $947,000 ($0.01 per diluted share) of impairment charges; | |
| • | $29,684,000 ($0.23 per diluted share) of provisions for loan losses; | |
| • | $46,660,000 ($0.36 per diluted share) of transaction costs; |
59
Table of Contents
| • | $1,753,000 ($0.01 per diluted share) of held for sale hospital operating expenses; | |
| • | $1,000,000 ($0.01 per diluted share) of additional other income related to a lease termination; and | |
| • | $36,115,000 ($0.28 per diluted share) of gains on the sales of real property. |
The components of the changes in revenues, expenses and other
items are discussed in detail below. The following is a summary
of certain items that impact the results of operations for the
year ended December 31, 2009:
| • | $3,909,000 ($0.03 per diluted share) of non-recurring general and administrative expenses; | |
| • | $25,107,000 ($0.22 per diluted share) of net losses on extinguishments of debt; | |
| • | $25,223,000 ($0.22 per diluted share) of impairment charges; | |
| • | $23,261,000 ($0.20 per diluted share) of provisions for loan losses; | |
| • | $8,059,000 ($0.07 per diluted share) of additional other income related to a lease termination; | |
| • | $2,400,000 ($0.02 per diluted share) of prepayment fees; and | |
| • | $43,394,000 ($0.38 per diluted share) of gains on the sales of real property. |
The following is a summary of certain items that impact the
results of operations for the year ended December 31, 2008:
| • | $2,291,000 ($0.02 per diluted share) of non-recurring terminated transaction costs in general and administrative expenses; | |
| • | $1,325,000 ($0.01 per diluted share) of non-recurring income tax expense; | |
| • | $23,393,000 ($0.25 per diluted share) of realized loss on derivatives; | |
| • | $32,648,000 ($0.35 per diluted share) of impairment charges; | |
| • | $2,094,000 ($0.02 per diluted share) of net gains on extinguishments of debt; | |
| • | $2,500,000 ($0.03 per diluted share) of additional other income related to a lease termination; and | |
| • | $163,933,000 ($1.74 per diluted share) of gains on the sales of real property. |
The increase in fully diluted average common shares outstanding
is primarily the result of public common stock offerings and
common stock issuances pursuant to our DRIP and equity shelf
program (“ESP”). The following table represents the
changes in outstanding common stock for the period from
January 1, 2008 to December 31, 2010 (in thousands):
| Year Ended | ||||||||||||||||
| December 31, 2008 | December 31, 2009 | December 31, 2010 | Totals | |||||||||||||
|
Beginning balance
|
85,496 | 104,704 | 123,385 | 85,496 | ||||||||||||
|
Public offerings
|
15,650 | 15,017 | 20,700 | 51,367 | ||||||||||||
|
DRIP issuances
|
1,546 | 1,499 | 1,957 | 5,002 | ||||||||||||
|
ESP issuances
|
794 | 1,953 | 431 | 3,178 | ||||||||||||
|
Preferred stock conversions
|
975 | 30 | 339 | 1,344 | ||||||||||||
|
Option exercises
|
119 | 96 | 129 | 344 | ||||||||||||
|
Other, net
|
124 | 86 | 156 | 366 | ||||||||||||
|
Ending balance
|
104,704 | 123,385 | 147,097 | 147,097 | ||||||||||||
|
Average number of shares outstanding:
|
||||||||||||||||
|
Basic
|
93,732 | 114,207 | 127,656 | |||||||||||||
|
Diluted
|
94,309 | 114,612 | 128,208 | |||||||||||||
We evaluate our business and make resource allocations on our
two business segments — senior housing and care
properties and medical facilities. Please see Note 17 to
our consolidated financial statements for additional information.
60
Table of Contents
Senior
Housing and Care Properties
The following is a summary of our results of operations for the
senior housing and care properties segment (dollars in
thousands):
| Year Ended |
One Year
|
Year Ended |
One Year
|
Two Year
|
||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
Change |
December 31,
|
Change | Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | $ | % | 2010 | $ | % | $ | % | ||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||||||
|
Rental income
|
$ | 293,002 | $ | 323,582 | $ | 30,580 | 10 | % | $ | 362,661 | $ | 39,079 | 12 | % | $ | 69,659 | 24 | % | ||||||||||||||||||
|
Resident fees and services
|
— | — | — | n/a | 51,006 | 51,006 | n/a | 51,006 | n/a | |||||||||||||||||||||||||||
|
Interest income
|
35,143 | 35,945 | 802 | 2 | % | 36,176 | 231 | 1 | % | 1,033 | 3 | % | ||||||||||||||||||||||||
|
Other income
|
5,994 | 2,909 | (3,085 | ) | (51 | )% | 3,386 | 477 | 16 | % | (2,608 | ) | (44 | )% | ||||||||||||||||||||||
|
Prepayment fees
|
— | 2,400 | 2,400 | n/a | — | (2,400 | ) | (100 | )% | — | n/a | |||||||||||||||||||||||||
| 334,139 | 364,836 | 30,697 | 9 | % | 453,229 | 88,393 | 24 | % | 119,090 | 36 | % | |||||||||||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||||||||||
|
Interest expense
|
(4,455 | ) | 6,404 | 10,859 | n/a | 19,255 | 12,851 | 201 | % | 23,710 | (532 | )% | ||||||||||||||||||||||||
|
Property operating expenses
|
— | — | — | n/a | 32,621 | 32,621 | n/a | 32,621 | n/a | |||||||||||||||||||||||||||
|
Depreciation and amortization
|
81,758 | 90,028 | 8,270 | 10 | % | 121,292 | 31,264 | 35 | % | 39,534 | 48 | % | ||||||||||||||||||||||||
|
Transaction costs
|
— | — | — | n/a | 41,549 | 41,549 | n/a | 41,549 | n/a | |||||||||||||||||||||||||||
|
Loss (gain) on extinguishment of debt
|
(808 | ) | 2,057 | 2,865 | n/a | 7,791 | 5,734 | 279 | % | 8,599 | (1064 | )% | ||||||||||||||||||||||||
|
Provision for loan losses
|
94 | 23,261 | 23,167 | 24646 | % | 29,684 | 6,423 | 28 | % | 29,590 | 31479 | % | ||||||||||||||||||||||||
| 76,589 | 121,750 | 45,161 | 59 | % | 252,192 | 130,442 | 107 | % | 175,603 | 229 | % | |||||||||||||||||||||||||
|
Income from continuing operations before income taxes
|
257,550 | 243,086 | (14,464 | ) | (6 | )% | 201,037 | (42,049 | ) | (17 | )% | (56,513 | ) | (22 | )% | |||||||||||||||||||||
|
Income tax expense
|
(1,693 | ) | (607 | ) | 1,086 | (64 | )% | (229 | ) | 378 | (62 | )% | 1,464 | (86 | )% | |||||||||||||||||||||
|
Income from continuing operations
|
255,857 | 242,479 | (13,378 | ) | (5 | )% | 200,808 | (41,671 | ) | (17 | )% | (55,049 | ) | (22 | )% | |||||||||||||||||||||
|
Discontinued operations:
|
||||||||||||||||||||||||||||||||||||
|
Gain (loss) on sales of properties
|
151,457 | 32,084 | (119,373 | ) | (79 | )% | 36,274 | 4,190 | 13 | % | (115,183 | ) | (76 | )% | ||||||||||||||||||||||
|
Income from discontinued operations, net
|
23,503 | 17,037 | (6,466 | ) | (28 | )% | 11,168 | (5,869 | ) | (34 | )% | (12,335 | ) | (52 | )% | |||||||||||||||||||||
|
Discontinued operations, net
|
174,960 | 49,121 | (125,839 | ) | (72 | )% | 47,442 | (1,679 | ) | (3 | )% | (127,518 | ) | (73 | )% | |||||||||||||||||||||
|
Net income
|
430,817 | 291,600 | (139,217 | ) | (32 | )% | 248,250 | (43,350 | ) | (15 | )% | (182,567 | ) | (42 | )% | |||||||||||||||||||||
|
Less: Net income attributable to noncontrolling interests
|
— | — | — | n/a | (1,674 | ) | (1,674 | ) | n/a | (1,674 | ) | n/a | ||||||||||||||||||||||||
|
Net income attributable to common stockholders
|
$ | 430,817 | $ | 291,600 | $ | (139,217 | ) | (32 | )% | $ | 249,924 | $ | (41,676 | ) | (14 | )% | $ | (180,893 | ) | (42 | )% | |||||||||||||||
The increase in rental income is primarily attributable to the
acquisitions of new properties and the conversion of newly
constructed senior housing and care properties from which we
receive rent. Certain of our leases contain annual rental
escalators that are contingent upon changes in the Consumer
Price Index
and/or
changes in the gross operating revenues of the tenant’s
properties. These escalators are not fixed, so no straight-line
rent is recorded; however, rental income is recorded based on
the contractual cash rental payments due for the period. If
gross operating revenues at our facilities
and/or
the
Consumer Price Index do not increase, a portion of our revenues
may not continue to increase. Sales of real property would
offset revenue increases and, to the extent that they exceed new
acquisitions, could result in decreased revenues. Our leases
could renew above or below current rent rates, resulting in an
increase or decrease in rental income.
As discussed in Note 3 to our consolidated financial
statements, we completed two senior housing operating
partnerships in 2010. The results of operations for these
partnerships have been included in our consolidated results of
operations from the dates of acquisition and represent the sole
component of resident fees and services, property operating
expenses and net income attributable to noncontrolling interests
for this segment.
61
Table of Contents
Interest expense for the years ended December 31, 2010,
2009 and 2008 represents $22,905,000, $12,622,000 and
$7,176,000, respectively, of secured debt interest expense
offset by interest allocated to discontinued operations. The
change in secured debt interest expense is due to the net effect
and timing of assumptions, extinguishments and principal
amortizations. The following is a summary of our senior housing
and care property secured debt principal activity (dollars in
thousands):
| Year Ended December 31, 2008 | Year Ended December 31, 2009 | Year Ended December 31, 2010 | ||||||||||||||||||||||
|
Weighted Avg.
|
Weighted Avg.
|
Weighted Avg.
|
||||||||||||||||||||||
| Amount | Interest Rate | Amount | Interest Rate | Amount | Interest Rate | |||||||||||||||||||
|
Beginning balance
|
$ | 114,543 | 7.000 | % | $ | 94,234 | 6.996 | % | $ | 298,492 | 5.998 | % | ||||||||||||
|
Debt issued
|
— | 265,527 | 5.982 | % | 157,156 | 5.454 | % | |||||||||||||||||
|
Debt assumed
|
— | 396,919 | 5.858 | % | ||||||||||||||||||||
|
Debt extinguished
|
(17,821 | ) | 7.022 | % | (47,502 | ) | 7.414 | % | (185,999 | ) | 6.075 | % | ||||||||||||
|
Principal payments
|
(2,488 | ) | 6.974 | % | (13,767 | ) | 7.640 | % | (6,000 | ) | 5.962 | % | ||||||||||||
|
Ending balance
|
$ | 94,234 | 6.996 | % | $ | 298,492 | 5.998 | % | $ | 660,568 | 5.763 | % | ||||||||||||
|
Monthly averages
|
$ | 103,927 | 6.996 | % | $ | 205,549 | 6.309 | % | $ | 592,892 | 5.837 | % | ||||||||||||
Depreciation and amortization increased primarily as a result of
new property acquisitions and the conversions of newly
constructed investment properties. To the extent that we acquire
or dispose of additional properties in the future, our provision
for depreciation and amortization will change accordingly.
Transaction costs for the year ended December 31, 2010
primarily represent costs incurred with the senior housing
operating partnerships (including due diligence costs, fees for
legal and valuation services, and termination of pre-existing
relationships computed based on the fair value of the assets
acquired), lease termination fees and costs incurred in
connection with other new property acquisitions.
During the year ended December 31, 2010, we sold 31 senior
housing and care properties for net gains of $36,274,000 as
compared to 21 properties for net gains of $32,084,000 in 2009
and 36 properties for net gains of $151,457,000 in 2008.
Additionally, at December 31, 2010, we had 16 senior
housing facilities that satisfied the requirements for held for
sale treatment. We did not recognize an impairment loss on these
facilities as the fair value less estimated costs to sell
exceeded our carrying value. The following illustrates the
reclassification impact as a result of classifying the
properties sold prior to or held for sale at December 31,
2010 as discontinued operations for the periods presented.
Please refer to Note 5 to our consolidated financial
statements for further discussion.
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Rental income
|
$ | 52,051 | $ | 34,527 | $ | 20,243 | ||||||
|
Expenses:
|
||||||||||||
|
Interest expense
|
11,631 | 6,218 | 3,650 | |||||||||
|
Provision for depreciation
|
16,917 | 11,272 | 5,425 | |||||||||
|
Income (loss) from discontinued operations, net
|
$ | 23,503 | $ | 17,037 | $ | 11,168 | ||||||
We recorded $23,261,000 of provision for loan losses during the
year ended December 31, 2009. This amount includes the
write-off of loans totaling $25,578,000 primarily relating to
certain early stage senior housing operators offset by a net
reduction in the allowance for loan losses of $2,457,000. We
recorded $29,684,000 of provision for loan losses during the
year ended December 31, 2010. This amount includes the
write-off of loans totaling $33,591,000 primarily related to
certain early stage senior housing and CCRC development
projects. This was offset by a net reduction of the allowance
balance by $3,907,000, resulting in an allowance for loan losses
of $1,276,000 relating to real estate loans with outstanding
balances of $9,691,000, all of which were on non-accrual status
at December 31, 2010. The provision for loan losses is
related to our critical accounting estimate for the allowance
for loan losses and is discussed in “Critical Accounting
Policies.”
62
Table of Contents
Medical
Facilities
The following is a summary of our results of operations for the
medical facilities segment (dollars in thousands):
| Year Ended |
One Year
|
Year Ended |
One Year
|
Two Year
|
||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
Change |
December 31,
|
Change | Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | $ | % | 2010 | $ | % | $ | % | ||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||||||
|
Rental income
|
$ | 160,939 | $ | 173,837 | $ | 12,898 | 8 | % | $ | 218,763 | $ | 44,926 | 26 | % | $ | 57,824 | 36 | % | ||||||||||||||||||
|
Interest income
|
4,920 | 4,940 | 20 | 0 | % | 4,679 | (261 | ) | (5 | )% | (241 | ) | (5 | )% | ||||||||||||||||||||||
|
Other income
|
2,835 | 1,309 | (1,526 | ) | (54 | )% | 985 | (324 | ) | (25 | )% | (1,850 | ) | (65 | )% | |||||||||||||||||||||
| 168,694 | 180,086 | 11,392 | 7 | % | 224,427 | 44,341 | 25 | % | 55,733 | 33 | % | |||||||||||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||||||||||
|
Interest expense
|
17,676 | 19,147 | 1,471 | 8 | % | 24,724 | 5,577 | 29 | % | 7,048 | 40 | % | ||||||||||||||||||||||||
|
Property operating expenses
|
42,634 | 45,896 | 3,262 | 8 | % | 50,499 | 4,603 | 10 | % | 7,865 | 18 | % | ||||||||||||||||||||||||
|
Depreciation and amortization
|
56,378 | 60,700 | 4,322 | 8 | % | 75,826 | 15,126 | 25 | % | 19,448 | 34 | % | ||||||||||||||||||||||||
|
Transaction costs
|
— | — | — | n/a | 5,112 | 5,112 | n/a | 5,112 | n/a | |||||||||||||||||||||||||||
|
Loss (gain) on extinguishment of debt
|
(1,286 | ) | 3,781 | 5,067 | n/a | 1,308 | (2,473 | ) | (65 | )% | 2,594 | (202 | )% | |||||||||||||||||||||||
| 115,402 | 129,524 | 14,122 | 12 | % | 157,469 | 27,945 | 22 | % | 42,067 | 36 | % | |||||||||||||||||||||||||
|
Income from continuing operations before income taxes and income
from unconsolidated joint ventures
|
53,292 | 50,562 | (2,730 | ) | (5 | )% | 66,958 | 16,396 | 32 | % | 13,666 | 26 | % | |||||||||||||||||||||||
|
Income tax expense
|
(51 | ) | (233 | ) | (182 | ) | 357 | % | (77 | ) | 156 | (67 | )% | (26 | ) | 51 | % | |||||||||||||||||||
|
Income from unconsolidated joint ventures
|
— | — | — | n/a | 6,673 | 6,673 | n/a | 6,673 | n/a | |||||||||||||||||||||||||||
|
Income from continuing operations
|
53,241 | 50,329 | (2,912 | ) | (5 | )% | 73,554 | 23,225 | 46 | % | 20,313 | 38 | % | |||||||||||||||||||||||
|
Discontinued operations:
|
||||||||||||||||||||||||||||||||||||
|
Gain (loss) on sales of properties
|
12,476 | 11,310 | (1,166 | ) | (9 | )% | (159 | ) | (11,469 | ) | (101 | )% | (12,635 | ) | (101 | )% | ||||||||||||||||||||
|
Impairment of assets
|
(32,648 | ) | (25,223 | ) | 7,425 | (23 | )% | (947 | ) | 24,276 | (96 | )% | 31,701 | (97 | )% | |||||||||||||||||||||
|
Income (loss) from discontinued operations, net
|
50 | 8,595 | 8,545 | 17090 | % | (1,804 | ) | (10,399 | ) | (121 | )% | (1,854 | ) | (3708 | )% | |||||||||||||||||||||
|
Discontinued operations, net
|
(20,122 | ) | (5,318 | ) | 14,804 | (74 | )% | (2,910 | ) | 2,408 | (45 | )% | 17,212 | (86 | )% | |||||||||||||||||||||
|
Net income (loss)
|
33,119 | 45,011 | 11,892 | 36 | % | 70,644 | 25,633 | 57 | % | 37,525 | 113 | % | ||||||||||||||||||||||||
|
Less: Net income (loss) attributable to noncontrolling interests
|
126 | (342 | ) | (468 | ) | n/a | 2,031 | 2,373 | (694 | )% | 1,905 | 1512 | % | |||||||||||||||||||||||
|
Net income (loss) attributable to common stockholders
|
$ | 32,993 | $ | 45,353 | $ | 12,360 | 37 | % | $ | 68,613 | $ | 23,260 | 51 | % | $ | 35,620 | 108 | % | ||||||||||||||||||
The increase in rental income is primarily attributable to the
acquisitions of new properties and the construction conversions
of medical facilities from which we receive rent. Certain of our
leases contain annual rental escalators that are contingent upon
changes in the Consumer Price Index. These escalators are not
fixed, so no straight-line rent is recorded; however, rental
income is recorded based on the contractual cash rental payments
due for the period. If the Consumer Price Index does not
increase, a portion of our revenues may not continue to
increase. Sales of real property would offset revenue increases
and, to the extent that they exceed new acquisitions,
63
Table of Contents
could result in decreased revenues. Our leases could renew above
or below current rent rates, resulting in an increase or
decrease in rental income. Interest income decreased from the
prior period primarily due to a decline in outstanding balances
for medical facility real estate loans. Other income is
attributable to third party management fee income.
Interest expense for the years ended December 31, 2010,
2009 and 2008 represents $24,926,000, $20,584,000 and
$21,828,000, respectively, of secured debt interest expense
offset by interest allocated to discontinued operations. The
change in secured debt interest expense is primarily due to the
net effect and timing of assumptions, extinguishments and
principal amortizations. The following is a summary of our
medical facilities secured debt principal activity (dollars in
thousands):
| Year Ended December 31, 2008 | Year Ended December 31, 2009 | Year Ended December 31, 2010 | ||||||||||||||||||||||
|
Weighted Avg.
|
Weighted Avg.
|
Weighted Avg.
|
||||||||||||||||||||||
| Amount | Interest Rate | Amount | Interest Rate | Amount | Interest Rate | |||||||||||||||||||
|
Beginning balance
|
$ | 392,430 | 5.854 | % | $ | 354,146 | 5.799 | % | $ | 314,065 | 5.677 | % | ||||||||||||
|
Debt assumed
|
— | 167,737 | 6.637 | % | ||||||||||||||||||||
|
Debt extinguished
|
(32,653 | ) | 6.473 | % | (34,213 | ) | 6.933 | % | (8,494 | ) | 6.045 | % | ||||||||||||
|
Principal payments
|
(5,631 | ) | 5.741 | % | (5,868 | ) | 5.721 | % | (9,831 | ) | 6.279 | % | ||||||||||||
|
Ending balance
|
$ | 354,146 | 5.799 | % | $ | 314,065 | 5.677 | % | $ | 463,477 | 5.286 | % | ||||||||||||
|
Monthly averages
|
$ | 365,661 | 5.802 | % | $ | 341,103 | 5.764 | % | $ | 458,196 | 5.961 | % | ||||||||||||
The increase in property operating expenses and depreciation and
amortization is primarily attributable to acquisitions and
construction conversions of new medical facilities for which we
incur certain property operating expenses offset by property
operating expenses associated with discontinued operations.
Transaction costs for the year ended December 31, 2010
represent costs incurred in connection with the acquisition of
new properties. Income tax expense is primarily related to third
party management fee income.
Income from unconsolidated joint ventures represents our share
of net income related to our joint venture investment with
Forest City Enterprises. See Note 7 to our consolidated
financial statements for additional information. The following
is a summary of our net income from this investment for the year
ended December 31, 2010 (in thousands):
|
Revenues
|
$ | 34,002 | ||
|
Operating expenses
|
9,707 | |||
|
Net operating income
|
24,295 | |||
|
Depreciation and amortization
|
8,514 | |||
|
Interest expense
|
7,759 | |||
|
Asset management fee
|
1,349 | |||
|
Net income
|
$ | 6,673 | ||
During the year ended December 31, 2008, we sold two
medical facilities for net gains of $12,476,000. At
December 31, 2008, we had 15 medical facilities that were
held for sale and we recorded an impairment charge of
$32,648,000 to reduce the carrying values of certain properties
to their estimated fair values less costs to sell. During the
year ended December 31, 2009, we sold 15 medical facilities
for net gains of $11,310,000. At December 31, 2009, we had
eight medical facilities held for sale and recorded an
impairment charge of $25,223,000 to reduce the properties to
their estimated fair values less costs to sell. In determining
the fair value of the held for sale properties, we used a
combination of third party appraisals based on market comparable
transactions, other market listings and asset quality as well as
management calculations based on projected operating income and
published capitalization rates. During the three months ended
September 30, 2010, we recorded an impairment charge of
$947,000 related to two of the held for sale medical facilities
to adjust the carrying values to estimated fair values less
costs to sell based on current sales price expectations. During
the year ended December 31, 2010, we sold seven of the held
for sale medical facilities for net losses of $159,000. At
December 31, 2010, we had one medical facility held for
sale. The following illustrates the reclassification impact as a
result of classifying medical facilities sold prior to or held
for
64
Table of Contents
sale at December 31, 2010 as discontinued operations for
the periods presented. Please refer to Note 5 to our
consolidated financial statements for further discussion.
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Rental income
|
$ | 16,189 | $ | 7,965 | $ | 1,743 | ||||||
|
Other income
|
— | 8,059 | — | |||||||||
|
Expenses:
|
||||||||||||
|
Interest expense
|
4,152 | 1,437 | 202 | |||||||||
|
Property operating expenses
|
3,995 | 3,069 | 3,345 | |||||||||
|
Provision for depreciation
|
7,992 | 2,923 | — | |||||||||
|
Income (loss) from discontinued operations, net
|
$ | 50 | $ | 8,595 | $ | (1,804 | ) | |||||
Net income attributable to non-controlling interests primarily
relates to certain properties that are consolidated in our
operating results but where we have less than a 100% ownership
interest.
Non-Segment/Corporate
The following is a summary of our results of operations for the
non-segment/corporate activities (dollars in thousands):
| Year Ended |
One Year
|
Year Ended |
One Year
|
Two Year
|
||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
Change |
December 31,
|
Change | Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | $ | % | 2010 | $ | % | $ | % | ||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||||||
|
Other income
|
$ | 1,692 | $ | 1,170 | $ | (522 | ) | (31 | )% | $ | 2,874 | $ | 1,704 | 146 | % | $ | 1,182 | 70 | % | |||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||||||||||
|
Interest expense
|
112,055 | 76,566 | (35,489 | ) | (32 | )% | 113,129 | 36,563 | 48 | % | 1,074 | 1 | % | |||||||||||||||||||||||
|
Realized loss on derivatives
|
23,393 | — | (23,393 | ) | (100 | )% | — | — | n/a | (23,393 | ) | (100 | )% | |||||||||||||||||||||||
|
General and administrative
|
47,193 | 49,691 | 2,498 | 5 | % | 54,626 | 4,935 | 10 | % | 7,433 | 16 | % | ||||||||||||||||||||||||
|
Loss (gain) on extinguishments of debt
|
— | 19,269 | 19,269 | n/a | 25,072 | 5,803 | 30 | % | 25,072 | n/a | ||||||||||||||||||||||||||
| 182,641 | 145,526 | (37,115 | ) | (20 | )% | 192,827 | 47,301 | 33 | % | 10,186 | 6 | % | ||||||||||||||||||||||||
|
Loss from continuing operations before income taxes
|
(180,949 | ) | (144,356 | ) | 36,593 | (20 | )% | (189,953 | ) | (45,597 | ) | 32 | % | (9,004 | ) | 5 | % | |||||||||||||||||||
|
Income tax benefit (expense)
|
438 | 672 | 234 | 53 | % | (58 | ) | (730 | ) | (109 | )% | (496 | ) | (113 | )% | |||||||||||||||||||||
|
Net loss
|
(180,511 | ) | (143,684 | ) | 36,827 | (20 | )% | (190,011 | ) | (46,327 | ) | 32 | % | (9,500 | ) | 5 | % | |||||||||||||||||||
|
Preferred stock dividends
|
23,201 | 22,079 | (1,122 | ) | (5 | )% | 21,645 | (434 | ) | (2 | )% | (1,556 | ) | (7 | )% | |||||||||||||||||||||
|
Net loss attributable to common stockholders
|
$ | (203,712 | ) | $ | (165,763 | ) | $ | 37,949 | (19 | )% | $ | (211,656 | ) | $ | (45,893 | ) | 28 | % | $ | (7,944 | ) | 4 | % | |||||||||||||
Other income primarily represents income from non-real estate
activities such as interest earned on temporary investments of
cash reserves.
65
Table of Contents
The following is a summary of our non-segment/corporate interest
expense (dollars in thousands):
| Year Ended | Year Ended |
One Year
|
Two Year
|
|||||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
One Year Change |
December 31,
|
Change | Change | |||||||||||||||||||||||||||||||
| 2008 | 2009 | $ | % | 2010 | $ | % | $ | % | ||||||||||||||||||||||||||||
|
Senior unsecured notes
|
$ | 111,544 | $ | 106,347 | $ | (5,197 | ) | (5 | )% | $ | 122,492 | $ | 16,145 | 15 | % | $ | 10,948 | 10 | % | |||||||||||||||||
|
Secured debt
|
— | 265 | 265 | n/a | 645 | 380 | 143 | % | 645 | n/a | ||||||||||||||||||||||||||
|
Unsecured lines of credit
|
18,878 | 4,629 | (14,249 | ) | (75 | )% | 3,974 | (655 | ) | (14 | )% | (14,904 | ) | (79 | )% | |||||||||||||||||||||
|
Capitalized interest
|
(25,029 | ) | (41,170 | ) | (16,141 | ) | 64 | % | (20,792 | ) | 20,378 | (49 | )% | 4,237 | (17 | )% | ||||||||||||||||||||
|
Interest SWAP savings
|
(161 | ) | (161 | ) | — | 0 | % | (161 | ) | — | 0 | % | — | 0 | % | |||||||||||||||||||||
|
Loan expense
|
6,823 | 6,656 | (167 | ) | (2 | )% | 6,971 | 315 | 5 | % | 148 | 2 | % | |||||||||||||||||||||||
|
Totals
|
$ | 112,055 | $ | 76,566 | $ | (35,489 | ) | (32 | )% | $ | 113,129 | $ | 36,563 | 48 | % | $ | 1,074 | 1 | % | |||||||||||||||||
The change in interest expense on senior unsecured notes is due
to the net effect of issuances and extinguishments. The
following is a summary of our senior unsecured note principal
activity (dollars in thousands):
| Year Ended December 31, 2008 | Year Ended December 31, 2009 | Year Ended December 31, 2010 | ||||||||||||||||||||||
|
Weighted Avg.
|
Weighted Avg.
|
Weighted Avg.
|
||||||||||||||||||||||
| Amount | Interest Rate | Amount | Interest Rate | Amount | Interest Rate | |||||||||||||||||||
|
Beginning balance
|
$ | 1,887,330 | 5.823 | % | $ | 1,845,000 | 5.782 | % | $ | 1,661,853 | 5.557 | % | ||||||||||||
|
Debt issued
|
1,844,403 | 4.653 | % | |||||||||||||||||||||
|
Debt extinguished(1)
|
(42,330 | ) | 7.625 | % | (183,147 | ) | 7.823 | % | (441,326 | ) | 4.750 | % | ||||||||||||
|
Ending balance
|
$ | 1,845,000 | 5.782 | % | $ | 1,661,853 | 5.557 | % | $ | 3,064,930 | 5.129 | % | ||||||||||||
|
Monthly averages
|
$ | 1,854,768 | 5.792 | % | $ | 1,778,621 | 5.713 | % | $ | 2,221,056 | 5.263 | % | ||||||||||||
| (1) | We recognized losses of $0, $19,269,000 and $25,072,000 in connection with the extinguishments for the years ended December 31, 2008, 2009 and 2010, respectively. |
During the three months ended September 30, 2009, we
completed a $10,750,000 first mortgage loan secured by a
commercial real estate campus. The
10-year
debt
has a fixed interest rate of 6.37%.
The change in interest expense on the unsecured line of credit
arrangement is due primarily to the net effect and timing of
draws, paydowns and variable interest rate changes. The
following is a summary of our unsecured line of credit
arrangement (dollars in thousands):
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Balance outstanding at quarter end
|
$ | 570,000 | $ | 140,000 | $ | 300,000 | ||||||
|
Maximum amount outstanding at any month end
|
$ | 744,000 | $ | 559,000 | $ | 560,000 | ||||||
|
Average amount outstanding (total of daily principal balances
divided by days in period)
|
$ | 500,561 | $ | 241,463 | $ | 268,762 | ||||||
|
Weighted average interest rate (actual interest expense divided
by average borrowings outstanding)
|
3.77 | % | 1.92 | % | 1.48 | % | ||||||
We capitalize certain interest costs associated with funds used
to finance the construction of properties owned directly by us.
The amount capitalized is based upon the balances outstanding
during the construction period using the rate of interest that
approximates our cost of financing. Our interest expense is
reduced by the amount capitalized.
Please see Note 11 to our consolidated financial statements
for a discussion of our interest rate swap agreements and their
impact on interest expense. Loan expense represents the
amortization of deferred loan costs incurred in connection with
the issuance and amendments of debt. Loan expense is consistent
for all years presented.
66
Table of Contents
During the year ended December 31, 2008, we recognized a
realized loss on derivatives of $23,393,000 related to
forward-starting interest rate swaps that were in place to hedge
future debt issuances when the timing of those issuances was
revised.
General and administrative expenses as a percentage of
consolidated revenues (including revenues from discontinued
operations) for the years ended December 31, 2010, 2009 and
2008 were 7.78%, 8.33% and 8.24%, respectively. The change from
prior year is primarily related to (i) the recognition of
$2,853,000 of expenses in connection with a performance-based
stock grant, (ii) the recognition of $1,000,000 for the
immediate vesting of a stock grant in conjunction with the
CEO’s new employment agreement, and (iii) additional
salary and benefits to attract and retain appropriate personnel
to support our business growth. This was partially offset by
$3,909,000 of non-recurring expenses recognized during the year
ended December 31, 2009 in connection with the departure of
Raymond W. Braun who formerly served as President of the company.
The change in preferred dividends is primarily attributable to
preferred stock conversions into common stock. The following is
a summary of our preferred stock activity (dollars in thousands):
| Year Ended December 31, 2008 | Year Ended December 31, 2009 | Year Ended December 31, 2010 | ||||||||||||||||||||||
|
Weighted Avg.
|
Weighted Avg.
|
Weighted Avg.
|
||||||||||||||||||||||
| Shares | Dividend Rate | Shares | Dividend Rate | Shares | Dividend Rate | |||||||||||||||||||
|
Beginning balance
|
12,879,189 | 7.676 | % | 11,516,302 | 7.696 | % | 11,474,093 | 7.697 | % | |||||||||||||||
|
Shares issued
|
349,854 | 6.000 | % | |||||||||||||||||||||
|
Shares redeemed
|
(5,513 | ) | 7.500 | % | ||||||||||||||||||||
|
Shares converted
|
(1,362,887 | ) | 7.500 | % | (42,209 | ) | 7.478 | % | (468,580 | ) | 7.262 | % | ||||||||||||
|
Ending balance
|
11,516,302 | 7.696 | % | 11,474,093 | 7.697 | % | 11,349,854 | 7.663 | % | |||||||||||||||
|
Monthly averages
|
12,138,161 | 7.686 | % | 11,482,557 | 7.697 | % | 11,321,886 | 7.699 | % | |||||||||||||||
Non-GAAP Financial
Measures
We believe that net income, as defined by U.S. GAAP, is the
most appropriate earnings measurement. However, we consider FFO
to be a useful supplemental measure of our operating
performance. Historical cost accounting for real estate assets
in accordance with U.S. GAAP implicitly assumes that the
value of real estate assets diminishes predictably over time as
evidenced by the provision for depreciation. However, since real
estate values have historically risen or fallen with market
conditions, many industry investors and analysts have considered
presentations of operating results for real estate companies
that use historical cost accounting to be insufficient. In
response, the National Association of Real Estate Investment
Trusts (“NAREIT”) created FFO as a supplemental
measure of operating performance for REITs that excludes
historical cost depreciation from net income. FFO, as defined by
NAREIT, means net income, computed in accordance with
U.S. GAAP, excluding gains (or losses) from sales of real
estate, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Net operating income (“NOI”) is used to evaluate the
operating performance of our properties. We define NOI as total
revenues, including tenant reimbursements, less property level
operating expenses, which exclude depreciation and amortization,
general and administrative expenses, impairments and interest
expense. We believe NOI provides investors relevant and useful
information because it measures the operating performance of our
properties at the property level on an unleveraged basis. We use
NOI to make decisions about resource allocations and to assess
the property level performance of our properties.
EBITDA stands for earnings before interest, taxes, depreciation
and amortization. We believe that EBITDA, along with net income
and cash flow provided from operating activities, is an
important supplemental measure because it provides additional
information to assess and evaluate the performance of our
operations. A covenant in our line of credit arrangement
contains a financial ratio based on a definition of EBITDA that
is specific to that agreement. Failure to satisfy this covenant
could result in an event of default that could have a material
adverse impact on our cost and availability of capital, which
could in turn have a material adverse impact on our consolidated
results of operations, liquidity
and/or
financial condition. Due to the materiality of this debt
agreement and the financial covenant, we have disclosed Adjusted
EBITDA, which represents EBITDA as defined above and
67
Table of Contents
adjusted for stock-based compensation expense, provision for
loan losses and gain/loss on extinguishment of debt. We
primarily utilize Adjusted EBITDA to measure our adjusted
interest coverage ratio, which represents Adjusted EBITDA
divided by total interest, and our adjusted fixed charge
coverage ratio, which represents Adjusted EBITDA divided by
fixed charges. Fixed charges include total interest, secured
debt principal amortization and preferred dividends. Our
covenant requires an adjusted fixed charge ratio of at least
1.75 times.
Other than Adjusted EBITDA, our supplemental reporting measures
and similarly entitled financial measures are widely used by
investors, equity and debt analysts and rating agencies in the
valuation, comparison, rating and investment recommendations of
companies. Management uses these financial measures to
facilitate internal and external comparisons to our historical
operating results and in making operating decisions.
Additionally, these measures are utilized by the Board of
Directors to evaluate management. Adjusted EBITDA is used solely
to determine our compliance with a financial covenant of our
line of credit arrangement and is not being presented for use by
investors for any other purpose. None of our supplemental
measures represent net income or cash flow provided from
operating activities as determined in accordance with
U.S. GAAP and should not be considered as alternative
measures of profitability or liquidity. Finally, the
supplemental measures, as defined by us, may not be comparable
to similarly entitled items reported by other real estate
investment trusts or other companies.
The tables below reflect the reconciliation of FFO to net income
attributable to common stockholders, the most directly
comparable U.S. GAAP measure, for the periods presented.
The provisions for depreciation and amortization include
provisions for depreciation and amortization from discontinued
operations. Noncontrolling interest amounts represent the
noncontrolling interests’ share of transaction costs and
depreciation and amortization. Unconsolidated joint venture
amounts represent our share of unconsolidated joint
ventures’ depreciation and amortization. Amounts are in
thousands except for per share data.
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
FFO Reconciliation:
|
||||||||||||
|
Net income attributable to common stockholders
|
$ | 260,098 | $ | 171,190 | $ | 106,882 | ||||||
|
Depreciation and amortization
|
163,045 | 164,923 | 202,543 | |||||||||
|
Loss (gain) on sales of properties
|
(163,933 | ) | (43,394 | ) | (36,115 | ) | ||||||
|
Noncontrolling interests
|
(342 | ) | (965 | ) | (2,749 | ) | ||||||
|
Unconsolidated joint ventures
|
— | — | 8,514 | |||||||||
|
Funds from operations
|
$ | 258,868 | $ | 291,754 | $ | 279,075 | ||||||
|
Average common shares outstanding:
|
||||||||||||
|
Basic
|
93,732 | 114,207 | 127,656 | |||||||||
|
Diluted
|
94,309 | 114,612 | 128,208 | |||||||||
|
Per share data:
|
||||||||||||
|
Net income attributable to common stockholders
|
||||||||||||
|
Basic
|
$ | 2.77 | $ | 1.50 | $ | 0.84 | ||||||
|
Diluted
|
2.76 | 1.49 | 0.83 | |||||||||
|
Funds from operations
|
||||||||||||
|
Basic
|
$ | 2.76 | $ | 2.55 | $ | 2.19 | ||||||
|
Diluted
|
2.74 | 2.55 | 2.18 | |||||||||
68
Table of Contents
The table below reflects the reconciliation of Adjusted EBITDA
to net income, the most directly comparable U.S. GAAP
measure, for the periods presented. Interest expense and the
provisions for depreciation and amortization include
discontinued operations. Dollars are in thousands.
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
Adjusted EBITDA Reconciliation:
|
||||||||||||
|
Net income
|
$ | 283,425 | $ | 192,927 | $ | 128,884 | ||||||
|
Interest expense
|
141,059 | 109,772 | 160,960 | |||||||||
|
Income tax expense (benefit)
|
1,306 | 168 | 364 | |||||||||
|
Depreciation and amortization
|
163,045 | 164,923 | 202,543 | |||||||||
|
Stock-based compensation expense
|
8,530 | 9,633 | 11,823 | |||||||||
|
Provision for loan losses
|
94 | 23,261 | 29,684 | |||||||||
|
Loss (gain) on extinguishment of debt
|
(2,094 | ) | 25,107 | 34,171 | ||||||||
|
Adjusted EBITDA
|
$ | 595,365 | $ | 525,791 | $ | 568,429 | ||||||
|
Interest Coverage Ratio:
|
||||||||||||
|
Interest expense
|
$ | 141,059 | $ | 109,772 | $ | 160,960 | ||||||
|
Capitalized interest
|
25,029 | 41,170 | 20,792 | |||||||||
|
Non-cash interest expense
|
(11,231 | ) | (11,898 | ) | (13,945 | ) | ||||||
|
Total interest
|
154,857 | 139,044 | 167,807 | |||||||||
|
Adjusted EBITDA
|
$ | 595,365 | $ | 525,791 | $ | 568,429 | ||||||
|
Adjusted interest coverage ratio
|
3.84 | x | 3.78 | x | 3.39 | x | ||||||
|
Adjusted Fixed Charge Coverage Ratio:
|
||||||||||||
|
Interest expense
|
$ | 141,059 | $ | 109,772 | $ | 160,960 | ||||||
|
Capitalized interest
|
25,029 | 41,170 | 20,792 | |||||||||
|
Non-cash interest expense
|
(11,231 | ) | (11,898 | ) | (13,945 | ) | ||||||
|
Secured debt principal payments
|
8,119 | 9,292 | 16,652 | |||||||||
|
Preferred dividends
|
23,201 | 22,079 | 21,645 | |||||||||
|
Total fixed charges
|
186,177 | 170,415 | 206,104 | |||||||||
|
Adjusted EBITDA
|
$ | 595,365 | $ | 525,791 | $ | 568,429 | ||||||
|
Adjusted fixed charge coverage ratio
|
3.20 | x | 3.09 | x | 2.76 | x | ||||||
69
Table of Contents
The following tables reflect the reconciliation of NOI for the
periods presented. All amounts include amounts from discontinued
operations, if applicable. Our share of revenues and expenses
from unconsolidated joint ventures for life science buildings
are included in medical facilities. Amounts are in thousands.
| Year Ended December 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
|
NOI Reconciliation:
|
||||||||||||
|
Total revenues:
|
||||||||||||
|
Senior housing and care:
|
||||||||||||
|
Rental income:
|
||||||||||||
|
Senior housing facilities
|
$ | 183,411 | $ | 190,684 | $ | 220,383 | ||||||
|
Skilled nursing facilities
|
161,642 | 167,426 | 162,521 | |||||||||
|
Sub-total
|
345,053 | 358,110 | 382,904 | |||||||||
|
Resident fees and services
|
— | — | 51,006 | |||||||||
|
Interest income
|
35,143 | 35,944 | 36,176 | |||||||||
|
Other income
|
5,994 | 5,308 | 3,386 | |||||||||
|
Total senior housing and care revenues
|
386,190 | 399,362 | 473,472 | |||||||||
|
Medical facilities:
|
||||||||||||
|
Rental income
|
||||||||||||
|
Medical office buildings
|
133,332 | 136,834 | 170,435 | |||||||||
|
Hospitals
|
43,796 | 44,967 | 50,071 | |||||||||
|
Life science buildings
|
— | — | 34,002 | |||||||||
|
Sub-total
|
177,128 | 181,801 | 254,508 | |||||||||
|
Interest income
|
4,920 | 4,941 | 4,679 | |||||||||
|
Other income
|
2,835 | 9,369 | 985 | |||||||||
|
Total medical facilities revenues
|
184,883 | 196,111 | 260,172 | |||||||||
|
Corporate other income
|
1,692 | 1,170 | 2,874 | |||||||||
|
Total revenues
|
572,765 | 596,643 | 736,518 | |||||||||
|
Property operating expenses:
|
||||||||||||
|
Senior housing and care
|
— | — | 32,621 | |||||||||
|
Medical facilities:
|
||||||||||||
|
Medical office buildings
|
46,629 | 48,965 | 52,091 | |||||||||
|
Hospitals
|
— | — | 1,753 | |||||||||
|
Life science buildings
|
— | — | 9,707 | |||||||||
|
Sub-total
|
46,629 | 48,965 | 63,551 | |||||||||
|
Total property operating expenses
|
46,629 | 48,965 | 96,172 | |||||||||
|
Net operating income:
|
||||||||||||
|
Senior housing and care
|
386,190 | 399,362 | 440,851 | |||||||||
|
Medical facilities
|
138,254 | 147,146 | 196,621 | |||||||||
|
Non-segment/corporate
|
1,692 | 1,170 | 2,874 | |||||||||
|
Net operating income
|
$ | 526,136 | $ | 547,678 | $ | 640,346 | ||||||
Critical
Accounting Policies
Our consolidated financial statements are prepared in accordance
with U.S. GAAP, which requires us to make estimates and
assumptions. Management considers accounting estimates or
assumptions critical if:
| • | the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and | |
| • | the impact of the estimates and assumptions on financial condition or operating performance is material. |
70
Table of Contents
Management has discussed the development and selection of its
critical accounting policies with the Audit Committee of the
Board of Directors and the Audit Committee has reviewed the
disclosure presented below relating to them. Management believes
the current assumptions and other considerations used to
estimate amounts reflected in our consolidated financial
statements are appropriate and are not reasonably likely to
change in the future. However, since these estimates require
assumptions to be made that were uncertain at the time the
estimate was made, they bear the risk of change. If actual
experience differs from the assumptions and other considerations
used in estimating amounts reflected in our consolidated
financial statements, the resulting changes could have a
material adverse effect on our consolidated results of
operations, liquidity
and/or
financial condition. Please refer to Note 1 of our audited
consolidated financial statements for further information on
significant accounting policies that impact us. There were no
material changes to these policies in 2010.
The following table presents information about our critical
accounting policies, as well as the material assumptions used to
develop each estimate:
|
Nature of Critical
|
Assumptions/
|
|
|
Accounting Estimate
|
Approach Used
|
|
| Principles of Consolidation | ||
| The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of joint ventures in which we own a majority voting interest with the ability to control operations and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. All material intercompany transactions and balances have been eliminated in consolidation. | We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We make judgments with respect to our level of influence or control of an entity and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to, our ability to direct the activities that most significantly impact the entity’s economic performance, our form of ownership interest, our representation on the entity’s governing body, the size and seniority of our investment, our ability and the rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the variable interest entity, our assumptions may be different and may result in the identification of a different primary beneficiary. | |
| Income Taxes | ||
| As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. | Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on the income tax expense recognized. Adjustments to income tax expense may be required as a result of: (i) audits conducted by federal and state tax authorities, (ii) our ability to qualify as a REIT, (iii) the potential for built-in-gain recognized related to prior-tax-free acquisitions of C corporations, and (iv) changes in tax laws. Adjustments required in any given period are included in income. |
71
Table of Contents
|
Nature of Critical
|
Assumptions/
|
|
|
Accounting Estimate
|
Approach Used
|
|
| Impairment of Long-Lived Assets | ||
| We review our long-lived assets for potential impairment in accordance with U.S. GAAP. An impairment charge must be recognized when the carrying value of a long-lived asset is not recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that a permanent impairment of a long-lived asset has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recognized for the difference between the carrying value and the fair value. |
The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if there are indicators of impairment. These indicators may include anticipated operating losses at the property level, the tenant’s inability to make rent payments, a decision to dispose of an asset before the end of its estimated useful life and changes in the market that may permanently reduce the value of the property. If indicators of impairment exist, then the undiscounted future cash flows from the most likely use of the property are compared to the current net book value. This analysis requires us to determine if indicators of impairment exist and to estimate the most likely stream of cash flows to be generated from the property during the period the property is expected to be held.
During the year ended December 31, 2009, an impairment charge of $25,223,000 was recorded to reduce the carrying value of eight medical facilities to their estimated fair value less costs to sell. In determining the fair value of the properties, we used a combination of third party appraisals based on market comparable transactions, other market listings and asset quality as well as management calculations based on projected operating income and published capitalization rates. During the year ended December 31, 2010, we sold 38 properties, including seven of the held for sale medical facilities, for net gains of $36,115,000. At December 31, 2010, we had one medical facility and 16 senior housing facilities that satisfied the requirements for held for sale treatment. During the three months ended September 30, 2010, we recorded an impairment charge of $947,000 related to two of the held for sale medical facilities to adjust the carrying values to estimated fair values less costs to sell based on current sales price expectations. |
|
| Allowance for Loan Losses | ||
| We maintain an allowance for loan losses in accordance with U.S. GAAP. The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of all outstanding loans. If this evaluation indicates that there is a greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status. |
The determination of the allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments and principal. We evaluate the collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying property.
As a result of our quarterly evaluations, we recorded $29,684,000 of provision for loan losses during the year ended December 31, 2010. This amount includes the write-off of loans totaling $33,591,000 primarily related to certain early stage senior housing and CCRC development projects. These related to three separate borrowers where new factors arose that, under the circumstances, resulted in the determination to record the write-offs. This was offset by a net reduction of the allowance balance by $3,907,000, resulting in an allowance for loan losses of $1,276,000 relating to real estate loans with outstanding balances of $9,691,000, all of which were on non-accrual status at December 31, 2010. |
72
Table of Contents
|
Nature of Critical
|
Assumptions/
|
|
|
Accounting Estimate
|
Approach Used
|
|
| Revenue Recognition | ||
| Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectability. If the collectability of revenue is determined incorrectly, the amount and timing of our reported revenue could be significantly affected. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases contain fixed and/or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. We recognize resident fees and services, other than move in fees, monthly as services are provided. Move in fees, which are a component of resident fees and services, are recognized on a straight-line basis over the term of the applicable lease agreement. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice. |
We evaluate the collectability of our revenues and related receivables on an on-going basis. We evaluate collectability based on assumptions and other considerations including, but not limited to, the certainty of payment, payment history, the financial strength of the investment’s underlying operations as measured by cash flows and payment coverages, the value of the underlying collateral and guaranties and current economic conditions.
If our evaluation indicates that collectability is not reasonably assured, we may place an investment on non-accrual or reserve against all or a portion of current income as an offset to revenue. For the year ended December 31, 2010, we recognized $40,855,000 of interest income, $51,006,000 of resident fees and services, and $603,410,000 of rental income, including discontinued operations. For the year ended December 31, 2010, cash receipts on leases with deferred revenue provisions equaled $8,537,000 as compared to gross straight-line rental income recognized of $14,717,000. At December 31, 2010, our straight-line receivable balance was $86,669,000, net of reserves totaling $265,000. Also at December 31, 2010, we had real estate loans with outstanding balances of $9,691,000 on non-accrual status. |
|
| Fair Value of Derivative Instruments | ||
| The valuation of derivative instruments is accounted for in accordance with U.S. GAAP, which requires companies to record derivatives at fair market value on the balance sheet as assets or liabilities. | The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values for our derivatives are estimated by utilizing pricing models that consider forward yield curves and discount rates. Such amounts and their recognition are subject to significant estimates which may change in the future. At December 31, 2010, we participated in one interest rate swap agreement which is reported at its fair value of $482,000 in other liabilities. | |
| Business Combinations | ||
| Real property developed by us is recorded at cost, including the capitalization of construction period interest. The cost of real property acquired is allocated to net tangible and identifiable intangible assets based on their respective fair values. Tangible assets primarily consist of land, buildings and improvements. The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value of in-place leases. The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. |
We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the relative fair value of each component. The most significant components of our allocations are typically the allocation of fair value to the buildings as-if-vacant, land and in-place leases. In the case of the fair value of buildings and the allocation of value to land and other intangibles, our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. Our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases
We compute depreciation and amortization on our properties using the straight-line method based on their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements. Lives for intangibles are based on the remaining term of the underlying leases. For the year ended December 31, 2010, we recorded $144,098,000, $40,147,000 and $18,298,000 as provisions for depreciation and amortization relating to buildings, improvements and intangibles, respectively, including amounts reclassified as discontinued operations. The average useful life of our buildings, improvements and intangibles was 38.2 years, 11.6 years and 6.0 years, respectively, for the year ended December 31, 2010. |
73
Table of Contents
Impact of
Inflation
During the past three years, inflation has not significantly
affected our earnings because of the moderate inflation rate.
Additionally, our earnings are primarily long-term investments
with fixed rates of return. These investments are mainly
financed with a combination of equity, senior unsecured notes
and borrowings under our unsecured line of credit arrangement.
During inflationary periods, which generally are accompanied by
rising interest rates, our ability to grow may be adversely
affected because the yield on new investments may increase at a
slower rate than new borrowing costs. Presuming the current
inflation rate remains moderate and long-term interest rates do
not increase significantly, we believe that inflation will not
impact the availability of equity and debt financing for us.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to various market risks, including the potential
loss arising from adverse changes in interest rates. We seek to
mitigate the effects of fluctuations in interest rates by
matching the terms of new investments with new long-term fixed
rate borrowings to the extent possible. We may or may not elect
to use financial derivative instruments to hedge interest rate
exposure. These decisions are principally based on our policy to
match our variable rate investments with comparable borrowings,
but are also based on the general trend in interest rates at the
applicable dates and our perception of the future volatility of
interest rates. This section is presented to provide a
discussion of the risks associated with potential fluctuations
in interest rates.
We historically borrow on our unsecured line of credit
arrangement to acquire, construct or make loans relating to
health care and senior housing properties. Then, as market
conditions dictate, we will issue equity or long-term fixed rate
debt to repay the borrowings under the unsecured line of credit
arrangement.
A change in interest rates will not affect the interest expense
associated with our fixed rate debt. Interest rate changes,
however, will affect the fair value of our fixed rate debt.
Changes in the interest rate environment upon maturity of this
fixed rate debt could have an effect on our future cash flows
and earnings, depending on whether the debt is replaced with
other fixed rate debt, variable rate debt or equity or repaid by
the sale of assets. To illustrate the impact of changes in the
interest rate markets, we performed a sensitivity analysis on
our fixed rate debt instruments whereby we modeled the change in
net present values arising from a hypothetical 1% increase in
interest rates to determine the instruments’ change in fair
value. The following table summarizes the analysis performed as
of the dates indicated (in thousands):
| December 31, 2010 | December 31, 2009 | |||||||||||||||
|
Principal
|
Change in
|
Principal
|
Change in
|
|||||||||||||
| Balance | Fair Value | Balance | Fair Value | |||||||||||||
|
Senior unsecured notes
|
$ | 3,064,930 | $ | (248,884 | ) | $ | 1,661,853 | $ | (129,350 | ) | ||||||
|
Secured debt
|
1,030,070 | (51,973 | ) | 491,094 | (22,522 | ) | ||||||||||
|
Totals
|
$ | 4,095,000 | $ | (300,857 | ) | $ | 2,152,947 | $ | (151,872 | ) | ||||||
On December 31, 2010, we assumed an interest rate swap (the
“December 2010 Swap”) for a total notional amount of
$12,650,000 to hedge interest payments associated with long-term
LIBOR based borrowings. The December 2010 Swap has an effective
date of December 31, 2010 and a maturity date of
December 31, 2013. The December 2010 Swap has the economic
effect of fixing $12,650,000 at 5.50% plus a credit spread
through the swap’s maturity. In January 2011, the December
2010 Swap was designated as a cash flow hedge and we expect it
to be highly effective at offsetting changes in cash flows of
interest payments on $12,650,000 of long-term debt due to
changes in the LIBOR swap rate.
Our variable rate debt, including our unsecured line of credit
arrangement, is reflected at fair value. At December 31,
2010, we had $300,000,000 outstanding related to our variable
rate line of credit and $103,645,000 outstanding related to our
variable rate secured debt. Assuming no changes in outstanding
balances, a 1% increase in interest rates would result in
increased annual interest expense of $4,036,000. At
December 31, 2009, we had $140,000,000 outstanding related
to our variable rate line of credit and $131,952,000 outstanding
related to our
74
Table of Contents
variable rate secured debt. Assuming no changes in outstanding
balances, a 1% increase in interest rates would have resulted in
increased annual interest expense of $2,720,000.
We are subject to risks associated with debt financing,
including the risk that existing indebtedness may not be
refinanced or that the terms of refinancing may not be as
favorable as the terms of current indebtedness. The majority of
our borrowings were completed under indentures or contractual
agreements that limit the amount of indebtedness we may incur.
Accordingly, in the event that we are unable to raise additional
equity or borrow money because of these limitations, our ability
to acquire additional properties may be limited.
For additional information regarding fair values of financial
instruments, see “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Critical Accounting Policies” and
Note 16 to our audited consolidated financial statements.
75
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of
Health Care REIT, Inc. as of December 31, 2010 and 2009,
and the related consolidated statements of income, equity, and
cash flows for each of the three years in the period ended
December 31, 2010. Our audits also included the financial
statement schedules listed in Item 15(a) (2) of this
Form 10-K.
These financial statements and schedules are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedules
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Health Care REIT, Inc. at
December 31, 2010 and 2009, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Health Care REIT, Inc.’s internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2011 expressed
an unqualified opinion thereon.
/s/
Ernst &
Young LLP
Toledo, Ohio
February 25, 2011
76
Table of Contents
HEALTH
CARE REIT, INC. AND SUBSIDIARIES
|
December 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
ASSETS
|
||||||||
|
Real estate investments:
|
||||||||
|
Real property owned:
|
||||||||
|
Land and land improvements
|
$ | 727,050 | $ | 521,055 | ||||
|
Buildings and improvements
|
7,627,132 | 5,185,328 | ||||||
|
Acquired lease intangibles
|
258,079 | 127,390 | ||||||
|
Real property held for sale, net of accumulated depreciation
|
23,441 | 45,686 | ||||||
|
Construction in progress
|
356,793 | 456,832 | ||||||
|
Gross real property owned
|
8,992,495 | 6,336,291 | ||||||
|
Less accumulated depreciation and amortization
|
(836,966 | ) | (677,851 | ) | ||||
|
Net real property owned
|
8,155,529 | 5,658,440 | ||||||
|
Real estate loans receivable:
|
||||||||
|
Real estate loans receivable
|
436,580 | 427,363 | ||||||
|
Less allowance for losses on loans receivable
|
(1,276 | ) | (5,183 | ) | ||||
|
Net real estate loans receivable
|
435,304 | 422,180 | ||||||
|
Net real estate investments
|
8,590,833 | 6,080,620 | ||||||
|
Other assets:
|
||||||||
|
Equity investments
|
237,107 | 5,816 | ||||||
|
Goodwill
|
51,207 | — | ||||||
|
Deferred loan expenses
|
32,960 | 22,698 | ||||||
|
Cash and cash equivalents
|
131,570 | 35,476 | ||||||
|
Restricted cash
|
79,069 | 23,237 | ||||||
|
Receivables and other assets
|
328,988 | 199,339 | ||||||
|
Total other assets
|
860,901 | 286,566 | ||||||
|
Total assets
|
$ | 9,451,734 | $ | 6,367,186 | ||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Liabilities:
|
||||||||
|
Borrowings under unsecured line of credit arrangement
|
$ | 300,000 | $ | 140,000 | ||||
|
Senior unsecured notes
|
3,034,949 | 1,653,027 | ||||||
|
Secured debt
|
1,125,906 | 620,995 | ||||||
|
Capital lease obligations
|
8,881 | — | ||||||
|
Accrued expenses and other liabilities
|
244,345 | 145,713 | ||||||
|
Total liabilities
|
4,714,081 | 2,559,735 | ||||||
|
Redeemable noncontrolling interests
|
4,553 | — | ||||||
|
Equity:
|
||||||||
|
Preferred stock
|
291,667 | 288,683 | ||||||
|
Common stock
|
147,155 | 123,385 | ||||||
|
Capital in excess of par value
|
4,932,468 | 3,900,666 | ||||||
|
Treasury stock
|
(11,352 | ) | (7,619 | ) | ||||
|
Cumulative net income
|
1,676,196 | 1,547,669 | ||||||
|
Cumulative dividends
|
(2,427,881 | ) | (2,057,658 | ) | ||||
|
Accumulated other comprehensive income
|
(11,099 | ) | (2,891 | ) | ||||
|
Other equity
|
5,697 | 4,804 | ||||||
|
Total Health Care REIT, Inc. stockholders’ equity
|
4,602,851 | 3,797,039 | ||||||
|
Noncontrolling interests
|
130,249 | 10,412 | ||||||
|
Total equity
|
4,733,100 | 3,807,451 | ||||||
|
Total liabilities and equity
|
$ | 9,451,734 | $ | 6,367,186 | ||||
See accompanying notes
77
Table of Contents
HEALTH
CARE REIT, INC. AND SUBSIDIARIES
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues:
|
||||||||||||
|
Rental income
|
$ | 581,424 | $ | 497,419 | $ | 453,941 | ||||||
|
Resident fees and services
|
51,006 | — | — | |||||||||
|
Interest income
|
40,855 | 40,885 | 40,063 | |||||||||
|
Other income
|
7,245 | 7,788 | 10,521 | |||||||||
|
Total revenues
|
680,530 | 546,092 | 504,525 | |||||||||
|
Expenses:
|
||||||||||||
|
Interest expense
|
157,108 | 102,117 | 125,276 | |||||||||
|
Property operating expenses
|
83,120 | 45,896 | 42,634 | |||||||||
|
Depreciation and amortization
|
197,118 | 150,728 | 138,136 | |||||||||
|
General and administrative
|
54,626 | 49,691 | 47,193 | |||||||||
|
Transaction costs
|
46,660 | — | — | |||||||||
|
Realized loss of derivatives
|
— | — | 23,393 | |||||||||
|
Loss (gain) on extinguishment of debt
|
34,171 | 25,107 | (2,094 | ) | ||||||||
|
Provision for loan losses
|
29,684 | 23,261 | 94 | |||||||||
|
Total expenses
|
602,487 | 396,800 | 374,632 | |||||||||
|
Income from continuing operations before income taxes
|
||||||||||||
|
and income from unconsolidated joint ventures
|
78,043 | 149,292 | 129,893 | |||||||||
|
Income tax (expense) benefit
|
(364 | ) | (168 | ) | (1,306 | ) | ||||||
|
Income from unconsolidated joint ventures
|
6,673 | — | — | |||||||||
|
Income from continuing operations
|
84,352 | 149,124 | 128,587 | |||||||||
|
Discontinued operations:
|
||||||||||||
|
Gain (loss) on sales of properties
|
36,115 | 43,394 | 163,933 | |||||||||
|
Impairment of assets
|
(947 | ) | (25,223 | ) | (32,648 | ) | ||||||
|
Income (loss) from discontinued operations, net
|
9,364 | 25,632 | 23,553 | |||||||||
|
Discontinued operations, net
|
44,532 | 43,803 | 154,838 | |||||||||
|
Net income
|
128,884 | 192,927 | 283,425 | |||||||||
|
Less: Preferred stock dividends
|
21,645 | 22,079 | 23,201 | |||||||||
|
Net income (loss) attributable to noncontrolling interests
|
357 | (342 | ) | 126 | ||||||||
|
Net income attributable to common stockholders
|
$ | 106,882 | $ | 171,190 | $ | 260,098 | ||||||
|
Average number of common shares outstanding:
|
||||||||||||
|
Basic
|
127,656 | 114,207 | 93,732 | |||||||||
|
Diluted
|
128,208 | 114,612 | 94,309 | |||||||||
|
Earnings per share:
|
||||||||||||
|
Basic:
|
||||||||||||
|
Income from continuing operations attributable to common
stockholders
|
$ | 0.49 | $ | 1.12 | $ | 1.12 | ||||||
|
Discontinued operations, net
|
0.35 | 0.38 | 1.65 | |||||||||
|
Net income attributable to common stockholders*
|
$ | 0.84 | $ | 1.50 | $ | 2.77 | ||||||
|
Diluted:
|
||||||||||||
|
Income from continuing operations
|
||||||||||||
|
attributable to common stockholders
|
$ | 0.49 | $ | 1.11 | $ | 1.12 | ||||||
|
Discontinued operations, net
|
0.35 | 0.38 | 1.64 | |||||||||
|
Net income attributable to common stockholders*
|
$ | 0.83 | $ | 1.49 | $ | 2.76 | ||||||
| * | Amounts may not sum due to rounding |
See accompanying notes
78
Table of Contents
HEALTH
CARE REIT, INC. AND SUBSIDIARIES
|
Accumulated
|
||||||||||||||||||||||||||||||||||||||||
|
Capital in
|
Other
|
|||||||||||||||||||||||||||||||||||||||
|
Preferred
|
Common
|
Excess of
|
Treasury
|
Cumulative
|
Cumulative
|
Comprehensive
|
Other
|
Noncontrolling
|
||||||||||||||||||||||||||||||||
| Stock | Stock | Par Value | Stock | Net Income | Dividends | Income | Equity | Interests | Total | |||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||
|
Balances at December 31, 2007
|
$ | 330,243 | $ | 85,412 | $ | 2,394,099 | $ | (3,952 | ) | $ | 1,071,101 | $ | (1,446,959 | ) | $ | (7,381 | ) | $ | 2,701 | $ | 9,687 | $ | 2,434,951 | |||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income
|
283,299 | 126 | 283,425 | |||||||||||||||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Unrealized gain (loss) on equity investments
|
(846 | ) | (846 | ) | ||||||||||||||||||||||||||||||||||||
|
Unrecognized SERP actuarial gain (loss)
|
(715 | ) | (715 | ) | ||||||||||||||||||||||||||||||||||||
|
Cash flow hedge activity
|
7,829 | 7,829 | ||||||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
289,693 | |||||||||||||||||||||||||||||||||||||||
|
Contributions by noncontrolling interests
|
3,556 | 3,556 | ||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(2,766 | ) | (2,766 | ) | ||||||||||||||||||||||||||||||||||||
|
Amounts related to issuance of common stock
|
||||||||||||||||||||||||||||||||||||||||
|
from dividend reinvestment and stock
|
||||||||||||||||||||||||||||||||||||||||
|
incentive plans, net of forfeitures
|
1,804 | 76,013 | (1,193 | ) | (99 | ) | 76,525 | |||||||||||||||||||||||||||||||||
|
Net proceeds from sale of common stock
|
16,444 | 695,239 | 711,683 | |||||||||||||||||||||||||||||||||||||
|
Conversion of preferred stock
|
(40,314 | ) | 975 | 39,339 | — | |||||||||||||||||||||||||||||||||||
|
Option compensation expense
|
1,503 | 1,503 | ||||||||||||||||||||||||||||||||||||||
|
Cash dividends paid:
|
||||||||||||||||||||||||||||||||||||||||
|
Common stock cash dividends
|
(253,659 | ) | (253,659 | ) | ||||||||||||||||||||||||||||||||||||
|
Preferred stock cash dividends
|
(23,201 | ) | (23,201 | ) | ||||||||||||||||||||||||||||||||||||
|
Balances at December 31, 2008
|
289,929 | 104,635 | 3,204,690 | (5,145 | ) | 1,354,400 | (1,723,819 | ) | (1,113 | ) | 4,105 | 10,603 | 3,238,285 | |||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income
|
193,269 | (342 | ) | 192,927 | ||||||||||||||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Unrealized gain (loss) on equity investments
|
487 | 487 | ||||||||||||||||||||||||||||||||||||||
|
Unrecognized SERP actuarial gain (loss)
|
277 | 277 | ||||||||||||||||||||||||||||||||||||||
|
Cash flow hedge activity
|
(2,542 | ) | (2,542 | ) | ||||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
191,149 | |||||||||||||||||||||||||||||||||||||||
|
Contributions by noncontrolling interests
|
2,255 | 2,255 | ||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(2,104 | ) | (2,104 | ) | ||||||||||||||||||||||||||||||||||||
|
Amounts related to issuance of common stock
|
||||||||||||||||||||||||||||||||||||||||
|
from dividend reinvestment and stock
|
||||||||||||||||||||||||||||||||||||||||
|
incentive plans, net of forfeitures
|
1,751 | 66,690 | (2,474 | ) | (930 | ) | 65,037 | |||||||||||||||||||||||||||||||||
|
Proceeds from issuance of common shares
|
16,969 | 628,070 | 645,039 | |||||||||||||||||||||||||||||||||||||
|
Conversion of preferred stock
|
(1,246 | ) | 30 | 1,216 | — | |||||||||||||||||||||||||||||||||||
|
Option compensation expense
|
1,629 | 1,629 | ||||||||||||||||||||||||||||||||||||||
|
Cash dividends paid:
|
||||||||||||||||||||||||||||||||||||||||
|
Common stock cash dividends
|
(311,760 | ) | (311,760 | ) | ||||||||||||||||||||||||||||||||||||
|
Preferred stock cash dividends
|
(22,079 | ) | (22,079 | ) | ||||||||||||||||||||||||||||||||||||
|
Balances at December 31, 2009
|
288,683 | 123,385 | 3,900,666 | (7,619 | ) | 1,547,669 | (2,057,658 | ) | (2,891 | ) | 4,804 | 10,412 | 3,807,451 | |||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income
|
128,527 | 357 | 128,884 | |||||||||||||||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Unrealized gain (loss) on equity investments
|
54 | 54 | ||||||||||||||||||||||||||||||||||||||
|
Unrecognized SERP actuarial gain (loss)
|
(199 | ) | (199 | ) | ||||||||||||||||||||||||||||||||||||
|
Cash flow hedge activity
|
(8,063 | ) | (8,063 | ) | ||||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
120,676 | |||||||||||||||||||||||||||||||||||||||
|
Contributions by noncontrolling interests
|
43,640 | 122,781 | 166,421 | |||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(3,301 | ) | (3,301 | ) | ||||||||||||||||||||||||||||||||||||
|
Amounts related to issuance of common stock
|
||||||||||||||||||||||||||||||||||||||||
|
from dividend reinvestment and stock
|
||||||||||||||||||||||||||||||||||||||||
|
incentive plans, net of forfeitures
|
2,300 | 97,696 | (3,733 | ) | (741 | ) | 95,522 | |||||||||||||||||||||||||||||||||
|
Proceeds from issuance of common shares
|
21,131 | 884,255 | 905,386 | |||||||||||||||||||||||||||||||||||||
|
Equity component of convertible debt
|
(9,689 | ) | (9,689 | ) | ||||||||||||||||||||||||||||||||||||
|
Equity consideration in business combinations
|
16,667 | 2,721 | 19,388 | |||||||||||||||||||||||||||||||||||||
|
Redemption of preferred stock
|
(165 | ) | (165 | ) | ||||||||||||||||||||||||||||||||||||
|
Conversion of preferred stock
|
(13,518 | ) | 339 | 13,179 | — | |||||||||||||||||||||||||||||||||||
|
Option compensation expense
|
1,634 | 1,634 | ||||||||||||||||||||||||||||||||||||||
|
Cash dividends paid:
|
||||||||||||||||||||||||||||||||||||||||
|
Common stock cash dividends
|
(348,578 | ) | (348,578 | ) | ||||||||||||||||||||||||||||||||||||
|
Preferred stock cash dividends
|
(21,645 | ) | (21,645 | ) | ||||||||||||||||||||||||||||||||||||
|
Balances at December 31, 2010
|
$ | 291,667 | $ | 147,155 | $ | 4,932,468 | $ | (11,352 | ) | $ | 1,676,196 | $ | (2,427,881 | ) | $ | (11,099 | ) | $ | 5,697 | $ | 130,249 | $ | 4,733,100 | |||||||||||||||||
See accompanying notes
79
Table of Contents
HEALTH
CARE REIT, INC. AND SUBSIDIARIES
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Operating activities
|
||||||||||||
|
Net income
|
$ | 128,884 | $ | 192,927 | $ | 283,425 | ||||||
|
Adjustments to reconcile net income to net cash provided from
(used in) operating activities:
|
||||||||||||
|
Depreciation and amortization
|
202,543 | 164,923 | 163,045 | |||||||||
|
Other amortization expenses
|
17,169 | 15,412 | 14,837 | |||||||||
|
Provision for loan losses
|
29,684 | 23,261 | 94 | |||||||||
|
Impairment of assets
|
947 | 25,223 | 32,648 | |||||||||
|
Stock-based compensation expense
|
11,823 | 9,633 | 8,530 | |||||||||
|
Loss (gain) on extinguishment of debt
|
34,171 | 25,107 | (2,094 | ) | ||||||||
|
Income from unconsolidated joint ventures
|
(6,673 | ) | — | — | ||||||||
|
Rental income less than (in excess of) cash received
|
(6,594 | ) | 11,259 | 7,793 | ||||||||
|
Amortization related to above (below) market leases, net
|
(2,856 | ) | (1,713 | ) | (1,039 | ) | ||||||
|
Loss (gain) on sales of properties
|
(36,115 | ) | (43,394 | ) | (163,933 | ) | ||||||
|
Other income less than (in excess of) cash received
|
— | (5,000 | ) | — | ||||||||
|
Deferred gain on sales of properties
|
— | — | 3,708 | |||||||||
|
Increase (decrease) in accrued expenses and other liabilities
|
12,293 | (311 | ) | 17,363 | ||||||||
|
Decrease (increase) in receivables and other assets
|
(20,535 | ) | (36,068 | ) | (3,694 | ) | ||||||
|
Net cash provided from (used in) operating activities
|
364,741 | 381,259 | 360,683 | |||||||||
|
Investing activities
|
||||||||||||
|
Investment in real property, net of cash acquired
|
(2,074,176 | ) | (598,959 | ) | (1,072,376 | ) | ||||||
|
Capitalized interest
|
(20,792 | ) | (41,170 | ) | (25,029 | ) | ||||||
|
Investment in real estate loans receivable
|
(97,265 | ) | (74,417 | ) | (83,109 | ) | ||||||
|
Other investments, net of payments
|
(133,894 | ) | (22,133 | ) | (21,725 | ) | ||||||
|
Principal collected on real estate loans receivable
|
43,495 | 111,779 | 18,169 | |||||||||
|
Contributions to unconsolidated joint ventures
|
(196,413 | ) | — | — | ||||||||
|
Distributions by unconsolidated joint ventures
|
103 | — | — | |||||||||
|
Decrease (increase) in restricted cash
|
(52,124 | ) | 130,833 | (138,502 | ) | |||||||
|
Proceeds from sales of real property
|
219,027 | 224,007 | 287,047 | |||||||||
|
Net cash provided from (used in) investing activities
|
(2,312,039 | ) | (270,060 | ) | (1,035,525 | ) | ||||||
|
Financing activities
|
||||||||||||
|
Net increase (decrease) under unsecured lines of credit
arrangements
|
160,000 | (430,000 | ) | 263,000 | ||||||||
|
Proceeds from issuance of senior unsecured notes
|
1,821,683 | — | — | |||||||||
|
Payments to extinguish senior unsecured notes
|
(495,542 | ) | (201,048 | ) | (42,330 | ) | ||||||
|
Net proceeds from the issuance of secured debt
|
154,306 | 276,277 | — | |||||||||
|
Payments on secured debt
|
(217,711 | ) | (107,736 | ) | (58,594 | ) | ||||||
|
Net proceeds from the issuance of common stock
|
995,438 | 704,533 | 782,285 | |||||||||
|
Decrease (increase) in deferred loan expenses
|
(3,869 | ) | (7,431 | ) | (348 | ) | ||||||
|
Contributions by noncontrolling interests
|
2,611 | 2,255 | 3,556 | |||||||||
|
Distributions to noncontrolling interests
|
(3,301 | ) | (2,104 | ) | (2,766 | ) | ||||||
|
Cash distributions to stockholders
|
(370,223 | ) | (333,839 | ) | (276,860 | ) | ||||||
|
Net cash provided from (used in) financing activities
|
2,043,392 | (99,093 | ) | 667,943 | ||||||||
|
Increase (decrease) in cash and cash equivalents
|
96,094 | 12,106 | (6,899 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
35,476 | 23,370 | 30,269 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 131,570 | $ | 35,476 | $ | 23,370 | ||||||
|
Supplemental cash flow information:
|
||||||||||||
|
Interest paid
|
$ | 156,207 | $ | 143,697 | $ | 156,914 | ||||||
|
Income taxes paid
|
319 | 854 | 1,789 | |||||||||
See accompanying notes
80
Table of Contents
HEALTH
CARE REIT, INC.
| 1. | Business |
Health Care REIT, Inc., an S&P 500 company with
headquarters in Toledo, Ohio, is an equity real estate
investment trust (“REIT”) that invests in senior
housing and health care real estate. Our full service platform
also offers property management and development services to our
customers. As of December 31, 2010, our diversified
portfolio consisted of 683 properties in 41 states. Founded
in 1970, we were the first real estate investment trust to
invest exclusively in health care facilities. More information
is available on our website at www.hcreit.com.
| 2. | Accounting Policies and Related Matters |
Principles
of Consolidation
The consolidated financial statements include the accounts of
our wholly-owned subsidiaries and joint ventures that we
control, through voting rights or other means. All material
intercompany transactions and balances have been eliminated in
consolidation.
At inception of joint venture transactions, we identify entities
for which control is achieved through means other than voting
rights (“variable interest entities” or
“VIEs”) and determine which business enterprise is the
primary beneficiary of its operations. A variable interest
entity is broadly defined as an entity where either (i) the
equity investors as a group, if any, do not have a controlling
financial interest, or (ii) the equity investment at risk
is insufficient to finance that entity’s activities without
additional subordinated financial support. We consolidate
investments in VIEs when we are determined to be the primary
beneficiary. ASC 810,
Consolidations
, requires
enterprises to perform a qualitative approach to determining
whether or not a VIE will need to be consolidated on a
continuous basis. This evaluation is based on an
enterprise’s ability to direct and influence the activities
of a variable interest entity that most significantly impact
that entity’s economic performance.
For investments in joint ventures, we evaluate the type of
rights held by the limited partner(s), which may preclude
consolidation in circumstances in which the sole general partner
would otherwise consolidate the limited partnership. The
assessment of limited partners’ rights and their impact on
the presumption of control over a limited partnership by the
sole general partner should be made when an investor becomes the
sole general partner and should be reassessed if (i) there
is a change to the terms or in the exercisability of the rights
of the limited partners, (ii) the sole general partner
increases or decreases its ownership in the limited partnership,
or (iii) there is an increase or decrease in the number of
outstanding limited partnership interests. We similarly evaluate
the rights of managing members of limited liability companies.
Use of
Estimates
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles
(“U.S. GAAP”) requires us to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Revenue
Recognition
Revenue is recorded in accordance with U.S. GAAP, which
requires that revenue be recognized after four basic criteria
are met. These four criteria include persuasive evidence of an
arrangement, the rendering of service, fixed and determinable
income and reasonably assured collectability. Interest income on
loans is recognized as earned based upon the principal amount
outstanding subject to an evaluation of collectability risk.
Substantially all of our operating leases contain either fixed
or contingent escalating rent structures. Leases with fixed
annual rental escalators are generally recognized on a
straight-line basis over the initial lease period, subject to a
collectability assessment. Rental income related to leases with
contingent rental escalators is generally recorded based on the
contractual cash rental payments due for the period. We
recognize resident fees and services, other than move in fees,
monthly as services are provided. Move in fees, which are a
component of resident fees and services, are
81
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
recognized on a straight-line basis over the term of the
applicable lease agreement. Lease agreements with residents
generally have a term of one year and are cancelable by the
resident with 30 days’ notice.
Cash
and Cash Equivalents
Cash and cash equivalents consist of all highly liquid
investments with an original maturity of three months or less.
Restricted
Cash
Restricted cash primarily consists of amounts held by lenders to
provide future payments for real estate taxes, insurance, tenant
and capital improvements and amounts held in escrow relating to
acquisitions we are entitled to receive over a period of time as
outlined in the escrow agreement.
Deferred
Loan Expenses
Deferred loan expenses are costs incurred by us in connection
with the issuance, assumption and amendments of debt
arrangements. We amortize these costs over the term of the debt
using the straight-line method, which approximates the effective
interest method.
Equity
Investments
Equity investments at December 31, 2010 and 2009 include an
investment in a public company that has a readily determinable
fair market value. We classify this equity investment as
available-for-sale
and, accordingly, record this investment at its fair market
value with unrealized gains and losses included in accumulated
other comprehensive income, a separate component of
stockholders’ equity. Equity investments at
December 31, 2010 and 2009 also include an investment in a
private company. We do not have the ability to exercise
influence over the company, so the investment is accounted for
under the cost method. Under the cost method of accounting,
investments in private companies are carried at cost and are
adjusted only for
other-than-temporary
declines in fair value, return of capital and additional
investments. These equity investments represented a minimal
ownership interest in these companies. Additionally, equity
investments include investments in unconsolidated joint ventures.
Investments
in Unconsolidated Joint Ventures
Investments in less than majority owned entities where our
interests represent a general partnership interest but
substantive participating rights or substantive kick-out rights
have been granted to the limited partners, or where our
interests do not represent the general partnership interest and
we do not control the major operating and financial policies of
the entity, are reported under the equity method of accounting.
Under the equity method of accounting, our share of the
investee’s earnings or losses is included in our
consolidated results of operations. To the extent that the
Company’s cost basis is different from the basis reflected
at the joint venture level, the basis difference is generally
amortized over the lives of the related assets and liabilities,
and such amortization is included in the Company’s share of
equity in earnings of the joint venture. The initial carrying
value of investments in unconsolidated joint ventures is based
on the amount paid to purchase the joint venture interest or the
estimated fair value of the assets prior to the sale of
interests in the joint venture. We evaluate our equity method
investments for impairment based upon a comparison of the
estimated fair value of the equity method investment to its
carrying value. When we determine a decline in the estimated
fair value of such an investment below its carrying value is
other-than-temporary,
an impairment is recorded.
Redeemable
Noncontrolling Interests
Certain noncontrolling interests are redeemable at fair value at
December 31, 2010. Accordingly, we record the carrying
amount of the noncontrolling interests at the greater of
(i) the initial carrying amount, increased or
82
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
decreased for the noncontrolling interest’s share of net
income or loss and its share of other comprehensive income or
loss and dividends or (ii) the redemption value. In
accordance with ASC 810, the redeemable noncontrolling
interests were classified outside of permanent equity, as a
mezzanine item, in the balance sheet.
Real
Property Owned
Real property developed by us is recorded at cost, including the
capitalization of construction period interest. The cost of real
property acquired is allocated to net tangible and identifiable
intangible assets based on their respective fair values. These
properties are depreciated on a straight-line basis over their
estimated useful lives which range from 15 to 40 years for
buildings and five to 15 years for improvements. Tangible
assets primarily consist of land, buildings and improvements. We
consider costs incurred in conjunction with re-leasing
properties, including tenant improvements and lease commissions,
to represent the acquisition of productive assets and,
accordingly, such costs are reflected as investment activities
in our statement of cash flows.
The remaining purchase price is allocated among identifiable
intangible assets primarily consisting of the above or below
market component of in-place leases and the value of in-place
leases. The value allocable to the above or below market
component of the acquired in-place lease is determined based
upon the present value (using a discount rate which reflects the
risks associated with the acquired leases) of the difference
between (i) the contractual amounts to be paid pursuant to
the lease over its remaining term, and
(ii) management’s estimate of the amounts that would
be paid using fair market rates over the remaining term of the
lease. The amounts allocated to above market leases are included
in acquired lease intangibles and below market leases are
included in other liabilities in the balance sheet and are
amortized to rental income over the remaining terms of the
respective leases.
The total amount of other intangible assets acquired is further
allocated to in-place lease values and customer relationship
values based on management’s evaluation of the specific
characteristics of each tenant’s lease and the
Company’s overall relationship with that respective tenant.
Characteristics considered by management in allocating these
values include the nature and extent of the Company’s
existing business relationships with the tenant, growth
prospects for developing new business with the tenant, the
tenant’s credit quality and expectations of lease renewals,
among other factors. The estimated aggregate amortization
expense for acquired lease intangibles is expected to be
recognized over a weighted average period of 18.2 years and
is as follows for the periods indicated (in thousands):
|
2011
|
$ | 48,613 | ||
|
2012
|
30,828 | |||
|
2013
|
14,194 | |||
|
2014
|
9,831 | |||
|
2015
|
8,618 | |||
|
Thereafter
|
96,851 | |||
|
Totals
|
$ | 208,935 | ||
The net book value of long-lived assets is reviewed quarterly on
a property by property basis to determine if facts and
circumstances suggest that the assets may be impaired or that
the depreciable life may need to be changed. We consider
external factors relating to each asset and the existence of a
master lease which may link the cash flows of an individual
asset to a larger portfolio of assets leased to the same tenant.
If these factors and the projected undiscounted cash flows of
the asset over the remaining depreciation period indicate that
the asset will not be recoverable, the carrying value is reduced
to the estimated fair market value. In addition, we are exposed
to the risks inherent in concentrating investments in real
estate, and in particular, the senior housing and health care
industries. A downturn in the real estate industry could
adversely affect the value of our properties and our ability to
sell properties for a price or on terms acceptable to us.
83
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Capitalization
of Construction Period Interest
We capitalize interest costs associated with funds used to
finance the construction of properties owned directly by us. The
amount capitalized is based upon the balance outstanding during
the construction period using the rate of interest which
approximates our cost of financing. We capitalized interest
costs of $20,792,000, $41,170,000, and $25,029,000 during 2010,
2009 and 2008, respectively, related to construction of real
property owned by us. Our interest expense reflected in the
consolidated statements of income has been reduced by the
amounts capitalized.
Gain
on Sale of Assets
We recognize sales of assets only upon the closing of the
transaction with the purchaser. Payments received from
purchasers prior to closing are recorded as deposits and
classified as other assets on our Consolidated Balance Sheets.
Gains on assets sold are recognized using the full accrual
method upon closing when (i) the collectability of the
sales price is reasonably assured, (ii) we are not
obligated to perform significant activities after the sale to
earn the profit, (iii) we have received adequate initial
investment from the buyer and (iv) other profit recognition
criteria have been satisfied. Gains may be deferred in whole or
in part until the sales satisfy the requirements of gain
recognition on sales of real estate.
Real
Estate Loans Receivable
Real estate loans receivable consist of mortgage loans and other
real estate loans. Interest income on loans is recognized as
earned based upon the principal amount outstanding subject to an
evaluation of collectability risks. The loans are primarily
collateralized by a first, second or third mortgage lien, a
leasehold mortgage on, or an assignment of the partnership
interest in, the related properties, corporate guaranties
and/or
personal guaranties.
Allowance
for Losses on Loans Receivable
The allowance for losses on loans receivable is maintained at a
level believed adequate to absorb potential losses in our loans
receivable. The determination of the allowance is based on a
quarterly evaluation of these loans, including general economic
conditions and estimated collectability of loan payments. We
evaluate the collectability of our loans receivable based on a
combination of factors, including, but not limited to,
delinquency status, historical loan charge-offs, financial
strength of the borrower and guarantors and value of the
underlying collateral. If such factors indicate that there is
greater risk of loan charge-offs, additional allowances or
placement on non-accrual status may be required. A loan is
impaired when, based on current information and events, it is
probable that we will be unable to collect all amounts due as
scheduled according to the contractual terms of the original
loan agreement. Consistent with this definition, all loans on
non-accrual are deemed impaired. At December 31, 2010, we
had loans with outstanding balances of $9,691,000 on non-accrual
status ($67,126,000 at December 31, 2009). To the extent
circumstances improve and the risk of collectability is
diminished, we will return these loans to full accrual status.
While a loan is on non-accrual status, any cash receipts are
applied against the outstanding principal balance.
Goodwill
We account for goodwill in accordance with U.S. GAAP.
Goodwill is tested annually for impairment and is tested for
impairment more frequently if events and circumstances indicate
that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount, including
goodwill, exceeds the reporting unit’s fair value and the
implied fair value of goodwill is less than the carrying amount
of that goodwill.
Fair
Value of Derivative Instruments
The valuation of derivative instruments requires us to make
estimates and judgments that affect the fair value of the
instruments. Fair values for our derivatives are estimated by
utilizing pricing models that consider forward
84
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
yield curves and discount rates. Such amounts and the
recognition of such amounts are subject to significant estimates
that may change in the future. See Note 11 for additional
information.
Federal
Income Tax
No provision has been made for federal income taxes since we
have elected to be treated as a real estate investment trust
under the applicable provisions of the Internal Revenue Code,
and we believe that we have met the requirements for
qualification as such for each taxable year. Our taxable REIT
subsidiaries are subject to federal, state and local income
taxes. See Note 18 for additional information.
Earnings
Per Share
Basic earnings per share is computed by dividing net income
available to common stockholders by the weighted-average number
of shares outstanding for the period adjusted for non-vested
shares of restricted stock. The computation of diluted earnings
per share is similar to basic earnings per share, except that
the number of shares is increased to include the number of
additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued.
New
Accounting Standards
In June 2009, the Financial Accounting Standards Board
(“FASB”) amended the consolidation guidance for
variable interest entities. The new guidance, to be applied on a
continuous basis, requires enterprises to perform a qualitative
approach to determining whether or not a variable interest
entity will need to be consolidated. This evaluation is based on
an enterprise’s ability to direct and influence the
activities of a variable interest entity that most significantly
impact its economic performance. This amendment became effective
as of January 1, 2010. The adoption of this guidance did
not have a material impact on our consolidated financial
position or results of operations.
In July 2010, the FASB issued Accounting Standards Update
No. 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses
(“ASU
2010-20”).
This update expands the required disclosures regarding the
credit quality of our financing receivables, how risk is
analyzed and assessed in arriving at the allowance for credit
losses, and the changes (and reasons for the changes) in the
allowance for credit losses. Both new and existing disclosures
must be disaggregated by portfolio segment and class. The
disaggregation of information is based on the level at which an
entity develops and documents a systematic method for
determining its allowance for credit losses. This update is
effective for interim periods and fiscal years ending after
December 15, 2010. The adoption of this guidance did not
have a material impact on our consolidated financial position or
results of operations.
Reclassifications
Certain amounts in prior years have been reclassified to conform
to current year presentation.
| 3. | Real Property Acquisitions and Development |
Senior
Housing Operating Partnerships
Merrill
Gardens Partnership
During the three months ended September 30, 2010, we
completed the formation of our partnership with Merrill Gardens
LLC to own and operate a portfolio of 38 combination senior
housing and care communities located primarily in West Coast
markets. We own an 80% partnership interest and Merrill Gardens
owns the remaining 20% interest and continues to manage the
communities. The partnership owns and operates 13 communities
previously owned by us and 25 additional communities previously
owned by Merrill Gardens.
85
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The transaction took advantage of the structure authorized by
the REIT Investment Diversification and Empowerment Act of 2007
(“RIDEA”). (See Note 18 for additional discussion
of RIDEA.) The results of operations for this partnership have
been included in our consolidated results of operations
beginning as of September 1, 2010 and are a component of
our senior housing and care segment. Consolidation is based on a
combination of ownership interest and control of operational
decision-making authority.
In conjunction with the formation of the partnership, we
contributed $254,885,000 of cash and the 13 properties
previously owned by us, and the partnership assumed the secured
debt relating to these properties. Merrill Gardens contributed
the remaining 25 properties to the partnership and the secured
debt relating to these properties in exchange for their 20%
interest in the partnership. The 13 properties are recorded at
their historical carrying values and the noncontrolling interest
was established based on such values. The difference between the
fair value of the consideration received relating to these
properties and the historical allocation of the 20%
noncontrolling interest was recorded in capital in excess of par
value. The total purchase price for the 25 communities acquired
have been allocated to the tangible and identifiable intangible
assets and liabilities based upon their respective fair values
in accordance with the Company’s accounting policies. Such
allocations have not been finalized as we await final asset
valuations and, as such, the allocation of the purchase
consideration included in the accompanying Consolidated Balance
Sheet at December 31, 2010 is preliminary and subject to
adjustment. The 20% noncontrolling interest relating to the
acquired 25 properties is also reflected at estimated fair
value. The weighted average useful life of the acquired
intangibles was 1.9 years. The following table presents the
preliminary allocation of the purchase price to assets and
liabilities assumed, based on their estimated fair values (in
thousands):
|
Land and land improvements
|
$ | 64,050 | ||
|
Buildings and improvements
|
476,817 | |||
|
Acquired lease intangibles
|
45,036 | |||
|
Cash and cash equivalents
|
4,777 | |||
|
Restricted cash
|
3,707 | |||
|
Receivables and other assets
|
13,459 | |||
|
Total assets acquired
|
607,846 | |||
|
Secured debt
|
234,431 | |||
|
Accrued expenses and other liabilities
|
3,316 | |||
|
Total liabilities assumed
|
237,747 | |||
|
Capital in excess of par
|
41,423 | |||
|
Noncontrolling interests
|
79,775 | |||
|
Net assets acquired
|
$ | 248,901 | ||
Senior
Star Partnership
During the three months ended December 31, 2010, we
completed the formation of our partnership with Senior Star
Living to own and operate a portfolio of nine combination senior
housing and care communities located primarily in six states. We
own a 90% partnership interest and Senior Star owns the
remaining 10% interest and continues to manage the communities.
The partnership owns and operates two communities previously
owned by us and seven additional communities previously owned by
Senior Star. The transaction took advantage of the structure
authorized by RIDEA. (See Note 18 for additional discussion
of RIDEA.) The results of operations for this partnership have
been included in our consolidated results of operations
beginning as of December 30, 2010 and are a component of
our senior housing and care segment. Consolidation is based on a
combination of ownership interest and control of operational
decision-making authority.
86
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In conjunction with the formation of the partnership, we
contributed $152,270,000 of cash and the two properties
previously owned by us. Senior Star contributed the remaining
seven properties to the partnership and the secured debt
relating to these properties in exchange for their 10% interest
in the partnership. The two properties are recorded at their
historical carrying values and the noncontrolling interest was
established based on such values. The difference between the
fair value of the consideration received relating to these
properties and the historical allocation of the 10%
noncontrolling interest was recorded in capital in excess of par
value. The total purchase price for the seven communities
acquired has been allocated to the tangible and identifiable
intangible assets and liabilities based upon their respective
fair values in accordance with the Company’s accounting
policies. Such allocations have not been finalized as we await
final asset valuations and, as such, the allocation of the
purchase consideration included in the accompanying Consolidated
Balance Sheet at December 31, 2010 is preliminary and
subject to adjustment. The 10% noncontrolling interest relating
to the acquired seven properties is also reflected at estimated
fair value. The weighted average useful life of the acquired
intangibles was 2.08 years. The following table presents
the preliminary allocation of the purchase price to assets and
liabilities assumed, based on their estimated fair values (in
thousands):
|
Land and land improvements
|
$ | 11,570 | ||
|
Buildings and improvements
|
210,094 | |||
|
Acquired lease intangibles
|
18,721 | |||
|
Cash and cash equivalents
|
3,756 | |||
|
Restricted cash
|
391 | |||
|
Receivables and other assets
|
940 | |||
|
Total assets acquired
|
245,472 | |||
|
Secured debt
|
70,736 | |||
|
Accrued expenses and other liabilities
|
3,533 | |||
|
Total liabilities assumed
|
74,269 | |||
|
Capital in excess of par
|
2,218 | |||
|
Noncontrolling interests
|
27,902 | |||
|
Net assets acquired
|
$ | 141,083 | ||
The following unaudited pro forma consolidated results of
operations have been prepared as if the senior housing operating
partnerships had occurred as of January 1, 2009 based on
the preliminary purchase price allocations discussed above. The
pro forma results reflect the significant impact of the
aforementioned RIDEA transactions on the Company’s
consolidated revenues. Amounts are in thousands, except per
share data:
| Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Revenues
|
$ | 794,492 | $ | 698,717 | ||||
|
Income from continuing operations attributable to common
stockholders
|
$ | 56,031 | $ | 99,216 | ||||
|
Income from continuing operations attributable to common
stockholders per share:
|
||||||||
|
Basic
|
$ | 0.44 | $ | 0.87 | ||||
|
Diluted
|
$ | 0.44 | $ | 0.87 | ||||
Strategic
Medical Office Partnership
On December 31, 2010, we formed a strategic partnership
with a national medical office building company
(“MOBJV”) whereby the partnership invested in 17
medical office properties. We own a controlling interest in 11
properties and consolidate them. Consolidation is based on a
combination of ownership interest and control of
87
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
operational decision-making authority. We do not own a
controlling interest in six properties and account for them
under the equity method. Our investment in the strategic
partnership provides us access to health systems and includes
development and property management resources. The results of
operations for this partnership have been included in our
consolidated results of operations beginning as of
December 31, 2010 and are a component of our medical
facilities segment.
In conjunction with the formation of the partnership, we
contributed $225,173,000 of cash, convertible preferred stock
valued at $16,667,000, options valued at $2,721,000 and a note
payable of $8,333,000 with an interest rate of 6%. MOBJV
contributed the properties to the partnership and the secured
debt relating to these properties in exchange for their
ownership interest in the partnership. The partnership contains
certain contingent consideration arrangements ranging from $0 to
$35,008,000. Amounts to be paid are contingent upon certain
occupancy and development project performance thresholds. Of
this amount, we recognized $19,453,000 as an estimate of
additional purchase consideration based on the probability
amounts will be paid by the expiration date of the commitments.
Of the remaining $15,555,000 that was not recognized,
$12,500,000 would be required to be settled in the
Company’s common stock if certain performance thresholds,
which we did not deem probable, are met. The total purchase
price for the assets acquired by the partnership has been
allocated to the tangible and identifiable intangible assets and
liabilities based upon their respective fair values in
accordance with the Company’s accounting policies. Goodwill
represents the future development pipeline expected to be
generated by the principles. Cash flows from this future
pipeline are expected to come from development activities and
the ability to perform the management functions at the assets
after the properties are developed. Such allocations have not
been finalized as we await final asset valuations and, as such,
the allocation of the purchase consideration included in the
accompanying Consolidated Balance Sheet at December 31,
2010 is preliminary and subject to adjustment. The
noncontrolling interest relating to the properties is also
reflected at estimated fair value. The weighted average useful
life of the acquired intangibles was 26.2 years. The
following table presents the preliminary allocation of the
purchase price to assets and liabilities assumed, based on their
estimated fair values (in thousands):
|
Land and land improvements
|
$ | 10,240 | ||
|
Buildings and improvements
|
171,014 | |||
|
Acquired lease intangibles
|
41,519 | |||
|
Investment in unconcolidated joint venture
|
21,321 | |||
|
Goodwill
|
51,207 | |||
|
Other acquired intangibles
|
43,439 | |||
|
Cash and cash equivalents
|
3,873 | |||
|
Restricted cash
|
107 | |||
|
Receivables and other assets
|
5,390 | |||
|
Total assets acquired
|
348,110 | |||
|
Secured debt
|
61,664 | |||
|
Below market lease intangibles
|
4,189 | |||
|
Accrued expenses and other liabilities
|
26,848 | |||
|
Total liabilities assumed
|
92,701 | |||
|
Redeemable noncontrolling interests
|
4,553 | |||
|
Preferred stock
|
16,667 | |||
|
Capital in excess of par
|
2,721 | |||
|
Noncontrolling interests
|
6,295 | |||
|
Net assets acquired
|
$ | 225,173 | ||
88
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Real
Property Investment Activity
The following is a summary of our real property investment
activity for the periods presented (in thousands):
| Year Ended | ||||||||||||||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||||||
|
Senior
|
Senior
|
Senior
|
||||||||||||||||||||||||||||||||||
|
Housing
|
Medical
|
Housing
|
Medical
|
Housing
|
Medical
|
|||||||||||||||||||||||||||||||
| and Care | Facilities | Totals | and Care | Facilities | Totals | and Care | Facilities | Totals | ||||||||||||||||||||||||||||
|
Real property acquisitions:
|
||||||||||||||||||||||||||||||||||||
|
Senior housing — operating
|
$ | 816,000 | $ | 816,000 | $ | — | $ | — | ||||||||||||||||||||||||||||
|
Senior housing — triple net(1)
|
1,011,229 | 1,011,229 | — | $ | 113,790 | 113,790 | ||||||||||||||||||||||||||||||
|
Skilled nursing facilities
|
17,300 | 17,300 | $ | 11,650 | 11,650 | 11,360 | 11,360 | |||||||||||||||||||||||||||||
|
Hospitals
|
— | $ | 20,500 | 20,500 | $ | 196,303 | 196,303 | |||||||||||||||||||||||||||||
|
Medical office buildings
|
$ | 626,414 | 626,414 | 35,523 | 35,523 | 121,809 | 121,809 | |||||||||||||||||||||||||||||
|
Land parcels
|
4,300 | 4,300 | — | 10,000 | 10,000 | |||||||||||||||||||||||||||||||
|
Total acquisitions
|
1,844,529 | 630,714 | 2,475,243 | 11,650 | 56,023 | 67,673 | 135,150 | 318,112 | 453,262 | |||||||||||||||||||||||||||
|
Less: Assumed debt
|
(389,253 | ) | (170,255 | ) | (559,508 | ) | — | — | ||||||||||||||||||||||||||||
|
Assumed other items, net
|
(171,389 | ) | (36,925 | ) | (208,314 | ) | — | (1,899 | ) | (1,899 | ) | |||||||||||||||||||||||||
|
Cash disbursed for acquisitions
|
1,283,887 | 423,534 | 1,707,421 | 11,650 | 56,023 | 67,673 | 135,150 | 316,213 | 451,363 | |||||||||||||||||||||||||||
|
Construction in progress additions:
|
||||||||||||||||||||||||||||||||||||
|
Senior housing — triple net
|
85,993 | 85,993 | 310,310 | 310,310 | 419,622 | 419,622 | ||||||||||||||||||||||||||||||
|
Skilled nursing facilities
|
— | — | 23,262 | 23,262 | 29,429 | 29,429 | ||||||||||||||||||||||||||||||
|
Hospitals
|
123,033 | 123,033 | 113,907 | 113,907 | 77,642 | 77,642 | ||||||||||||||||||||||||||||||
|
Medical office buildings
|
129,561 | 129,561 | 107,853 | 107,853 | 93,907 | 93,907 | ||||||||||||||||||||||||||||||
|
Total construction in progress additions
|
85,993 | 252,594 | 338,587 | 333,572 | 221,760 | 555,332 | 449,051 | 171,549 | 620,600 | |||||||||||||||||||||||||||
|
Less: Capitalized interest
|
(6,396 | ) | (13,924 | ) | (20,320 | ) | (28,474 | ) | (12,495 | ) | (40,969 | ) | (20,312 | ) | (4,717 | ) | (25,029 | ) | ||||||||||||||||||
|
Capitalized other
|
— | — | — | — | (119 | ) | (119 | ) | ||||||||||||||||||||||||||||
|
Accruals(2)
|
— | (11,435 | ) | (11,435 | ) | (21,466 | ) | (21,466 | ) | — | ||||||||||||||||||||||||||
|
Cash disbursed for construction in progress
|
79,597 | 227,235 | 306,832 | 305,098 | 187,799 | 492,897 | 428,620 | 166,832 | 595,452 | |||||||||||||||||||||||||||
|
Capital improvements to existing properties
|
23,568 | 36,355 | 59,923 | 18,326 | 20,063 | 38,389 | 13,329 | 12,232 | 25,561 | |||||||||||||||||||||||||||
|
Total cash invested in real property
|
$ | 1,387,052 | $ | 687,124 | $ | 2,074,176 | $ | 335,074 | $ | 263,885 | $ | 598,959 | $ | 577,099 | $ | 495,277 | $ | 1,072,376 | ||||||||||||||||||
| (1) | Includes $612,598,000 acquisition of a portfolio of 19 senior housing facilities that closed in December 2010 .The allocation of the purchase consideration is preliminary and subject to adjustment. | |
| (2) | Represents non-cash accruals for amounts to be paid in future periods relating to properties that converted in the period noted above. |
The following is a summary of the construction projects that
were placed into service and began generating revenues during
the periods presented:
| Year Ended | ||||||||||||||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||||||
|
Senior
|
Senior
|
Senior
|
||||||||||||||||||||||||||||||||||
|
Housing
|
Medical
|
Housing
|
Medical
|
Housing
|
Medical
|
|||||||||||||||||||||||||||||||
| and Care | Facilities | Totals | and Care | Facilities | Totals | and Care | Facilities | Totals | ||||||||||||||||||||||||||||
|
Development projects:
|
||||||||||||||||||||||||||||||||||||
|
Senior housing facilities
|
$ | 273,034 | $ | 273,034 | $ | 505,137 | $ | 505,137 | $ | 190,044 | $ | 190,044 | ||||||||||||||||||||||||
|
Skilled nursing facilities
|
— | — | 45,367 | 45,367 | 16,918 | 16,918 | ||||||||||||||||||||||||||||||
|
Hospitals
|
$ | 96,829 | 96,829 | — | $ | 35,151 | 35,151 | |||||||||||||||||||||||||||||
|
Medical office buildings
|
65,547 | 65,547 | $ | 183,127 | 183,127 | 11,823 | 11,823 | |||||||||||||||||||||||||||||
|
Total development projects
|
273,034 | 162,376 | 435,410 | 550,504 | 183,127 | 733,631 | 206,962 | 46,974 | 253,936 | |||||||||||||||||||||||||||
|
Expansion projects
|
3,216 | — | 3,216 | 4,288 | — | 4,288 | 40,954 | — | 40,954 | |||||||||||||||||||||||||||
|
Total construction in progress conversions
|
$ | 276,250 | $ | 162,376 | $ | 438,626 | $ | 554,792 | $ | 183,127 | $ | 737,919 | $ | 247,916 | $ | 46,974 | $ | 294,890 | ||||||||||||||||||
89
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Transaction costs for the year ended December 31, 2010
primarily represent costs incurred with the senior housing
operating partnerships (including due diligence costs, fees for
legal and valuation services, and termination of pre-existing
relationships computed based on the fair value of the assets
acquired), lease termination fees and costs incurred in
connection with the new property acquisitions.
We purchased $23,097,000 of real property that had previously
been financed by the Company with loans in 2008. This non-cash
activity is appropriately not reflected in the accompanying
statements of cash flows.
At December 31, 2010, future minimum lease payments
receivable under operating leases (excluding properties in our
senior housing operating partnerships) are as follows (in
thousands):
|
2011
|
$ | 610,295 | ||
|
2012
|
604,731 | |||
|
2013
|
591,676 | |||
|
2014
|
538,787 | |||
|
2015
|
526,783 | |||
|
Thereafter
|
3,403,370 | |||
|
Totals
|
$ | 6,275,642 | ||
| 4. | Real Estate Intangibles |
The following is a summary of our real estate intangibles,
excluding those classified as held for sale, as of the dates
indicated (dollars in thousands):
| December 31, 2010 | December 31, 2009 | |||||||
|
Assets:
|
||||||||
|
In place lease intangibles
|
$ | 182,030 | $ | 74,198 | ||||
|
Above market tenant leases
|
24,089 | 10,232 | ||||||
|
Below market ground leases
|
46,992 | 39,806 | ||||||
|
Lease commissions
|
4,968 | 3,154 | ||||||
|
Gross historical cost
|
258,079 | 127,390 | ||||||
|
Accumulated amortization
|
(49,145 | ) | (29,698 | ) | ||||
|
Net book value
|
$ | 208,934 | $ | 97,692 | ||||
|
Weighted-average amortization period in years
|
18.2 | 30.0 | ||||||
|
Liabilities:
|
||||||||
|
Below market tenant leases
|
$ | 57,261 | $ | 22,961 | ||||
|
Above market ground leases
|
5,020 | 4,084 | ||||||
|
Gross historical cost
|
62,281 | 27,045 | ||||||
|
Accumulated amortization
|
(15,992 | ) | (10,478 | ) | ||||
|
Net book value
|
$ | 46,289 | $ | 16,567 | ||||
|
Weighted-average amortization period in years
|
14.0 | 12.1 | ||||||
| 5. | Dispositions, Assets Held for Sale and Discontinued Operations |
During the year ended December 31, 2008, we sold 38
properties for net gains of $163,933,000. At December 31,
2008, we had 15 medical facilities that were held for sale and
we recorded an impairment charge
90
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of $32,648,000 to reduce the carrying values of certain
properties to their estimated fair values less costs to sell.
During the year ended December 31, 2009, we sold 36
properties for net gains of $43,394,000. At December 31,
2009, we had two skilled nursing facilities and eight medical
facilities held for sale and recorded an impairment charge of
$25,223,000 to reduce the medical office buildings to their
estimated fair values less costs to sell. In determining the
fair value of the held for sale properties, we used a
combination of third party appraisals based on market comparable
transactions, other market listings and asset quality as well as
management calculations based on projected operating income and
published capitalization rates. During the year ended
December 31, 2010, we sold 38 properties, including seven
of the held for sale medical facilities, for net gains of
$36,115,000. At December 31, 2010, we had one medical
facility and 16 senior housing facilities that satisfied the
requirements for held for sale treatment and such properties
were properly recorded at the lesser of their estimated fair
values less costs to sell or carrying values. During the year
ended December 31, 2010, we recorded an impairment charge
of $947,000 related to two of the held for sale medical
facilities to adjust the carrying values to estimated fair
values less costs to sell based on current sales price
expectations. The following is a summary of our real property
disposition activity for the periods presented (in thousands):
| Year Ended | ||||||||||||||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||||||
|
Senior
|
Senior
|
Senior
|
||||||||||||||||||||||||||||||||||
|
Housing
|
Medical
|
Housing
|
Medical
|
Housing
|
Medical
|
|||||||||||||||||||||||||||||||
| and Care | Facilities | Totals | and Care | Facilities | Totals | and Care | Facilities | Totals | ||||||||||||||||||||||||||||
|
Real property dispositions:
|
||||||||||||||||||||||||||||||||||||
|
Senior housing facilities
|
$ | 3,438 | $ | $ | 3,438 | $ | 55,320 | $ | $ | 55,320 | $ | 163,622 | $ | $ | 163,622 | |||||||||||||||||||||
|
Skilled nursing facilities
|
166,852 | 166,852 | 45,835 | 45,835 | 6,290 | 6,290 | ||||||||||||||||||||||||||||||
|
Hospitals
|
— | — | 40,841 | 40,841 | 8,735 | 8,735 | ||||||||||||||||||||||||||||||
|
Medical office buildings
|
14,092 | 14,092 | 44,717 | 44,717 | 6,781 | 6,781 | ||||||||||||||||||||||||||||||
|
Land parcels
|
— | — | — | 73 | 73 | |||||||||||||||||||||||||||||||
|
Total dispositions
|
170,290 | 14,092 | 184,382 | 101,155 | 85,558 | 186,713 | 169,985 | 15,516 | 185,501 | |||||||||||||||||||||||||||
|
Add: Gain (loss) on sales of real property
|
36,274 | (159 | ) | 36,115 | 32,084 | 11,310 | 43,394 | 151,457 | 12,476 | 163,933 | ||||||||||||||||||||||||||
|
LandAmerica settlement
|
— | — | — | — | 2,500 | 2,500 | ||||||||||||||||||||||||||||||
|
Extinguishment of other assets (liabilities)
|
— | — | — | — | (116 | ) | (116 | ) | ||||||||||||||||||||||||||||
|
Seller financing on sales of real property
|
— | (1,470 | ) | (1,470 | ) | (6,100 | ) | (6,100 | ) | (59,649 | ) | (5,122 | ) | (64,771 | ) | |||||||||||||||||||||
|
Proceeds from real property sales
|
$ | 206,564 | $ | 12,463 | $ | 219,027 | $ | 133,239 | $ | 90,768 | $ | 224,007 | $ | 264,293 | $ | 22,754 | $ | 287,047 | ||||||||||||||||||
During the year ended December 31, 2008, we completed the
sale of 29 properties to Emeritus Corporation for $299,413,000,
consisting of $249,413,000 in cash proceeds and $50,000,000 of
seller financing, and we recognized a gain on sale of
$145,646,000. Total funds of $299,413,000 were held in escrow
for use in an Internal Revenue Code Section 1031 exchange,
of which $162,558,000 was utilized during the year ended
December 31, 2008. We had retained LandAmerica 1031
Exchange Services, Inc. (“LES”) to act as a qualified
intermediary. On November 26, 2008, LES and its parent,
LandAmerica Financial Group, filed for bankruptcy protection. At
that time, we had approximately $136,855,000 in two segregated
escrow accounts (the “Exchange Funds”) held by
Centennial Bank, an affiliate of LES. Although the terms of our
agreements with LES required that the Exchange Funds be returned
to us, the return of the Exchange Funds was stayed by the
bankruptcy proceedings. On February 23, 2009, the United
States Bankruptcy Court for the Eastern District of Virginia,
Richmond Division, entered an order approving the stipulation
and settlement agreement among LES, the unsecured creditors
committees and us. Pursuant to the terms of that settlement
agreement, the Exchange Funds plus $918,000 of interest were
returned to us on February 23, 2009, and we made a
settlement payment of $2,000,000 to the LES bankruptcy estate.
In
91
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
connection with these proceedings, we incurred approximately
$500,000 in expenses. The settlement payment and expenses were
recorded as reductions of gains on sales in 2008.
We have reclassified the income and expenses attributable to all
properties sold prior to or held for sale at December 31,
2010 to discontinued operations. Expenses include an allocation
of interest expense based on property carrying values and our
weighted average cost of debt. The following illustrates the
reclassification impact as a result of classifying properties as
discontinued operations for the periods presented (in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues:
|
||||||||||||
|
Rental income
|
$ | 21,986 | $ | 42,492 | $ | 68,240 | ||||||
|
Other income
|
— | 8,059 | — | |||||||||
|
Expenses:
|
||||||||||||
|
Interest expense
|
3,852 | 7,655 | 15,783 | |||||||||
|
Property operating expenses
|
3,345 | 3,069 | 3,995 | |||||||||
|
Provision for depreciation
|
5,425 | 14,195 | 24,909 | |||||||||
|
Income (loss) from discontinued operations, net
|
$ | 9,364 | $ | 25,632 | $ | 23,553 | ||||||
| 6. | Real Estate Loans Receivable |
The following is a summary of our real estate loans receivable
(in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Mortgage loans
|
$ | 109,283 | $ | 74,517 | ||||
|
Other real estate loans
|
327,297 | 352,846 | ||||||
|
Totals
|
$ | 436,580 | $ | 427,363 | ||||
92
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a summary of our real estate loan activity for
the periods presented (in thousands):
| Year Ended | ||||||||||||||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||||||
|
Senior
|
Senior
|
Senior
|
||||||||||||||||||||||||||||||||||
|
Housing
|
Medical
|
Housing
|
Medical
|
Housing
|
Medical
|
|||||||||||||||||||||||||||||||
| and Care | Facilities | Totals | and Care | Facilities | Totals | and Care | Facilities | Totals | ||||||||||||||||||||||||||||
|
Advances on real estate loans receivable:
|
||||||||||||||||||||||||||||||||||||
|
Investments in new loans
|
$ | 9,742 | $ | 41,644 | $ | 51,386 | $ | 20,036 | $ | — | $ | 20,036 | $ | 121,493 | $ | — | $ | 121,493 | ||||||||||||||||||
|
Draws on existing loans
|
46,113 | 1,236 | 47,349 | 52,910 | 1,471 | 54,381 | 21,265 | — | 21,265 | |||||||||||||||||||||||||||
|
Sub-total
|
55,855 | 42,880 | 98,735 | 72,946 | 1,471 | 74,417 | 142,758 | — | 142,758 | |||||||||||||||||||||||||||
|
Less: Seller financing on property sales
|
— | (1,470 | ) | (1,470 | ) | — | — | — | (59,649 | ) | — | (59,649 | ) | |||||||||||||||||||||||
|
Net cash advances on real estate loans
|
55,855 | 41,410 | 97,265 | 72,946 | 1,471 | 74,417 | 83,109 | — | 83,109 | |||||||||||||||||||||||||||
|
Receipts on real estate loans receivable:
|
||||||||||||||||||||||||||||||||||||
|
Loan payoffs
|
5,619 | 6,233 | 11,852 | 61,659 | 32,197 | 93,856 | 8,815 | — | 8,815 | |||||||||||||||||||||||||||
|
Principal payments on loans
|
24,203 | 7,440 | 31,643 | 15,890 | 2,033 | 17,923 | 9,354 | — | 9,354 | |||||||||||||||||||||||||||
|
Total receipts on real estate loans
|
29,822 | 13,673 | 43,495 | 77,549 | 34,230 | 111,779 | 18,169 | — | 18,169 | |||||||||||||||||||||||||||
|
Net advances (receipts) on real estate loans
|
$ | 26,033 | $ | 27,737 | $ | 53,770 | $ | (4,603 | ) | $ | (32,759 | ) | $ | (37,362 | ) | $ | 64,940 | $ | — | $ | 64,940 | |||||||||||||||
The following is a summary of the allowance for losses on loans
receivable for the periods presented (in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 5,183 | $ | 7,500 | $ | 7,406 | ||||||
|
Provision for loan losses
|
29,684 | 23,261 | 94 | |||||||||
|
Charge-offs
|
(33,591 | ) | (25,578 | ) | — | |||||||
|
Balance at end of year
|
$ | 1,276 | $ | 5,183 | $ | 7,500 | ||||||
As a result of our quarterly evaluations, we recorded
$29,684,000 of provision for loan losses during the year ended
December 31, 2010. This amount includes the write-off of
loans totaling $33,591,000 primarily related to certain early
stage senior housing and CCRC development projects. These
related to three separate borrowers where new factors arose
that, under the circumstances, resulted in the determination to
record the write-offs. This was offset by a net reduction of the
allowance balance by $3,907,000, resulting in an allowance for
loan losses of $1,276,000 relating to real estate loans with
outstanding balances of $9,691,000, all of which were on
non-accrual status at December 31, 2010.
During the quarter ended September 30, 2010, we received
title to a parcel of land and an equity interest in satisfaction
of certain loans outstanding with a combined balance of
$38,848,000. For balance sheet purposes, the land parcel is
recorded as land and the equity interest is accounted for as an
equity method investment (in our senior housing and care
segment), the amounts of which were recorded at their estimated
fair values at the transaction dates. The equity interest is in
an entity deemed to be a VIE, however, we have determined that
we are not the primary beneficiary as we do not have the ability
to direct and influence the activities that most significantly
impact the entity’s economic performance. Our exposure to
loss is limited to the recorded equity investment balance of
$29,578,000.
93
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a summary of our loan impairments (in
thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Balance of impaired loans at end of year
|
$ | 9,691 | $ | 67,126 | $ | 72,770 | ||||||
|
Allowance for loan losses
|
1,276 | 5,183 | 7,500 | |||||||||
|
Balance of impaired loans not reserved
|
$ | 8,415 | $ | 61,943 | $ | 65,270 | ||||||
|
Average impaired loans for the year
|
$ | 38,409 | $ | 69,948 | $ | 36,785 | ||||||
|
Interest recognized on impaired loans(1)
|
103 | 530 | 3,288 | |||||||||
| (1) | Represents interest recognized prior to placement on non-accrual status. |
| 7. | Investments in Unconsolidated Joint Ventures |
During the six months ended June 30, 2010, we entered into
a joint venture investment with Forest City Enterprises
(NYSE:FCE.A and FCE.B). We acquired a 49% interest in a
seven-building life science campus located in University Park in
Cambridge, MA, which is immediately adjacent to the campus of
the Massachusetts Institute of Technology. Six buildings closed
on February 22, 2010 and the seventh closed on
June 30, 2010. The portfolio is 100% leased.
In connection with these transactions, we invested $174,692,000
of cash which is recorded as an equity investment on the balance
sheet. Our share of the non-recourse secured debt assumed by the
joint venture was approximately $156,729,000 with
weighted-average interest rates of 7.1%. The results of
operations for these properties have been included in our
consolidated results of operations from the date of acquisition
by the joint venture and are reflected in our income statement
as income from unconsolidated joint ventures. The aggregate
remaining unamortized basis difference of our investment in this
joint venture of $15,141,000 at December 31, 2010 is
primarily attributable to real estate and related intangible
assets and will be amortized over the life of the related
properties and included in the reported amount of income from
unconsolidated joint ventures.
In addition, on December 31, 2010, we entered into a
strategic joint venture relationship with a national medical
office building company. See Note 3 for additional
information.
| 8. | Customer Concentration |
The following table summarizes certain information about our
customer concentration as of December 31, 2010 (dollars in
thousands):
|
Number of
|
Total
|
Percent of
|
||||||||||
| Properties | Investment(2) | Investment(3) | ||||||||||
|
Concentration by investment:(1)
|
||||||||||||
|
Merrill Gardens LLC
|
38 | $ | 732,211 | 9 | % | |||||||
|
Brandywine Senior Living, LLC
|
19 | 612,598 | 7 | % | ||||||||
|
Senior Living Communities, LLC
|
12 | 595,223 | 7 | % | ||||||||
|
Senior Star Living
|
10 | 464,062 | 5 | % | ||||||||
|
Brookdale Senior Living, Inc.
|
86 | 334,946 | 4 | % | ||||||||
|
Remaining portfolio
|
518 | 5,853,069 | 68 | % | ||||||||
|
Totals
|
683 | $ | 8,592,109 | 100 | % | |||||||
| (1) | All of our top five customers are in our senior housing and care segment. | |
| (2) | Excludes our share of unconsolidated joint venture investments. Please see Note 7 for additional information. | |
| (3) | Investments with our top five customers comprised 24% of total investments at December 31, 2009. |
94
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 9. | Borrowings Under Line of Credit Arrangement and Related Items |
At December 31, 2010, we had an unsecured line of credit
arrangement with a consortium of sixteen banks in the amount of
$1,150,000,000, which is scheduled to expire on August 6,
2012. Borrowings under the agreement are subject to interest
payable in periods no longer than three months at either the
agent bank’s prime rate of interest or the applicable
margin over LIBOR interest rate, at our option (0.87% at
December 31, 2010). The applicable margin is based on
certain of our debt ratings and was 0.6% at December 31,
2010. In addition, we pay a facility fee annually to each bank
based on the bank’s commitment amount. The facility fee
depends on certain of our debt ratings and was 0.15% at
December 31, 2010. We also pay an annual agent’s fee
of $50,000. Principal is due upon expiration of the agreement.
The following information relates to aggregate borrowings under
the unsecured line of credit arrangement for the periods
presented (dollars in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Balance outstanding at quarter end
|
$ | 300,000 | $ | 140,000 | $ | 570,000 | ||||||
|
Maximum amount outstanding at any month end
|
$ | 560,000 | $ | 559,000 | $ | 744,000 | ||||||
|
Average amount outstanding (total of daily principal balances
divided by days in period)
|
$ | 268,762 | $ | 241,463 | $ | 500,561 | ||||||
|
Weighted average interest rate (actual interest expense divided
by average borrowings outstanding)
|
1.48 | % | 1.92 | % | 3.77 | % | ||||||
| 10. | Senior Unsecured Notes and Secured Debt |
We have $3,034,949,000 of senior unsecured notes with annual
stated interest rates ranging from 3.00% to 8.00%. The carrying
amounts of the senior unsecured notes represent the par value of
$3,064,930,000 adjusted for any unamortized premiums or
discounts and other basis adjustments related to hedging the
debt with derivative instruments. See Note 11 for further
discussion regarding derivative instruments.
During the three months ended December 31, 2006, we issued
$345,000,000 of 4.75% senior unsecured convertible notes
due December 2026, generating net proceeds of $337,517,000. The
notes are convertible, in certain circumstances, into cash and,
if applicable, shares of common stock at an initial conversion
rate of 20.8833 shares per $1,000 principal amount of
notes, which represents an initial conversion price of
approximately $47.89 per share. In general, upon conversion, the
holder of each note would receive, in respect of the conversion
value of such note, cash up to the principal amount of such note
and common stock for the note’s conversion value in excess
of such principal amount. In addition, on each of
December 1, 2011, December 1, 2016 and
December 1, 2021, holders may require us to purchase all or
a portion of their notes at a purchase price in cash equal to
100% of the principal amount of the notes to be purchased, plus
any accrued and unpaid interest. During the three months ended
March 31, 2009, we extinguished $5,000,000 of these notes
and recognized a gain of $446,000. During the six months ended
June 30, 2010, we extinguished $214,412,000 of these notes,
recognized a loss of $8,837,000 and paid $18,552,000 to
reacquire the equity component of convertible debt. As of
December 31, 2010, we had $125,588,000 of these notes
outstanding.
In July 2007, we issued $400,000,000 of 4.75% senior
unsecured convertible notes due July 2027, generating net
proceeds of $388,943,000. The notes are convertible, in certain
circumstances, into cash and, if applicable, shares of our
common stock at an initial conversion rate of
20.0000 shares per $1,000 principal amount of notes, which
represents an initial conversion price of approximately $50.00
per share. In general, upon conversion, the holder of each note
would receive, in respect of the conversion value of such note,
cash up to the principal amount of such note and common stock
for the note’s conversion value in excess of such principal
amount. In addition, on each of July 15, 2012,
July 15, 2017 and July 15, 2022, holders may require
us to purchase all or a portion of their notes at a purchase
price in cash equal to 100% of the principal amount of the notes
to be purchased, plus any accrued and
95
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
unpaid interest. During the three months ended March 31,
2009, we extinguished $5,000,000 of these notes and recognized a
gain of $594,000. During the six months ended June 30,
2010, we extinguished $226,914,000 of these notes, recognized a
loss of $16,235,000 and paid $21,062,000 to reacquire the equity
component of convertible debt. As of December 31, 2010, we
had $168,086,000 of these notes outstanding.
During the twelve months ended December 31, 2010, we issued
$494,403,000 of 3.00% senior unsecured convertible notes
due December 2029, generating net proceeds of $486,084,000. The
notes are convertible, in certain circumstances, into cash and,
if applicable, shares of common stock at an initial conversion
rate of 19.5064 shares per $1,000 principal amount of
notes, which represents an initial conversion price of
approximately $51.27 per share. In general, upon conversion, the
holder of each note would receive, in respect of the conversion
value of such note, cash up to the principal amount of such note
and common stock for the note’s conversion value in excess
of such principal amount. In addition, on each of
December 1, 2014, December 1, 2019 and
December 1, 2024, holders may require us to purchase all or
a portion of their notes at a purchase price in cash equal to
100% of the principal amount of the notes to be purchased, plus
any accrued and unpaid interest. In connection with this
issuance, we recognized $29,925,000 of equity component of
convertible debt.
During the year ended December 31, 2009, we extinguished
$183,147,000 of senior unsecured notes with a weighted-average
interest rate of 7.82% and recognized losses of $19,269,000.
During the three months ended June 30, 2010, we issued
$450,000,000 of 6.125% senior unsecured notes due 2020 with
net proceeds of $446,328,000. During the three months ended
September 30, 2010, we issued $450,000,000 of
4.70% senior unsecured notes due 2017 with net proceeds of
$445,768,000. During the three months ended December 31,
2010, we issued $450,000,000 of 4.95% senior unsecured
notes due 2021 with net proceeds of $443,502,000.
We have secured debt totaling $1,125,906,000, collateralized by
owned properties, with annual interest rates ranging from 3.01%
to 8.74%. The carrying amounts of the secured debt represent the
par value of $1,133,715,000 adjusted for any unamortized fair
value adjustments. The carrying values of the properties
securing the debt totaled $2,054,820,000 at December 31,
2010. During the year ended December 31, 2010, we issued
$157,156,000 of first mortgage loans principal with a rate of
5.45% secured by 15 properties. During the year ended
December 31, 2010, we assumed $564,657,000 of first
mortgage loans principal with an average rate of 6.06% secured
by 60 properties. During the year ended December 31, 2010,
we extinguished $194,493,000 of first mortgage loans principal
with an average rate of 6.07% and recognized a loss of
$9,099,000. During the year ended December 31, 2009, we
extinguished 20 secured debt loans totaling $81,715,000 with a
weighted-average interest rate of 7.21% and recognized
extinguishment losses of $5,838,000. During the year ended
December 31, 2008, we extinguished eight secured debt loans
totaling $50,475,000 with a weighted-average interest rate of
6.67% and recognized extinguishment gains of $2,094,000.
We adopted FASB Accounting Standards Codification
(“ASC”) topic for Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (“Convertible Debt
Guidance”), effective January 1, 2009. It provides
guidance on accounting for convertible debt that may be settled
in cash upon conversion. It requires bifurcation of the
convertible debt instrument into a debt component and an equity
component. The value of the debt component is based upon the
estimated fair value of a similar debt instrument without the
conversion feature. The difference between the contractual
principal on the debt and the value allocated to the debt is
recorded as an equity component and represents the conversion
feature of the instrument. The excess of the contractual
principal amount of the debt over its estimated fair value is
amortized to interest expense using the effective interest
method over the period used to estimate the fair value.
Our debt agreements contain various covenants, restrictions and
events of default. Certain agreements require us to maintain
certain financial ratios and minimum net worth and impose
certain limits on our ability to incur indebtedness, create
liens and make investments or acquisitions. As of
December 31, 2010, we were in compliance with all of the
covenants under our debt agreements.
96
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2010, the annual principal payments due on
these debt obligations are as follows (in thousands):
|
Senior
|
Secured
|
|||||||||||
| Unsecured Notes(1) | Debt(1) | Totals | ||||||||||
|
2011
|
$ | — | $ | 24,048 | $ | 24,048 | ||||||
|
2012
|
76,853 | 91,979 | 168,832 | |||||||||
|
2013
|
300,000 | 85,508 | 385,508 | |||||||||
|
2014
|
— | 188,009 | 188,009 | |||||||||
|
2015
|
250,000 | 150,311 | 400,311 | |||||||||
|
Thereafter
|
2,438,077 | 593,860 | 3,031,937 | |||||||||
|
Totals
|
$ | 3,064,930 | $ | 1,133,715 | $ | 4,198,645 | ||||||
| (1) | Amounts represent principal amounts due and do not include unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. |
| 11. | Derivative Instruments |
We are exposed to various market risks, including the potential
loss arising from adverse changes in interest rates. We may
elect to use financial derivative instruments to hedge interest
rate exposure. These decisions are principally based on our
policy to manage the general trend in interest rates at the
applicable dates and our perception of the future volatility of
interest rates. Derivatives are recorded at fair value on the
balance sheet as assets or liabilities. The valuation of
derivative instruments requires us to make estimates and
judgments that affect the fair value of the instruments. Fair
values of our derivatives are estimated by pricing models that
consider the forward yield curves and discount rates. Such
amounts and the recognition of such amounts are subject to
significant estimates that may change in the future.
The following is a summary of the fair value of our derivative
instruments (dollars in thousands):
| Fair Value | ||||||||||||
|
Balance Sheet
|
December 31,
|
December 31,
|
||||||||||
| Location | 2010 | 2009 | ||||||||||
|
Cash flow hedge interest rate swaps
|
Other liabilities | $ | 482 | $ | 2,381 | |||||||
Cash
Flow Hedges
For instruments that are designated and qualify as a cash flow
hedge, the effective portion of the gain or loss on the
derivative is reported as a component of other comprehensive
income (“OCI”), and reclassified into earnings in the
same period, or periods, during which the hedged transaction
affects earnings. Gains and losses on the derivative
representing either hedge ineffectiveness or hedge components
excluded from the assessment of effectiveness are recognized in
earnings. Approximately $1,643,000 of losses, which are included
in accumulated other comprehensive income (“AOCI”),
are expected to be reclassified into earnings in the next
12 months.
97
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents the impact of derivative instruments on
the statement of operations and OCI for the periods presented
(dollars in thousands):
| Year Ended | ||||||||||||||
|
December 31,
|
December 31,
|
December 31,
|
||||||||||||
| Location | 2010 | 2009 | 2008 | |||||||||||
|
Gain (loss) on interest rate swap recognized in OCI (effective
portion)
|
n/a | $ | (10,307 | ) | $ | (3,513 | ) | $ | 7,669 | |||||
|
Gain (loss) reclassified from AOCI into income (effective
portion)
|
Interest expense | (2,244 | ) | (971 | ) | (160 | ) | |||||||
|
Gain (loss) recognized in income (ineffective portion and amount
excluded from effectiveness testing)
|
Realized loss | — | — | (23,393 | ) | |||||||||
On August 7, 2009, we entered into an interest rate swap
(the “August 2009 Swap”) for a total notional amount
of $52,198,000 to hedge seven years of interest payments
associated with long-term LIBOR based borrowings. This swap was
terminated on September 30, 2010 for a cash payment of
$6,645,000 which has been deferred and included as a component
of accumulated other comprehensive income. The effective portion
is being amortized over the remaining term of the original swap
as an adjustment to the yield on our LIBOR-based debt. The
August 2009 Swap had an effective date of August 12, 2009
and a maturity date of September 1, 2016. The August 2009
Swap had the economic effect of fixing $52,198,000 at 3.93% plus
a credit spread for seven years. The August 2009 Swap had been
designated as a cash flow hedge and we expected it to be highly
effective at offsetting changes in cash flows of interest
payments on $52,198,000 of long-term debt due to changes in the
LIBOR swap rate.
On September 28, 2009, we entered into an interest rate
swap (the “September 2009 Swap”) for a total notional
amount of $48,155,000 to hedge seven years of interest payments
associated with long-term LIBOR based borrowings. This swap was
terminated on September 30, 2010 for a cash payment of
$4,365,000 which has been deferred and included as a component
of accumulated other comprehensive income. The effective portion
is being amortized over the remaining term of the original swap
as an adjustment to the yield on our LIBOR-based debt. The
September 2009 Swap had an effective date of September 30,
2009 and a maturity date of October 1, 2016. The September
2009 Swap had the economic effect of fixing $48,155,000 at
3.2675% plus a credit spread for seven years. The September 2009
Swap had been designated as a cash flow hedge and we expected it
to be highly effective at offsetting changes in cash flows of
interest payments on $48,155,000 of long-term debt due to
changes in the LIBOR swap rate.
On December 31, 2010, we assumed an interest rate swap (the
“December 2010 Swap”) for a total notional amount of
$12,650,000 to hedge interest payments associated with long-term
LIBOR based borrowings. The December 2010 Swap has an effective
date of December 31, 2010 and a maturity date of
December 31, 2013. The December 2010 Swap has the economic
effect of fixing $12,650,000 at 5.50% plus a credit spread
through the swap’s maturity. In January 2011, the December
2010 Swap was designated as a cash flow hedge and we expect it
to be highly effective at offsetting changes in cash flows of
interest payments on $12,650,000 of long-term debt due to
changes in the LIBOR swap rate.
During the year ended December 31, 2008, we recognized a
realized loss on derivatives of $23,393,000 related to
forward-starting interest rate swaps that were in place to hedge
future debt issuances when the timing of those issuances was
revised.
Fair
Value Hedges
For derivative instruments that are designated as a fair value
hedge, the gain or loss on the derivative as well as the
offsetting loss or gain on the hedged risk are recognized in
current earnings. There were no outstanding fair value hedges at
December 31, 2010 or December 31, 2009.
98
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 12. | Commitments and Contingencies |
We have two outstanding letters of credit issued for the benefit
of certain insurance companies that provide workers’
compensation insurance to one of our tenants. Our obligation to
provide the letters of credit terminates in 2013. At
December 31, 2010, our obligation under the letters of
credit was $4,200,000.
We have an outstanding letter of credit issued for the benefit
of certain insurance companies that provide liability and
property insurance to one of our tenants. Our obligation to
provide the letter of credit terminates in 2013. At
December 31, 2010, our obligation under the letter of
credit was $1,000,000.
We have an outstanding letter of credit issued for the benefit
of a city in Wisconsin that secures the completion and
installation of certain public improvements by one of our
tenants in connection with the development of a property. Our
obligation to provide the letter of credit terminates in October
2013. At December 31, 2010, we had an obligation to provide
a letter of credit in the amount of $215,000.
We have an outstanding letter of credit issued for the benefit
of a village in Illinois that secures the completion,
installation and maintenance of certain public improvements by
one of our partnerships in connection with the development of a
property. Our obligation to provide the letter of credit
terminates in August 2011. At December 31, 2010, our
obligation under the letter of credit was $67,932.
At December 31, 2010, we had outstanding construction in
process of $356,793,000 for leased properties and were committed
to providing additional funds of approximately $268,055,000 to
complete construction. At December 31, 2010, we had
contingent purchase obligations totaling $33,613,000. These
contingent purchase obligations relate to unfunded capital
improvement obligations. Rents due from the tenant are increased
to reflect the additional investment in the property.
We evaluate our leases for operating versus capital lease
treatment in accordance with ASC Topic 840 “Leases.” A
lease is classified as a capital lease if it provides for
transfer of ownership of the leased asset at the end of the
lease term, contains a bargain purchase option, has a lease term
greater than 75% of the economic life of the leased asset, or if
the net present value of the future minimum lease payments are
in excess of 90% of the fair value of the leased asset. One
lease related to a senior housing facility contains a bargain
purchase option and has been classified as a capital lease. At
December 31, 2010, we had operating lease obligations of
$230,189,000 relating to certain ground leases and company
office space. We incurred rental expense relating to company
office space of $1,280,000, $1,138,000 and $1,452,000 for the
years ended December 31, 2010, 2009 and 2008, respectively.
Regarding the ground leases, we have sublease agreements with
certain of our operators that require the operators to reimburse
us for our monthly operating lease obligations. At
December 31, 2010, aggregate future minimum rentals to be
received under these noncancelable subleases totaled $32,329,000.
At December 31, 2010, future minimum lease payments due
under operating and capital leases are as follows (in thousands):
| Operating Leases | Capital Leases(1) | |||||||
|
2011
|
$ | 5,380 | $ | 604 | ||||
|
2012
|
5,454 | 622 | ||||||
|
2013
|
5,158 | 640 | ||||||
|
2014
|
5,181 | 660 | ||||||
|
2015
|
5,189 | 8,425 | ||||||
|
Thereafter
|
203,827 | — | ||||||
|
Totals
|
$ | 230,189 | $ | 10,951 | ||||
| (1) | Related assets of $17,815,000 recorded in real property. |
99
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 13. | Stockholders’ Equity |
The following is a summary of our stockholder’s equity
capital accounts as of the dates indicated:
| December 31, 2010 | December 31, 2009 | |||||||
|
Preferred Stock, $1.00 par value:
|
||||||||
|
Authorized shares
|
50,000,000 | 50,000,000 | ||||||
|
Issued shares
|
11,349,854 | 11,474,093 | ||||||
|
Outstanding shares
|
11,349,854 | 11,474,093 | ||||||
|
Common Stock, $1.00 par value:
|
||||||||
|
Authorized shares
|
225,000,000 | 225,000,000 | ||||||
|
Issued shares
|
147,381,191 | 123,583,242 | ||||||
|
Outstanding shares
|
147,097,381 | 123,385,317 | ||||||
Preferred Stock.
During the year ended
December 31, 2008, certain holders of our Series G
Cumulative Convertible Preferred Stock converted
1,362,887 shares into 975,397 shares of our common
stock, leaving 441,313 of such shares outstanding at
December 31, 2008. During the year ended December 31,
2009, certain holders of our Series G Cumulative
Convertible Preferred Stock converted 41,600 shares into
29,771 shares of our common stock, leaving 399,713 of such
shares outstanding at December 31, 2009. During the nine
months ended September 30, 2010, certain holders of our
Series G Cumulative Convertible Preferred Stock converted
394,200 shares into 282,078 shares of our common
stock, leaving 5,513 of such shares outstanding which were
redeemed by us on September 30, 2010. During the three
months ended September 30, 2010, the holder of our
Series E Cumulative Convertible and Redeemable Preferred
Stock converted 74,380 shares into 56,935 shares of
our common stock, leaving no such shares outstanding at
December 31, 2010.
In July 2003, we closed a public offering of
4,000,000 shares of 7.875% Series D Cumulative
Redeemable Preferred Stock. These shares have a liquidation
value of $25.00 per share. Dividends are payable quarterly in
arrears. The preferred stock, which has no stated maturity, may
be redeemed by us at a redemption price of $25.00 per share,
plus accrued and unpaid dividends on such shares to the
redemption date, on or after July 9, 2008.
In September 2004, we closed a public offering of
7,000,000 shares of 7.625% Series F Cumulative
Redeemable Preferred Stock. These shares have a liquidation
value of $25.00 per share. Dividends are payable quarterly in
arrears. The preferred stock, which has no stated maturity, may
be redeemed by us at a redemption price of $25.00 per share,
plus accrued and unpaid dividends on such shares to the
redemption date, on or after September 14, 2009.
During the three months ended December 31, 2010, we issued
349,854 shares of 6.00% Series H Cumulative
Convertible and Redeemable Preferred Stock in connection with a
business combination. These shares have a liquidation value of
$25.00 per share. Dividends are payable quarterly in arrears.
The preferred stock, which has no stated maturity, may be
redeemed by us at a redemption price of $25.00 per share, plus
accrued and unpaid dividends on such shares to the redemption
date, on or after December 31, 2015. See Note 3 for
additional information.
100
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Common Stock.
The following is a summary of
our common stock issuances during the periods indicated (dollars
in thousands, except per share amounts):
| Shares Issued | Average Price | Gross Proceeds | Net Proceeds | |||||||||||||
|
March 2008 public issuance
|
3,000,000 | $ | 41.44 | $ | 124,320 | $ | 118,555 | |||||||||
|
July 2008 public issuance
|
4,600,000 | 44.50 | 204,700 | 193,157 | ||||||||||||
|
September 2008 public issuance
|
8,050,000 | 48.00 | 386,400 | 369,699 | ||||||||||||
|
2008 Dividend reinvestment plan issuances
|
1,546,074 | 43.37 | 67,055 | 67,055 | ||||||||||||
|
2008 Equity shelf program issuances
|
794,221 | 39.28 | 31,196 | 30,272 | ||||||||||||
|
2008 Option exercises
|
118,895 | 29.83 | 3,547 | 3,547 | ||||||||||||
|
2008 Totals
|
18,109,190 | $ | 817,218 | $ | 782,285 | |||||||||||
|
February 2009 public issuance
|
5,816,870 | $ | 36.85 | $ | 214,352 | $ | 210,880 | |||||||||
|
September 2009 public issuance
|
9,200,000 | 40.40 | 371,680 | 356,554 | ||||||||||||
|
2009 Dividend reinvestment plan issuances
|
1,499,497 | 37.22 | 55,818 | 55,818 | ||||||||||||
|
2009 Equity shelf program issuances
|
1,952,600 | 40.69 | 79,447 | 77,605 | ||||||||||||
|
2009 Option exercises
|
96,166 | 38.23 | 3,676 | 3,676 | ||||||||||||
|
2009 Totals
|
18,565,133 | $ | 724,973 | $ | 704,533 | |||||||||||
|
September 2010 public issuance
|
9,200,000 | $ | 45.75 | $ | 420,900 | $ | 403,921 | |||||||||
|
December 2010 public issuance
|
11,500,000 | 43.75 | 503,125 | 482,448 | ||||||||||||
|
2010 Dividend reinvestment plan issuances
|
1,957,364 | 43.95 | 86,034 | 86,034 | ||||||||||||
|
2010 Equity shelf program issuances
|
431,082 | 44.94 | 19,371 | 19,013 | ||||||||||||
|
2010 Option exercises
|
129,054 | 31.17 | 4,022 | 4,022 | ||||||||||||
|
2010 Totals
|
23,217,500 | $ | 1,033,452 | $ | 995,438 | |||||||||||
Dividends.
The following is a summary of our
dividend payments (dollars in thousands, except per share
amounts):
| Year Ended | ||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||
| Per Share | Amount | Per Share | Amount | Per Share | Amount | |||||||||||||||||||
|
Common Stock
|
$ | 2.74000 | $ | 348,578 | $ | 2.72000 | $ | 311,760 | $ | 2.70000 | $ | 253,659 | ||||||||||||
|
Series D Preferred Stock
|
1.96875 | 7,875 | 1.96875 | 7,875 | 1.96875 | 7,875 | ||||||||||||||||||
|
Series E Preferred Stock
|
1.12500 | 94 | 1.50000 | 112 | 1.50000 | 112 | ||||||||||||||||||
|
Series F Preferred Stock
|
1.90625 | 13,344 | 1.90625 | 13,344 | 1.90625 | 13,344 | ||||||||||||||||||
|
Series G Preferred Stock
|
1.40640 | 332 | 1.87500 | 748 | 1.87500 | 1,870 | ||||||||||||||||||
|
Totals
|
$ | 370,223 | $ | 333,839 | $ | 276,860 | ||||||||||||||||||
101
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Comprehensive
Income
The following is a summary of accumulated other comprehensive
income/(loss) as of the dates indicated (in thousands):
| December 31, 2010 | December 31, 2009 | |||||||
|
Unrecognized gains (losses) on cash flow hedges
|
$ | (9,969 | ) | $ | (1,907 | ) | ||
|
Unrecognized gains (losses) on equity investments
|
(497 | ) | (550 | ) | ||||
|
Unrecognized actuarial gains (losses)
|
(633 | ) | (434 | ) | ||||
|
Totals
|
$ | (11,099 | ) | $ | (2,891 | ) | ||
The following is a summary of comprehensive income/(loss) for
the periods indicated (in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Unrecognized gains (losses) on cash flow hedges
|
$ | (8,063 | ) | $ | (2,542 | ) | $ | 7,829 | ||||
|
Unrecognized gains (losses) on equity investments
|
54 | 487 | (846 | ) | ||||||||
|
Unrecognized actuarial gains (losses)
|
(199 | ) | 277 | (715 | ) | |||||||
|
Total other comprehensive income (loss)
|
(8,208 | ) | (1,778 | ) | 6,268 | |||||||
|
Net income attributable to controlling interests
|
128,527 | 193,269 | 283,299 | |||||||||
|
Comprehensive income attributable to controlling interests
|
120,319 | 191,491 | 289,567 | |||||||||
|
Net and comprehensive income (loss) attributable to
noncontrolling interests
|
357 | (342 | ) | 126 | ||||||||
|
Total comprehensive income
|
$ | 120,676 | $ | 191,149 | $ | 289,693 | ||||||
Other
Equity
Other equity consists of accumulated option compensation expense
which represents the amount of amortized compensation costs
related to stock options awarded to employees and directors.
Expense, which is recognized as the options vest based on the
market value at the date of the award, totaled $1,634,000,
$1,629,000 and $1,503,000 for the year ended December 31,
2010, 2009 and 2008, respectively.
| 14. | Stock Incentive Plans |
Our Amended and Restated 2005 Long-Term Incentive Plan
authorizes up to 6,200,000 shares of common stock to be
issued at the discretion of the Compensation Committee of the
Board of Directors. The 2005 Plan replaced the 1995 Stock
Incentive Plan and the Stock Plan for Non-Employee Directors.
The options granted to officers and key employees under the 1995
Plan continue to vest through 2010 and expire ten years from the
date of grant. Our non-employee directors, officers and key
employees are eligible to participate in the 2005 Plan. The 2005
Plan allows for the issuance of, among other things, stock
options, restricted stock, deferred stock units and dividend
equivalent rights. Vesting periods for options, deferred stock
units and restricted shares generally range from three years for
non-employee directors to five years for officers and key
employees. Options expire ten years from the date of grant.
102
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Valuation
Assumptions
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes-Merton option pricing model with
the following weighted-average assumptions:
| Year Ended | ||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||
|
Dividend yield(1)
|
6.28 | % | 7.35 | % | 6.47 | % | ||||||
|
Expected volatility
|
34.08 | % | 29.40 | % | 20.50 | % | ||||||
|
Risk-free interest rate
|
3.23 | % | 2.33 | % | 3.42 | % | ||||||
|
Expected life (in years)
|
7.0 | 7.0 | 6.5 | |||||||||
|
Weighted-average fair value(1)
|
$ | 7.82 | $ | 4.38 | $ | 6.25 | ||||||
| (1) | Certain options granted to employees in 2008 include dividend equivalent rights. The fair value of options with DERs also includes the net present value of projected future dividend payments over the expected life of the option discounted at the dividend yield rate. |
The dividend yield represented the dividend yield of our common
stock on the dates of grant. Our computation of expected
volatility was based on historical volatility. The risk-free
interest rates used were the
7-year
U.S. Treasury Notes yield on the date of grant. The
expected life was based on historical experience of similar
awards, giving consideration to the contractual terms, vesting
schedules and expectations regarding future employee behavior.
Option
Award Activity
The following table summarizes information about stock option
activity for the twelve months ended December 31, 2010:
| Year Ended | ||||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||
|
Number
|
Number
|
Number
|
||||||||||||||||||||||
|
of Shares
|
Weighted Average
|
of Shares
|
Weighted Average
|
of Shares
|
Weighted Average
|
|||||||||||||||||||
|
Stock Options
|
(000’s) | Exercise Price | (000’s) | Exercise Price | (000’s) | Exercise Price | ||||||||||||||||||
|
Options at beginning of year
|
1,062 | $ | 37.71 | 817 | $ | 38.29 | 637 | $ | 35.54 | |||||||||||||||
|
Options granted
|
280 | 43.29 | 366 | 37.00 | 307 | 40.83 | ||||||||||||||||||
|
Options exercised
|
(129 | ) | 33.58 | (96 | ) | 38.22 | (119 | ) | 29.83 | |||||||||||||||
|
Options terminated
|
(6 | ) | 37.82 | (25 | ) | 44.50 | (8 | ) | 42.00 | |||||||||||||||
|
Options at end of period
|
1,207 | $ | 39.45 | 1,062 | $ | 37.71 | 817 | $ | 38.29 | |||||||||||||||
|
Options exercisable at end of period
|
440 | $ | 37.76 | 388 | $ | 35.85 | 281 | $ | 33.94 | |||||||||||||||
|
Weighted average fair value of options granted during the period
|
$ | 7.82 | $ | 4.38 | $ | 6.25 | ||||||||||||||||||
103
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about stock options
outstanding at December 31, 2010:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||||||||||
|
Range of Per
|
Number
|
Weighted
|
Average
|
Number
|
Weighted
|
Average
|
||||||||||||||||||
|
Share Exercise
|
Outstanding
|
Average
|
Remaining
|
Exercisable
|
Average
|
Remaining
|
||||||||||||||||||
|
Prices
|
(Thousands) | Exercise Price | Contract Life | (Thousands) | Exercise Price | Contract Life | ||||||||||||||||||
|
$20-$30
|
31 | $ | 25.67 | 2.7 | 31 | $ | 25.67 | 2.7 | ||||||||||||||||
|
$30-$40
|
575 | 36.70 | 7.5 | 264 | 36.38 | 5.9 | ||||||||||||||||||
|
$40+
|
601 | 42.80 | 8.8 | 145 | 42.90 | 7.6 | ||||||||||||||||||
|
Totals
|
1,207 | $ | 39.45 | 8.0 | 440 | $ | 37.76 | 6.2 | ||||||||||||||||
|
Aggregate intrinsic value
|
$ | 9,892,000 | $ | 4,344,000 | ||||||||||||||||||||
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying options and the
quoted price of our common stock for the options that were
in-the-money
at December 31, 2010. During the years ended
December 31, 2010, 2009 and 2008, the aggregate intrinsic
value of options exercised under our stock incentive plans was
$1,798,000, $737,000 and $2,042,000, respectively (determined as
of the date of option exercise). Cash received from option
exercises under our stock incentive plans was $4,022,000,
$3,676,000 and $3,547,000 for the years ended December 31,
2010, 2009 and 2008, respectively.
As of December 31, 2010, there was approximately $2,935,000
of total unrecognized compensation cost related to unvested
stock options granted under our stock incentive plans. That cost
is expected to be recognized over a weighted average period of
four years. As of December 31, 2010, there was
approximately $8,010,000 of total unrecognized compensation cost
related to unvested restricted stock granted under our stock
incentive plans. That cost is expected to be recognized over a
weighted average period of three years.
The following table summarizes information about non-vested
stock incentive awards as of December 31, 2010 and changes
for the twelve months ended December 31, 2010:
| Stock Options | Restricted Stock | |||||||||||||||
|
Number of
|
Weighted Average
|
Number of
|
Weighted Average
|
|||||||||||||
|
Shares
|
Grant Date
|
Shares
|
Grant Date
|
|||||||||||||
| (000’s) | Fair Value | (000’s) | Fair Value | |||||||||||||
|
Non-vested at December 31, 2009
|
675 | $ | 5.44 | 405 | $ | 40.26 | ||||||||||
|
Vested
|
(181 | ) | 5.91 | (232 | ) | 42.02 | ||||||||||
|
Granted
|
280 | 7.82 | 249 | 43.28 | ||||||||||||
|
Terminated
|
(6 | ) | 7.06 | (2 | ) | 38.07 | ||||||||||
|
Non-vested at December 31, 2010
|
768 | $ | 6.19 | 420 | $ | 41.09 | ||||||||||
We adopted the fair value-based method of accounting for
share-based payments effective January 1, 2003 using the
prospective method. Currently, we use the Black-Scholes-Merton
option pricing model to estimate the value of stock option
grants and expect to continue to use this acceptable option
valuation model. We recognize compensation cost for share-based
grants on a straight-line basis through the date the awards
become fully vested or to the retirement eligible date, if
sooner. Compensation cost totaled $11,823,000, $9,633,000 and
$8,530,000 for the years ended December 31, 2010, 2009 and
2008, respectively.
104
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Earnings Per Share |
The following table sets forth the computation of basic and
diluted earnings per share (in thousands, except per share data):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Numerator for basic and diluted earnings per share —
net income attributable to
|
||||||||||||
|
common stockholders
|
$ | 106,882 | $ | 171,190 | $ | 260,098 | ||||||
|
Denominator for basic earnings per share — weighted
average shares
|
127,656 | 114,207 | 93,732 | |||||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Employee stock options
|
125 | — | 82 | |||||||||
|
Non-vested restricted shares
|
420 | 405 | 443 | |||||||||
|
Convertible senior unsecured notes
|
7 | — | 52 | |||||||||
|
Dilutive potential common shares
|
552 | 405 | 577 | |||||||||
|
Denominator for diluted earnings per share — adjusted
weighted average shares
|
128,208 | 114,612 | 94,309 | |||||||||
|
Basic earnings per share
|
$ | 0.84 | $ | 1.50 | $ | 2.77 | ||||||
|
Diluted earnings per share
|
$ | 0.83 | $ | 1.49 | $ | 2.76 | ||||||
The diluted earnings per share calculations exclude the dilutive
effect of 280,000, 351,000 and 0 stock options for the years
ended December 31, 2010, 2009 and 2008, respectively,
because the exercise prices were more than the average market
price. The outstanding convertible senior unsecured notes were
not included in the 2009 calculations as the effect of the
conversions into common stock was anti-dilutive for that period.
The Series H Cumulative Convertible and Redeemable
Preferred Stock issued in 2010 were excluded from the
calculation for 2010 as the effect of the conversions was
anti-dilutive.
| 16. | Disclosure about Fair Value of Financial Instruments |
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it
is practicable to estimate that value.
Mortgage Loans and Other Real Estate Loans
Receivable
— The fair value of mortgage loans and
other real estate loans receivable is generally estimated by
discounting the estimated future cash flows using the current
rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Cash and Cash Equivalents
— The carrying amount
approximates fair value.
Available-for-sale
Equity Investments
—
Available-for-sale
equity investments are recorded at their fair value based on
publicly available trading prices.
Borrowings Under Unsecured Lines of Credit
Arrangements
— The carrying amount of the
unsecured line of credit arrangement approximates fair value
because the borrowings are interest rate adjustable.
Senior Unsecured Notes
— The fair value of the
senior unsecured notes payable was estimated based on publicly
available trading prices.
105
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Secured Debt
— The fair value of fixed rate
secured debt is estimated by discounting the estimated future
cash flows using the current rates at which similar loans would
be made with similar credit ratings and for the same remaining
maturities. The carrying amount of variable rate secured debt
approximates fair value because the borrowings are interest rate
adjustable.
Interest Rate Swap Agreements
— Interest rate
swap agreements are recorded as assets or liabilities on the
balance sheet at fair market value. Fair market value is
estimated by utilizing pricing models that consider forward
yield curves and discount rates.
The carrying amounts and estimated fair values of our financial
instruments are as follows (in thousands):
| December 31, 2010 | December 31, 2009 | |||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
Financial Assets:
|
||||||||||||||||
|
Mortgage loans receivable
|
$ | 109,283 | $ | 111,255 | $ | 74,517 | $ | 74,765 | ||||||||
|
Other real estate loans receivable
|
327,297 | 333,003 | 352,846 | 354,429 | ||||||||||||
|
Available-for-sale
equity investments
|
1,103 | 1,103 | 5,816 | 5,816 | ||||||||||||
|
Cash and cash equivalents
|
131,570 | 131,570 | 35,476 | 35,476 | ||||||||||||
|
Financial Liabilities:
|
||||||||||||||||
|
Borrowings under unsecured lines of credit arrangements
|
$ | 300,000 | $ | 300,000 | $ | 140,000 | $ | 140,000 | ||||||||
|
Senior unsecured notes
|
3,034,949 | 3,267,638 | 1,653,027 | 1,762,129 | ||||||||||||
|
Secured debt
|
1,125,906 | 1,178,081 | 620,995 | 623,266 | ||||||||||||
|
Interest rate swap agreements
|
482 | 482 | 2,381 | 2,381 | ||||||||||||
U.S. GAAP provides authoritative guidance for measuring and
disclosing fair value measurements of assets and liabilities.
The guidance for financial assets and liabilities was previously
adopted as the standard for those assets and liabilities as of
January 1, 2008. Additional guidance for non-financial
assets and liabilities is effective for fiscal years beginning
after November 15, 2008, and was adopted as the standard
for those assets and liabilities as of January 1, 2009. The
impact of adoption was not significant. The guidance defines
fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. The guidance also establishes a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs
when measuring fair value. The guidance describes three levels
of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for
identical assets or liabilities.
Level 2 — Observable inputs other than
Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities. Interest rate swap agreements are valued
using models that assume a hypothetical transaction to sell the
asset or transfer the liability in the principal market for the
asset or liability based on market data derived from interest
rates and yield curves observable at commonly quoted intervals,
volatilities, prepayment timing, loss severities, credit risks
and default rates.
Level 3 — Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
106
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Items Measured
at Fair Value on a Recurring Basis
The market approach is utilized to measure fair value for our
financial assets and liabilities reported at fair value on a
recurring basis. The market approach uses prices and other
relevant information generated by market transactions involving
identical or comparable assets or liabilities.
|
Fair Value Measurements as of
|
||||||||||||||||
| December 31, 2010 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
|
Available-for-sale
equity investments(1)
|
$ | 1,103 | $ | 1,103 | $ | — | $ | — | ||||||||
|
Assets held for sale(2)
|
23,441 | — | 23,441 | — | ||||||||||||
|
Interest rate swap agreements(3)
|
(482 | ) | — | (482 | ) | — | ||||||||||
|
Totals
|
$ | 24,062 | $ | 1,103 | $ | 22,959 | $ | — | ||||||||
| (1) | Unrealized gains or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date. | |
| (2) | Please see Note 5 for additional information. | |
| (3) | Please see Note 11 for additional information. |
Items Measured
at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a
recurring basis, we also have assets and liabilities in our
balance sheet that are measured at fair value on a nonrecurring
basis. As these assets and liabilities are not measured at fair
value on a recurring basis, they are not included in the tables
above. Assets and liabilities that are measured at fair value on
a nonrecurring basis include assets acquired and liabilities
assumed in business combinations (see Note 3) and
asset impairments (see Note 5 for impairments of real
property and Note 6 for impairments of loans receivable).
We have determined that the fair value measurements included in
each of these assets and liabilities rely primarily on
Company-specific inputs and our assumptions about the use of the
assets and settlement of liabilities, as observable inputs are
not available. As such, we have determined that each of these
fair value measurements generally reside within Level 3 of
the fair value hierarchy. We estimate the fair value of real
estate using unobservable data such as net operating income and
estimated capitalization and discount rates. We also consider
local and national industry market data including comparable
sales, and commonly engage an external real estate appraiser to
assist us in our estimation of fair value.
| 17. | Segment Reporting |
We invest in senior housing and health care real estate. We
evaluate our business and make resource allocations on our two
business segments — senior housing and care and
medical facilities. Our primary senior housing and care
properties include skilled nursing facilities, assisted living
facilities, independent living/continuing care retirement
communities and combinations thereof. Under the senior housing
and care segment, we invest in senior housing and health care
real estate through acquisition and financing of primarily
single tenant properties. Excluding our senior housing operating
partnerships (please see Note 3 for additional
information), properties acquired are primarily leased under
triple-net
leases and we are not involved in the management of the
property. Our primary medical facility properties include
medical office buildings, hospitals and life science buildings.
Our medical office buildings are typically leased to multiple
tenants and generally require a certain level of property
management. Our hospital investments are structured similar to
our senior housing and care investments. Our life science
investments represent investments in an unconsolidated joint
venture (see Note 7 for additional information). The
accounting policies of the segments are the same as those
described in the summary of significant accounting policies (in
Note 2 to our audited consolidated financial statements).
There are no intersegment sales or transfers. We evaluate
performance based upon net operating income of the combined
properties in each segment. Non-segment revenue consists mainly
of interest income on non-real estate investments and other
income. Non-segment assets consist of corporate assets including
cash, deferred loan expenses and corporate offices and
107
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
equipment among others. Non-property specific revenues and
expenses are not allocated to individual segments in determining
net operating income.
Summary information for the reportable segments during the years
ended December 31, 2010, 2009 and 2008 is as follows (in
thousands and includes amounts from discontinued operations):
|
Property
|
Net
|
Real Estate
|
||||||||||||||||||||||||||||||||||||||
|
Rental
|
Resident Fees
|
Interest
|
Other
|
Total
|
Operating
|
Operating
|
Depreciation/
|
Interest
|
Total
|
|||||||||||||||||||||||||||||||
| Income | and Services | Income | Income | Revenues | Expenses | Income(1) | Amortization | Expense | Assets | |||||||||||||||||||||||||||||||
|
Year Ended December 31, 2010
|
||||||||||||||||||||||||||||||||||||||||
|
Senior housing and care
|
$ | 382,904 | $ | 51,006 | $ | 36,176 | $ | 3,386 | $ | 473,472 | $ | 32,621 | $ | 440,851 | $ | 126,717 | $ | 22,905 | $ | 5,837,312 | ||||||||||||||||||||
|
Medical facilities(2)
|
220,506 | — | 4,679 | 985 | 226,170 | 53,844 | 172,326 | 75,826 | 24,926 | 3,389,441 | ||||||||||||||||||||||||||||||
|
Non-segment/Corporate
|
— | — | — | 2,874 | 2,874 | — | 2,874 | — | 113,129 | 224,981 | ||||||||||||||||||||||||||||||
| $ | 603,410 | $ | 51,006 | $ | 40,855 | $ | 7,245 | $ | 702,516 | $ | 86,465 | $ | 616,051 | $ | 202,543 | $ | 160,960 | $ | 9,451,734 | |||||||||||||||||||||
|
Year Ended December 31, 2009
|
||||||||||||||||||||||||||||||||||||||||
|
Senior housing and care
|
$ | 358,109 | $ | — | $ | 35,945 | $ | 5,309 | $ | 399,363 | $ | — | $ | 399,363 | $ | 101,300 | $ | 12,622 | $ | 4,135,065 | ||||||||||||||||||||
|
Medical facilities
|
181,802 | — | 4,940 | 9,368 | 196,110 | 48,965 | 147,145 | 63,623 | 20,584 | 2,140,044 | ||||||||||||||||||||||||||||||
|
Non-segment/Corporate
|
— | — | — | 1,170 | 1,170 | — | 1,170 | — | 76,566 | 92,077 | ||||||||||||||||||||||||||||||
| $ | 539,911 | $ | — | $ | 40,885 | $ | 15,847 | $ | 596,643 | $ | 48,965 | $ | 547,678 | $ | 164,923 | $ | 109,772 | $ | 6,367,186 | |||||||||||||||||||||
|
Year Ended December 31, 2008
|
||||||||||||||||||||||||||||||||||||||||
|
Senior housing and care
|
$ | 345,053 | $ | — | $ | 35,143 | $ | 5,994 | $ | 386,190 | $ | — | $ | 386,190 | $ | 98,675 | $ | 7,176 | ||||||||||||||||||||||
|
Medical facilities
|
177,128 | — | 4,920 | 2,835 | 184,883 | 46,629 | 138,254 | 64,370 | 21,828 | |||||||||||||||||||||||||||||||
|
Non-segment/Corporate
|
— | — | — | 1,692 | 1,692 | — | 1,692 | — | 112,055 | |||||||||||||||||||||||||||||||
| $ | 522,181 | $ | — | $ | 40,063 | $ | 10,521 | $ | 572,765 | $ | 46,629 | $ | 526,136 | $ | 163,045 | $ | 141,059 | |||||||||||||||||||||||
| (1) | Net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments and interest expense. We believe NOI provides investors relevant and useful information because it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties. | |
| (2) | Excludes income and expense amounts related to our life science buildings held in an unconsolidated joint venture. Please see Note 7 for additional information. |
| 18. | Income Taxes and Distributions |
To qualify as a real estate investment trust for federal income
tax purposes, at least 90% of taxable income (excluding 100% of
net capital gains) must be distributed to stockholders. Real
estate investment trusts that do not distribute a certain amount
of current year taxable income in the current year are also
subject to a 4% federal excise tax. The main differences between
undistributed net income for federal income tax purposes and
financial statement purposes are the recognition of
straight-line rent for reporting purposes, differing useful
lives and depreciation and amortization methods for real
property and the provision for loan losses for reporting
purposes versus bad debt expense for tax purposes.
108
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Cash distributions paid to common stockholders, for federal
income tax purposes, are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Per Share:
|
||||||||||||
|
Ordinary income
|
$ | 0.7774 | $ | 1.9865 | $ | 1.6196 | ||||||
|
Return of capital
|
1.7408 | 0.4864 | 0.8904 | |||||||||
|
Long-term capital gains
|
0.0190 | — | — | |||||||||
|
1250 gains
|
0.2028 | 0.2471 | 0.1900 | |||||||||
|
Totals
|
$ | 2.7400 | $ | 2.7200 | $ | 2.7000 | ||||||
At December 31, 2010, we had U.S. federal tax losses
from our taxable REIT subsidiaries (“TRS”) of
$19,812,000, as well as apportioned state tax losses of
$17,137,000 available for carryforward. Valuation allowances
have been established for these assets based upon our
assessment, as it is more likely than not that such assets may
not be realized. The U.S. federal and state tax loss
carryforwards expire from 2011 through 2030.
Tax expense reflected in the financial statements represents
state and local income taxes.
As a result of certain acquisitions, we are subject to corporate
level taxes for related asset dispositions for the period
December 30, 2010 through December 30, 2020
(“built-in gains tax”). The amount of income
potentially subject to this special corporate level tax is
generally equal to (a) the excess of the fair value of the
asset as of December 31, 2010 over its adjusted tax basis
as of December 31, 2010, or (b) the actual amount of
gain, whichever of (a) and (b) is lower. Some but not
all gains recognized during this period of time could be offset
by available net operating losses and capital loss
carryforwards. We have not recorded a deferred tax liability as
a result of the potential built-in gains tax based on our
intentions with respect to such properties and available tax
planning strategies.
Under the provisions of the REIT Investment Diversification and
Empowerment Act of 2007 (“RIDEA”), for taxable years
beginning after July 30, 2008, the REIT may lease
“qualified health care properties” on an
arm’s-length basis to a taxable REIT subsidiary if the
property is operated on behalf of such subsidiary by a person
who qualifies as an “eligible independent contractor.”
Generally, the rent received from the TRS will meet the related
party rent exception and will be treated as “rents from
real property.” A “qualified health care
property” includes real property and any personal property
that is, or is necessary or incidental to the use of, a
hospital, nursing facility, assisted living facility, congregate
care facility, qualified continuing care facility, or other
licensed facility which extends medical or nursing or ancillary
services to patients.
We entered into two joint ventures in 2010 that were structured
under RIDEA. Resident level rents and related operating expenses
for these facilities are reported in the consolidated financial
statements and are subject to federal taxes as the operations of
such facilities are included in a TRS. Certain net operating
loss carryforwards could be utilized to offset taxable income in
future years.
| 19. | Retirement Arrangements |
Under the retirement plan and trust (the “401(k)
Plan”), eligible employees may make contributions, and we
may make matching contributions and a profit sharing
contribution. Our contributions to the 401(k) Plan totaled
$1,341,000, $1,201,000 and $1,013,000 in 2010, 2009 and 2008,
respectively.
We have a Supplemental Executive Retirement Plan
(“SERP”), a non-qualified defined benefit pension
plan, which provides one executive officer with supplemental
deferred retirement benefits. The SERP provides an opportunity
for participants to receive retirement benefits that cannot be
paid under our tax-qualified plans because of the restrictions
imposed by ERISA and the Internal Revenue Code of 1986, as
amended. Benefits are based on compensation and length of
service and the SERP is unfunded. We expect to contribute
$1,500,000 to the SERP
109
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
during the 2011 fiscal year. Benefit payments are expected to
total $2,367,000 during the next five fiscal years and
$2,410,000 thereafter. We use a December 31 measurement date for
the SERP. The accrued liability on our balance sheet for the
SERP was $4,066,000 at December 31, 2010 ($3,287,000 at
December 31, 2009).
The following tables provide a reconciliation of the changes in
the SERP’s benefit obligations and a statement of the
funded status for the periods indicated (in thousands):
| Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Reconciliation of benefit obligation:
|
||||||||
|
Obligation at January 1
|
$ | 3,287 | $ | 3,109 | ||||
|
Service cost
|
413 | 389 | ||||||
|
Interest cost
|
115 | 164 | ||||||
|
Actuarial (gain) loss
|
251 | 434 | ||||||
|
Benefit Payments
|
— | (29 | ) | |||||
|
Curtailments
|
— | (780 | ) | |||||
|
Obligation at December 31
|
$ | 4,066 | $ | 3,287 | ||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Funded status:
|
||||||||
|
Funded status at December 31
|
$ | 4,066 | $ | (3,287 | ) | |||
|
Unrecognized (gain) loss
|
— | — | ||||||
|
Prepaid (accrued) benefit cost
|
$ | 4,066 | $ | (3,287 | ) | |||
The following table shows the components of net periodic benefit
costs for the periods indicated (in thousands):
| Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Service cost
|
$ | 413 | $ | 389 | ||||
|
Interest cost
|
115 | 164 | ||||||
|
Curtailment income
|
— | (87 | ) | |||||
|
Net actuarial (gain) loss
|
52 | 16 | ||||||
|
Net periodic benefit cost
|
$ | 580 | $ | 482 | ||||
The following table provides information for the SERP, which has
an accumulated benefit in excess of plan assets (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Projected benefit obligation
|
$ | 4,066 | $ | 3,287 | ||||
|
Accumulated benefit obligation
|
2,938 | 2,956 | ||||||
|
Fair value of assets
|
n/a | n/a | ||||||
110
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table reflects the weighted-average assumptions
used to determine the benefit obligations and net periodic
benefit cost for the SERP:
| Benefit Obligations | Net Periodic Benefit Cost | |||||||||||||||
| December 31, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Discount rate
|
3.50 | % | 3.50 | % | 3.50 | % | 6.25 | % | ||||||||
|
Rate of compensation increase
|
4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | ||||||||
|
Expected long-term return on plan assets
|
n/a | n/a | n/a | n/a | ||||||||||||
| 20. | Quarterly Results of Operations (Unaudited) |
The following is a summary of our unaudited quarterly results of
operations for the years ended December 31, 2010 and 2009
(in thousands, except per share data). The sum of individual
quarterly amounts may not agree to the annual amounts included
in the consolidated statements of income due to rounding.
| Year Ended December 31, 2010 | ||||||||||||||||
| 1st Quarter | 2nd Quarter | 3rd Quarter(2) | 4th Quarter | |||||||||||||
|
Revenues — as reported
|
$ | 152,759 | $ | 163,131 | $ | 176,146 | $ | 202,456 | ||||||||
|
Discontinued operations
|
(5,412 | ) | (5,412 | ) | (3,137 | ) | — | |||||||||
|
Revenues — as adjusted(1)
|
$ | 147,347 | $ | 157,719 | $ | 173,009 | $ | 202,456 | ||||||||
|
Net income (loss) attributable to common stockholders
|
$ | 25,812 | $ | 45,646 | $ | (4,563 | ) | $ | 39,988 | |||||||
|
Net income (loss) attributable to common stockholders per share:
|
||||||||||||||||
|
Basic
|
$ | 0.21 | $ | 0.37 | $ | (0.04 | ) | $ | 0.29 | |||||||
|
Diluted
|
0.21 | 0.37 | (0.04 | ) | 0.29 | |||||||||||
| Year Ended December 31, 2009 | ||||||||||||||||
| 1st Quarter | 2nd Quarter | 3rd Quarter(3) | 4th Quarter | |||||||||||||
|
Revenues — as reported
|
$ | 144,328 | $ | 141,686 | $ | 145,098 | $ | 147,261 | ||||||||
|
Discontinued operations
|
(10,607 | ) | (7,772 | ) | (8,044 | ) | (5,858 | ) | ||||||||
|
Revenues — as adjusted(1)
|
$ | 133,721 | $ | 133,914 | $ | 137,054 | $ | 141,403 | ||||||||
|
Net income attributable to common stockholders
|
$ | 61,119 | $ | 59,240 | $ | 19,130 | $ | 31,700 | ||||||||
|
Net income attributable to common stockholders per share:
|
||||||||||||||||
|
Basic
|
$ | 0.56 | $ | 0.53 | $ | 0.17 | $ | 0.26 | ||||||||
|
Diluted
|
0.56 | 0.53 | 0.17 | 0.26 | ||||||||||||
| (1) | We have reclassified the income attributable to the properties sold subsequent to January 1, 2002 and attributable to the properties held for sale at December 31, 2010 to discontinued operations. See Note 5. | |
| (2) | The decreases in net income and amounts per share are primarily attributable to provisions for loan losses ($28,918,000) and transaction costs ($18,835,000). Additionally, net income differs from amounts previously reported as it includes adjustments for additional expenses attributable to business combination purchase price adjustments that have been retroactively reflected ($5,687,000). | |
| (3) | The decreases in net income and amounts per share are primarily attributable to losses on extinguishment of debt ($26,374,000). |
111
Table of Contents
HEALTH
CARE REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 21. | Subsequent Events |
Line of credit extension
On January 24, 2011, we
provided notice to KeyBank National Association, as
administrative agent, of our desire to extend the
$1.15 billion unsecured line of credit arrangement with a
consortium of sixteen banks. Under the terms of the loan
agreement, we have the right to extend the revolving line of
credit for one year if we are in compliance with all covenants
and pay an extension fee of $1,725,000. As a result of the
extension, the line of credit will now expire on August 6,
2012. Please see Note 9 for additional information
regarding the line of credit.
Benchmark Senior Living
On February 15, 2011, we
signed definitive agreements to form an $890 million
partnership with Benchmark Senior Living, which will include 34
senior housing communities. Benchmark is a senior housing
operator in New England and will become the largest operator in
our portfolio by investment balance. This investment is
structured as a RIDEA partnership owned 95% by us and 5% by
Benchmark. Benchmark will continue to provide management
services to the communities under an incentive-based management
contract.
112
Table of Contents
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| Item 9A. | Controls and Procedures |
Disclosure
Controls and Procedures
An evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
disclosure controls and procedures (as defined in
Rule 13a-15(e)
of the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures
were effective as of the end of the period covered by this
report.
Management’s
Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
of the Securities Exchange Act of 1934, as amended). The
Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. The
Company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the Company’s assets that could have a
material effect on the financial statements. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s
internal control over financial reporting as of
December 31, 2010 based on the criteria established by the
Committee of Sponsoring Organizations of the Treadway Commission
in a report entitled Internal Control — Integrated
Framework. The scope of management’s assessment as of
December 31, 2010 did not include an assessment of the
internal control over financial reporting for the senior housing
operating partnerships or the strategic medical office
partnership, as discussed in Note 3 to the Company’s
consolidated financial statements, because they were acquired in
business combinations during the year ended December 31,
2010. The acquired businesses represent 15% of total assets at
December 31, 2010 and 7% and −2% of revenues and net
income, respectively, for the year then ended. The scope of
management’s assessment on internal control over financial
reporting for fiscal 2011 will include the aforementioned
acquired operations.
Based on this assessment, using the criteria above, management
concluded that the Company’s system of internal control
over financial reporting was effective as of December 31,
2010.
The independent registered public accounting firm of
Ernst & Young LLP, as auditors of the Company’s
consolidated financial statements, has issued an attestation
report on the Company’s internal control over financial
reporting.
Changes
in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as
defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934, as amended) occurred
during the fourth quarter of the one-year period covered by this
report that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
113
Table of Contents
Report of
Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting
The Board of Directors and Shareholders of Health Care REIT, Inc.
We have audited Health Care REIT, Inc.’s internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Health Care REIT,
Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on
Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal
control over financial reporting did not include the internal
controls of the Merrill Gardens Partnership, the Senior Star
Partnership or the Strategic Medical Office Partnership, which
are included in the 2010 consolidated financial statements of
Health Care REIT, Inc. and cumulatively constitute 15% of total
assets at December 31, 2010 and 7% and −2% of
revenues and net income, respectively, for the year then ended.
Our audit of the internal control over financial reporting of
Health Care REIT, Inc. also did not include an evaluation of the
internal control over financial reporting of the aforementioned
partnerships because they were acquired in business combinations
on September 1, 2010, December 30, 2010 and
December 31, 2010, respectively.
In our opinion, Health Care REIT, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
114
Table of Contents
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Health Care REIT, Inc. as of
December 31, 2010 and 2009, and the related consolidated
statements of income, equity, and cash flows for each of the
three years in the period ended December 31, 2010 of Health
Care REIT, Inc. and our report dated February 25, 2011
expressed an unqualified opinion thereon.
/s/
Ernst &
Young LLP
Toledo, Ohio
February 25, 2011
115
Table of Contents
| Item 9B. | Other Information |
None.
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this Item is incorporated herein by
reference to the information under the headings “Election
of Directors,” “Executive Officers,” “Board
and Committees,” “Communications with the Board”
and “Security Ownership of Directors and Management and
Certain Beneficial Owners — Section 16(a)
Compliance” in our definitive proxy statement, which will
be filed with the Securities and Exchange Commission
(“Commission”) prior to April 30, 2011.
We have adopted a Code of Business Conduct & Ethics
that applies to our directors, officers and employees. The code
is posted on the Internet at www.hcreit.com. Any amendment to,
or waivers from, the code that relate to any officer or director
of the Company will be promptly disclosed on the Internet at
www.hcreit.com.
In addition, the Board has adopted charters for the Audit,
Compensation and Nominating/Corporate Governance Committees.
These charters are posted on the Internet at www.hcreit.com.
| Item 11. | Executive Compensation |
The information required by this Item is incorporated herein by
reference to the information under the headings “Executive
Compensation,” “Compensation Committee Report”
and “Director Compensation” in our definitive proxy
statement, which will be filed with the Commission prior to
April 30, 2011.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item is incorporated herein by
reference to the information under the headings “Security
Ownership of Directors and Management and Certain Beneficial
Owners” and “Equity Compensation Plan
Information” in our definitive proxy statement, which will
be filed with the Commission prior to April 30, 2011.
| Item 13. | Certain Relationships and Related Transactions and Director Independence |
The information required by this Item is incorporated herein by
reference to the information under the headings “Board and
Committees — Independence and Meetings” and
“Certain Relationships and Related Transactions” in
our definitive proxy statement, which will be filed with the
Commission prior to April 30, 2011.
| Item 14. | Principal Accounting Fees and Services |
The information required by this Item is incorporated herein by
reference to the information under the headings
“Ratification of the Appointment of the Independent
Registered Public Accounting Firm” and “Pre-Approval
Policies and Procedures” in our definitive proxy statement,
which will be filed with the Commission prior to April 30,
2011.
116
| Item 15. | Exhibits and Financial Statement Schedules |
(a) 1.
Our Consolidated Financial Statements are
included in Part II, Item 8:
| 76 | ||||
| 77 | ||||
| 78 | ||||
| 79 | ||||
| 80 | ||||
| 81 |
2.
The following Financial Statement Schedules are
included in Item 15(c):
|
III
|
—Real Estate and Accumulated Depreciation | |||||||||
|
IV
|
—Mortgage Loans on Real Estate |
3. Exhibit Index:
| 1 | .1 | Form of Equity Distribution Agreement, dated as of November 12, 2010, entered into by and between the Company and each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. (filed with the Commission as Exhibit 1.1 to the Company’s Form 8-K filed November 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 2 | .1(a) | Agreement and Plan of Merger, dated as of September 12, 2006, by and among the Company, Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K filed September 15, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 2 | .1(b) | Amendment No. 1 to Agreement and Plan of Merger, dated as of October 12, 2006, by and among the Company, Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K filed October 13, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(a) | Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(b) | Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(c) | Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(d) | Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed June 13, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(e) | Certificate of Designation of 7 7 / 8 % Series D Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A/A filed July 8, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(f) | Certificate of Designation of 7 5 / 8 % Series F Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A filed September 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto). |
117
Table of Contents
| 3 | .1(g) | Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.9 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(h) | Certificate of Change of Location of Registered Office and of Registered Agent of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-Q filed August 6, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(i) | Certificate of Designation of 6% Series H Cumulative Convertible and Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed January 11, 2011 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .2 | Second Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed October 29, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(a) | Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(b) | Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(c) | Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 14, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(d) | Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(e) | Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(f) | Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed October 30, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(g) | Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 13, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(h) | Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed April 28, 2005 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(i) | Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 30, 2005 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .2(a) | Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto). |
118
Table of Contents
| 4 | .2(b) | Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .2(c) | Supplemental Indenture No. 2, dated as of July 20, 2007, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed July 20, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(a) | Indenture, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(b) | Supplemental Indenture No. 1, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(c) | Amendment No. 1 to Supplemental Indenture No. 1, dated as of June 18, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the Company’s Form 8-K filed June 18, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(d) | Supplemental Indenture No. 2, dated as of April 7, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed April 7, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(e) | Amendment No. 1 to Supplemental Indenture No. 2, dated as of June 8, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the Company’s Form 8-K filed June 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(f) | Supplemental Indenture No. 3, dated as of September 10, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(g) | Supplemental Indenture No. 4, dated as of November 16, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed November 16, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .4 | Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto). | ||
| 4 | .5 | Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto). | ||
| 10 | .1 | Fourth Amended and Restated Loan Agreement, dated as of August 6, 2007, by and among the Company and certain of its subsidiaries, the banks signatory thereto, KeyBank National Association, as administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC, Bank of America, N.A., JPMorgan Chase Bank, N.A., Calyon New York Branch, Barclays Bank PLC and Fifth Third Bank, as documentation agents (filed with the SEC as Exhibit 10.2 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 10 | .2 | Health Care REIT, Inc. Interest Rate & Currency Risk Management Policy adopted on May 6, 2004 (filed with the Commission as Exhibit 10.6 to the Company’s Form 10-Q filed July 23, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 10 | .3(a) | The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .3(b) | First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-40771) filed November 21, 1997, and incorporated herein by reference thereto).* | ||
| 10 | .3(c) | Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.3 to the Company’s Form S-8 (File No. 333-73916) filed November 21, 2001, and incorporated herein by reference thereto).* |
119
Table of Contents
| 10 | .3(d) | Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.15 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .3(e) | Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.17 to the Company’s Form 10-K filed March 16, 2005 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .4(a) | Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .4(b) | First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .4(c) | Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q/A filed October 27, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(a) | Amended and Restated Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the Commission as Appendix A to the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders, filed March 25, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(b) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(c) | Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.6 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(d) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.8 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(e) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(f) | Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.7 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(g) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.9 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(h) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(i) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(j) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(k) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* |
120
Table of Contents
| 10 | .5(l) | Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(m) | Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.23 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(n) | Form of Restricted Stock Agreement for the Chief Executive Officer under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(o) | Form of Restricted Stock Agreement for Executive Officers under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.4 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(p) | Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(q) | Form of Amendment to Deferred Stock Unit Grant Agreements for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.10 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(r) | Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.11 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(s) | Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.5 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .6 | Fifth Amended and Restated Employment Agreement, dated December 2, 2010, by and between the Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed December 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .7 | Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Scott A. Estes (filed with the Commission as Exhibit 10.4 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .8 | Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.3 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .9 | Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Jeffrey H. Miller (filed with the Commission as Exhibit 10.8 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .10 | Employment Agreement, dated January 19, 2009, between the Company and John T. Thomas (filed with the Commission as Exhibit 10.10 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .11 | Third Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Erin C. Ibele (filed with the Commission as Exhibit 10.11 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .12 | Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.12 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .13 | Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and Fred S. Klipsch (filed with the Commission as Exhibit 10.5 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .14 | Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and Frederick L. Farrar (filed with the Commission as Exhibit 10.14 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* |
121
Table of Contents
| 10 | .15 | Amended and Restated Health Care REIT, Inc. Supplemental Executive Retirement Plan, dated December 29, 2008 (filed with the Commission as Exhibit 10.12 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .16 | Form of Indemnification Agreement between the Company and each director, executive officer and officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed February 18, 2005 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .17 | Summary of Director Compensation.* | ||
| 12 | Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Unaudited). | |||
| 14 | Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | |||
| 21 | Subsidiaries of the Company. | |||
| 23 | Consent of Ernst & Young LLP, independent registered public accounting firm. | |||
| 24 | .1 | Power of Attorney executed by William C. Ballard, Jr. (Director). | ||
| 24 | .2 | Power of Attorney executed by Pier C. Borra (Director). | ||
| 24 | .3 | Power of Attorney executed by Thomas J. DeRosa (Director). | ||
| 24 | .4 | Power of Attorney executed by Jeffrey H. Donahue (Director). | ||
| 24 | .5 | Power of Attorney executed by Peter J. Grua (Director). | ||
| 24 | .6 | Power of Attorney executed by Fred S. Klipsch (Director). | ||
| 24 | .7 | Power of Attorney executed by Sharon M. Oster (Director). | ||
| 24 | .8 | Power of Attorney executed by Jeffrey R. Otten (Director). | ||
| 24 | .9 | Power of Attorney executed by R. Scott Trumbull (Director). | ||
| 24 | .10 | Power of Attorney executed by George L. Chapman (Director, Chairman of the Board, Chief Executive Officer and President and Principal Executive Officer). | ||
| 24 | .11 | Power of Attorney executed by Scott A. Estes (Executive Vice President and Chief Financial Officer and Principal Financial Officer). | ||
| 24 | .12 | Power of Attorney executed by Paul D. Nungester, Jr. (Vice President and Controller and Principal Accounting Officer). | ||
| 31 | .1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | ||
| 31 | .2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | ||
| 32 | .1 | Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer. | ||
| 32 | .2 | Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer. |
| * | Management Contract or Compensatory Plan or Arrangement. |
(b)
Exhibits:
The exhibits listed in Item 15(a)(3) above are either filed
with this
Form 10-K
or incorporated by reference in accordance with
Rule 12b-32
of the Securities Exchange Act of 1934.
(c)
Financial Statement Schedules:
Financial statement schedules are included on pages 124 through
135.
122
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
HEALTH CARE REIT, INC.
| By: |
/s/
George
L. Chapman
|
Chairman, Chief Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on February 25,
2011, by the following person on behalf of the Company and in
the capacities indicated.
|
/s/
William
C. Ballard, Jr.**
|
/s/
Sharon
M. Oster**
|
|
|
|
|
|
|
William C. Ballard, Jr., Director
|
Sharon M. Oster, Director | |
|
/s/
Pier
C. Borra**
|
/s/
Jeffrey
R. Otten**
|
|
|
|
|
|
|
Pier C. Borra, Director
|
Jeffrey R. Otten, Director | |
|
/s/
Thomas
J. Derosa**
|
/s/
R.
Scott Trumbull**
|
|
|
|
|
|
|
Thomas J. DeRosa, Director
|
R. Scott Trumbull, Director | |
|
/s/
Jeffrey
H. Donahue**
|
/s/
George
L. Chapman
|
|
|
|
|
|
|
Jeffrey H. Donahue, Director
|
George L. Chapman, Chairman, Chief Executive | |
| Officer, President and Director | ||
| (Principal Executive Officer) | ||
|
/s/
Peter
J. Grua**
|
/s/
Scott
A. ESTES**
|
|
|
|
|
|
|
Peter J. Grua, Director
|
Scott A. Estes, Executive Vice President and Chief | |
| Financial Officer (Principal Financial Officer) | ||
|
/s/
Fred
S. Klipsch**
|
/s/
Paul
D. Nungester, Jr.**
|
|
|
|
|
|
|
Fred S. Klipsch, Director
|
Paul D. Nungester, Jr., Vice President and Controller | |
| (Principal Accounting Officer) | ||
|
**By:
/s/
George
L. Chapman
|
||
|
|
||
| George L. Chapman, Attorney-in-Fact |
123
Table of Contents
HEALTH
CARE REIT, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2010
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2010
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Senior housing and care facilities:
|
||||||||||||||||||||||||||||||||||||
|
Aboite Twp, IN
|
$ | — | $ | 1,770 | $ | 19,930 | $ | — | $ | 1,770 | $ | 19,930 | $ | 132 | 2010 | 2008 | ||||||||||||||||||||
|
Agawam, MA
|
— | 880 | 16,112 | 2,135 | 880 | 18,247 | 4,167 | 2002 | 1993 | |||||||||||||||||||||||||||
|
Akron, OH
|
— | 290 | 8,219 | 492 | 290 | 8,711 | 1,297 | 2005 | 1961 | |||||||||||||||||||||||||||
|
Akron, OH
|
— | 630 | 7,535 | 185 | 630 | 7,720 | 977 | 2006 | 1915 | |||||||||||||||||||||||||||
|
Albertville, AL
|
2,110 | 170 | 6,203 | — | 170 | 6,203 | 207 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Albuquerque, NM
|
5,901 | 1,270 | 20,837 | — | 1,270 | 20,837 | — | 2010 | 1984 | |||||||||||||||||||||||||||
|
Alexandria, VA
|
— | 1,330 | 7,820 | — | 1,330 | 7,820 | 459 | 2008 | 1955 | |||||||||||||||||||||||||||
|
Alliance, OH
|
4,621 | 270 | 7,723 | 107 | 270 | 7,830 | 1,083 | 2006 | 1982 | |||||||||||||||||||||||||||
|
Amarillo, TX
|
— | 540 | 7,260 | — | 540 | 7,260 | 1,170 | 2005 | 1986 | |||||||||||||||||||||||||||
|
Amelia Island, FL
|
— | 3,290 | 24,310 | 19,007 | 3,290 | 43,317 | 4,235 | 2005 | 1998 | |||||||||||||||||||||||||||
|
Ames, IA
|
— | 330 | 8,871 | — | 330 | 8,871 | 161 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Anderson, SC
|
— | 710 | 6,290 | — | 710 | 6,290 | 1,402 | 2003 | 1986 | |||||||||||||||||||||||||||
|
Apple Valley, CA
|
8,390 | 480 | 16,639 | — | 480 | 16,639 | 449 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Arcadia, LA
|
— | 240 | 5,460 | — | 240 | 5,460 | 882 | 2006 | 2006 | |||||||||||||||||||||||||||
|
Asheboro, NC
|
— | 290 | 5,032 | 166 | 290 | 5,198 | 1,047 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Asheville, NC
|
— | 204 | 3,489 | — | 204 | 3,489 | 1,208 | 1999 | 1999 | |||||||||||||||||||||||||||
|
Asheville, NC
|
— | 280 | 1,955 | 352 | 280 | 2,307 | 524 | 2003 | 1992 | |||||||||||||||||||||||||||
|
Atlanta, GA
|
7,997 | 2,058 | 14,914 | 548 | 2,058 | 15,462 | 7,889 | 1997 | 1999 | |||||||||||||||||||||||||||
|
Atlanta, GA
|
— | 460 | 5,540 | 190 | 460 | 5,730 | 975 | 2005 | 1972 | |||||||||||||||||||||||||||
|
Auburndale, FL
|
— | 750 | 5,950 | 166 | 750 | 6,116 | 991 | 2005 | 1983 | |||||||||||||||||||||||||||
|
Aurora, CO
|
— | 2,600 | 5,906 | 7,915 | 2,600 | 13,821 | 1,767 | 2006 | 2006 | |||||||||||||||||||||||||||
|
Aurora, CO
|
— | 2,440 | 28,172 | — | 2,440 | 28,172 | 2,101 | 2006 | 2008 | |||||||||||||||||||||||||||
|
Austin, TX
|
19,819 | 880 | 9,520 | 396 | 880 | 9,916 | 3,249 | 1999 | 1998 | |||||||||||||||||||||||||||
|
Austin, TX
|
10,185 | 730 | 18,970 | — | 730 | 18,970 | 1,912 | 2007 | 2006 | |||||||||||||||||||||||||||
|
Avon, IN
|
— | 1,830 | 14,470 | — | 1,830 | 14,470 | 274 | 2010 | 2004 | |||||||||||||||||||||||||||
|
Azusa, CA
|
— | 570 | 3,141 | 5,936 | 570 | 9,077 | 1,050 | 1998 | 1988 | |||||||||||||||||||||||||||
|
Baltic, OH
|
3,787 | 50 | 8,709 | 189 | 50 | 8,898 | 1,205 | 2006 | 1983 | |||||||||||||||||||||||||||
|
Bartlesville, OK
|
— | 100 | 1,380 | — | 100 | 1,380 | 570 | 1996 | 1995 | |||||||||||||||||||||||||||
|
Baytown, TX
|
9,553 | 450 | 6,150 | — | 450 | 6,150 | 1,516 | 2002 | 2000 | |||||||||||||||||||||||||||
|
Baytown, TX
|
— | 540 | 11,110 | — | 540 | 11,110 | 355 | 2009 | 2008 | |||||||||||||||||||||||||||
|
Beachwood, OH
|
— | 1,260 | 23,478 | — | 1,260 | 23,478 | 5,876 | 2001 | 1990 | |||||||||||||||||||||||||||
|
Beattyville, KY
|
— | 100 | 6,900 | — | 100 | 6,900 | 1,068 | 2005 | 1972 | |||||||||||||||||||||||||||
|
Bellevue, WI
|
— | 1,740 | 18,260 | 571 | 1,740 | 18,831 | 2,206 | 2006 | 2004 | |||||||||||||||||||||||||||
|
Bellingham, WA
|
10,429 | 1,500 | 19,861 | — | 1,500 | 19,861 | 497 | 2010 | 1996 | |||||||||||||||||||||||||||
|
Bethel Park, PA
|
— | 1,700 | 16,007 | — | 1,700 | 16,007 | 775 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Boise, ID
|
— | 810 | 5,401 | — | 810 | 5,401 | 2,229 | 1998 | 1966 | |||||||||||||||||||||||||||
|
Boonville, IN
|
— | 190 | 5,510 | — | 190 | 5,510 | 1,344 | 2002 | 2000 | |||||||||||||||||||||||||||
|
Boynton Beach, FL
|
— | 980 | 8,112 | — | 980 | 8,112 | 1,502 | 2004 | 1999 | |||||||||||||||||||||||||||
|
Bradenton, FL
|
— | 252 | 3,298 | — | 252 | 3,298 | 1,378 | 1996 | 1995 | |||||||||||||||||||||||||||
|
Braintree, MA
|
— | 170 | 7,157 | 1,290 | 170 | 8,447 | 5,916 | 1997 | 1968 | |||||||||||||||||||||||||||
|
Brandon, MS
|
— | 1,220 | 10,241 | — | 1,220 | 10,241 | 47 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Bremerton, WA
|
— | 390 | 2,210 | 144 | 390 | 2,354 | 241 | 2006 | 1999 | |||||||||||||||||||||||||||
|
Bremerton, WA
|
— | 830 | 10,420 | — | 830 | 10,420 | — | 2010 | 1984 | |||||||||||||||||||||||||||
|
Brick, NJ
|
— | 1,170 | 17,372 | — | 1,170 | 17,372 | — | 2010 | 1998 | |||||||||||||||||||||||||||
|
Brick, NJ(1)
|
— | 690 | 17,125 | — | 690 | 17,125 | — | 2010 | 1999 | |||||||||||||||||||||||||||
|
Bridgewater, NJ
|
— | 1,850 | 3,050 | — | 1,850 | 3,050 | 751 | 2004 | 1970 | |||||||||||||||||||||||||||
|
Bridgewater, NJ
|
— | 1,730 | 48,201 | — | 1,730 | 48,201 | — | 2010 | 1999 | |||||||||||||||||||||||||||
|
Brighton, MA
|
— | 240 | 3,859 | 2,126 | 240 | 5,985 | 959 | 2005 | 1982 | |||||||||||||||||||||||||||
|
Broadview Heights, OH
|
— | 920 | 12,400 | 2,237 | 920 | 14,637 | 3,135 | 2001 | 1984 | |||||||||||||||||||||||||||
|
Bunnell, FL
|
— | 260 | 7,118 | — | 260 | 7,118 | 1,396 | 2004 | 1985 | |||||||||||||||||||||||||||
|
Burlington, NC
|
— | 280 | 4,297 | 707 | 280 | 5,004 | 995 | 2003 | 2000 | |||||||||||||||||||||||||||
|
Burlington, NC
|
— | 460 | 5,467 | — | 460 | 5,467 | 1,120 | 2003 | 1997 | |||||||||||||||||||||||||||
|
Butler, AL
|
— | 90 | 3,510 | — | 90 | 3,510 | 750 | 2004 | 1960 | |||||||||||||||||||||||||||
|
Butte, MT
|
— | 550 | 3,957 | 43 | 550 | 4,000 | 1,112 | 1998 | 1999 | |||||||||||||||||||||||||||
|
Byrdstown, TN
|
— | — | 2,414 | — | — | 2,414 | 1,086 | 2004 | 1982 | |||||||||||||||||||||||||||
|
Canton, MA
|
— | 820 | 8,201 | 263 | 820 | 8,464 | 2,221 | 2002 | 1993 | |||||||||||||||||||||||||||
|
Canton, OH
|
— | 300 | 2,098 | — | 300 | 2,098 | 720 | 1998 | 1998 | |||||||||||||||||||||||||||
|
Cape Coral, FL
|
— | 530 | 3,281 | — | 530 | 3,281 | 805 | 2002 | 2000 | |||||||||||||||||||||||||||
|
Carmel, IN
|
— | 2,370 | 57,175 | 263 | 2,370 | 57,438 | 3,794 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Cary, NC
|
— | 1,500 | 4,350 | 986 | 1,500 | 5,336 | 1,669 | 1998 | 1996 | |||||||||||||||||||||||||||
|
Chapel Hill, NC
|
— | 354 | 2,646 | 783 | 354 | 3,429 | 794 | 2002 | 1997 | |||||||||||||||||||||||||||
124
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Chelmsford, MA
|
— | 1,040 | 10,951 | — | 1,040 | 10,951 | 2,130 | 2003 | 1997 | |||||||||||||||||||||||||||
|
Chickasha, OK
|
— | 85 | 1,395 | — | 85 | 1,395 | 570 | 1996 | 1996 | |||||||||||||||||||||||||||
|
Cincinnati, OH
|
— | 2,060 | 109,388 | — | 2,060 | 109,388 | 1,404 | 2007 | 2010 | |||||||||||||||||||||||||||
|
Citrus Heights, CA
|
15,578 | 2,300 | 31,876 | — | 2,300 | 31,876 | 722 | 2010 | 1997 | |||||||||||||||||||||||||||
|
Claremore, OK
|
— | 155 | 1,428 | — | 155 | 1,428 | 563 | 1996 | 1996 | |||||||||||||||||||||||||||
|
Clarksville, TN
|
— | 330 | 2,292 | — | 330 | 2,292 | 778 | 1998 | 1998 | |||||||||||||||||||||||||||
|
Clearwater, FL
|
— | 160 | 7,218 | — | 160 | 7,218 | 1,281 | 2004 | 1961 | |||||||||||||||||||||||||||
|
Clearwater, FL
|
— | 1,260 | 2,740 | 200 | 1,260 | 2,940 | 593 | 2005 | 1983 | |||||||||||||||||||||||||||
|
Cleburne, TX
|
— | 520 | 5,369 | — | 520 | 5,369 | 509 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Cleveland, TN
|
— | 350 | 5,000 | 122 | 350 | 5,122 | 1,379 | 2001 | 1987 | |||||||||||||||||||||||||||
|
Coeur d’Alene, ID
|
— | 600 | 7,878 | — | 600 | 7,878 | 2,865 | 1998 | 1996 | |||||||||||||||||||||||||||
|
Colorado Springs, CO
|
— | 310 | 6,290 | — | 310 | 6,290 | 1,077 | 2005 | 1985 | |||||||||||||||||||||||||||
|
Colts Neck, NJ
|
— | 780 | 14,733 | — | 780 | 14,733 | — | 2010 | 2002 | |||||||||||||||||||||||||||
|
Columbia, TN
|
— | 341 | 2,295 | — | 341 | 2,295 | 789 | 1999 | 1999 | |||||||||||||||||||||||||||
|
Columbia, TN
|
— | 590 | 3,787 | — | 590 | 3,787 | 1,019 | 2003 | 1974 | |||||||||||||||||||||||||||
|
Columbia, SC
|
— | 2,120 | 4,860 | 5,709 | 2,120 | 10,569 | 1,644 | 2003 | 2000 | |||||||||||||||||||||||||||
|
Columbus, IN
|
— | 610 | 3,190 | — | 610 | 3,190 | 59 | 2010 | 1998 | |||||||||||||||||||||||||||
|
Columbus, IN
|
— | 530 | 5,170 | 1,540 | 530 | 6,710 | 1,492 | 2002 | 2001 | |||||||||||||||||||||||||||
|
Columbus, OH
|
— | 1,070 | 11,726 | 1,204 | 1,070 | 12,930 | 1,801 | 2005 | 1968 | |||||||||||||||||||||||||||
|
Columbus, OH
|
4,254 | 1,010 | 4,931 | 91 | 1,010 | 5,022 | 763 | 2006 | 1983 | |||||||||||||||||||||||||||
|
Columbus, OH
|
— | 1,860 | 16,624 | 1,077 | 1,860 | 17,701 | 2,389 | 2006 | 1978 | |||||||||||||||||||||||||||
|
Concord, NC
|
— | 550 | 3,921 | 55 | 550 | 3,976 | 903 | 2003 | 1997 | |||||||||||||||||||||||||||
|
Conroe, TX
|
— | 980 | 7,771 | — | 980 | 7,771 | 134 | 2009 | 2010 | |||||||||||||||||||||||||||
|
Corpus Christi, TX
|
— | 307 | 443 | — | 307 | 443 | 203 | 2005 | 1985 | |||||||||||||||||||||||||||
|
Corpus Christi, TX
|
— | 400 | 1,916 | — | 400 | 1,916 | 431 | 2005 | 1985 | |||||||||||||||||||||||||||
|
Crystal Lake, IL
|
— | 840 | 7,290 | — | 840 | 7,290 | 456 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Dade City, FL
|
— | 250 | 7,150 | — | 250 | 7,150 | 1,315 | 2004 | 1975 | |||||||||||||||||||||||||||
|
Danville, VA
|
— | 410 | 3,954 | 722 | 410 | 4,676 | 970 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Davenport, IA
|
— | 1,403 | 35,893 | 1,781 | 1,403 | 37,674 | 1,055 | 2006 | 2009 | |||||||||||||||||||||||||||
|
Daytona Beach, FL
|
— | 470 | 5,930 | — | 470 | 5,930 | 1,187 | 2004 | 1986 | |||||||||||||||||||||||||||
|
Daytona Beach, FL
|
— | 490 | 5,710 | — | 490 | 5,710 | 1,185 | 2004 | 1961 | |||||||||||||||||||||||||||
|
DeBary, FL
|
— | 440 | 7,460 | — | 440 | 7,460 | 1,365 | 2004 | 1965 | |||||||||||||||||||||||||||
|
Dedham, MA
|
— | 1,360 | 9,830 | — | 1,360 | 9,830 | 2,588 | 2002 | 1996 | |||||||||||||||||||||||||||
|
DeForest, WI
|
— | 250 | 5,350 | 354 | 250 | 5,704 | 540 | 2007 | 2006 | |||||||||||||||||||||||||||
|
Defuniak Springs, FL
|
— | 1,350 | 10,250 | — | 1,350 | 10,250 | 1,277 | 2006 | 1980 | |||||||||||||||||||||||||||
|
DeLand, FL
|
— | 220 | 7,080 | — | 220 | 7,080 | 1,307 | 2004 | 1967 | |||||||||||||||||||||||||||
|
Denton, MD
|
— | 390 | 4,010 | 206 | 390 | 4,216 | 1,046 | 2003 | 1982 | |||||||||||||||||||||||||||
|
Denver, CO
|
— | 2,530 | 9,514 | — | 2,530 | 9,514 | 1,404 | 2005 | 1986 | |||||||||||||||||||||||||||
|
Denver, CO
|
— | 3,650 | 14,906 | 1,585 | 3,650 | 16,491 | 1,704 | 2006 | 1987 | |||||||||||||||||||||||||||
|
Denver, CO
|
— | 2,076 | 13,594 | — | 2,076 | 13,594 | 422 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Douglasville, GA
|
— | 1,350 | 7,471 | — | 1,350 | 7,471 | 1,778 | 2003 | 1975 | |||||||||||||||||||||||||||
|
Douglasville, GA
|
— | 90 | 217 | — | 90 | 217 | 53 | 2003 | 1985 | |||||||||||||||||||||||||||
|
Drescher, PA
|
— | 2,060 | 40,236 | — | 2,060 | 40,236 | — | 2010 | 2001 | |||||||||||||||||||||||||||
|
Dublin, OH
|
19,513 | 1,680 | 43,423 | — | 1,680 | 43,423 | — | 2010 | 1990 | |||||||||||||||||||||||||||
|
Durham, NC
|
— | 1,476 | 10,659 | 2,196 | 1,476 | 12,855 | 6,977 | 1997 | 1999 | |||||||||||||||||||||||||||
|
East Norriston, PA
|
— | 1,200 | 28,129 | — | 1,200 | 28,129 | — | 2010 | 1988 | |||||||||||||||||||||||||||
|
Easton, PA
|
— | 285 | 6,315 | — | 285 | 6,315 | 3,301 | 1993 | 1959 | |||||||||||||||||||||||||||
|
Eden, NC
|
— | 390 | 4,877 | — | 390 | 4,877 | 1,018 | 2003 | 1998 | |||||||||||||||||||||||||||
|
El Paso, TX
|
— | 539 | 8,961 | 232 | 539 | 9,193 | 1,455 | 2005 | 1970 | |||||||||||||||||||||||||||
|
El Paso, TX
|
— | 642 | 3,958 | 1,100 | 642 | 5,058 | 831 | 2005 | 1969 | |||||||||||||||||||||||||||
|
Elizabeth City, NC
|
— | 200 | 2,760 | 2,011 | 200 | 4,771 | 1,359 | 1998 | 1999 | |||||||||||||||||||||||||||
|
Elizabethton, TN
|
— | 310 | 4,604 | 336 | 310 | 4,940 | 1,370 | 2001 | 1980 | |||||||||||||||||||||||||||
|
Encinitas, CA
|
— | 1,460 | 7,721 | — | 1,460 | 7,721 | 2,346 | 2000 | 2000 | |||||||||||||||||||||||||||
|
Englishtown, NJ
|
— | 690 | 12,520 | — | 690 | 12,520 | — | 2010 | 1997 | |||||||||||||||||||||||||||
|
Erin, TN
|
— | 440 | 8,060 | 134 | 440 | 8,194 | 2,114 | 2001 | 1981 | |||||||||||||||||||||||||||
|
Eugene, OR
|
— | 300 | 5,316 | — | 300 | 5,316 | 2,089 | 1998 | 1972 | |||||||||||||||||||||||||||
|
Everett, WA
|
— | 1,400 | 5,476 | — | 1,400 | 5,476 | 1,768 | 1999 | 1999 | |||||||||||||||||||||||||||
|
Fairfield, CA
|
— | 1,460 | 14,040 | — | 1,460 | 14,040 | 3,510 | 2002 | 1998 | |||||||||||||||||||||||||||
|
Fairhaven, MA
|
— | 770 | 6,230 | — | 770 | 6,230 | 1,117 | 2004 | 1999 | |||||||||||||||||||||||||||
|
Fall River, MA
|
— | 620 | 5,829 | 4,856 | 620 | 10,685 | 3,445 | 1996 | 1973 | |||||||||||||||||||||||||||
|
Fayetteville, NY
|
— | 410 | 3,962 | 500 | 410 | 4,462 | 1,071 | 2001 | 1997 | |||||||||||||||||||||||||||
|
Findlay, OH
|
— | 200 | 1,800 | — | 200 | 1,800 | 677 | 1997 | 1997 | |||||||||||||||||||||||||||
|
Fishers, IN
|
— | 1,500 | 14,500 | — | 1,500 | 14,500 | 274 | 2010 | 2000 | |||||||||||||||||||||||||||
|
Florence, NJ
|
— | 300 | 2,978 | — | 300 | 2,978 | 727 | 2002 | 1999 | |||||||||||||||||||||||||||
|
Florence, AL
|
7,420 | 353 | 13,049 | — | 353 | 13,049 | 353 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Forest City, NC
|
— | 320 | 4,497 | — | 320 | 4,497 | 947 | 2003 | 1999 | |||||||||||||||||||||||||||
|
Fork Union, VA
|
— | 310 | 2,490 | 60 | 310 | 2,550 | 163 | 2008 | 1990 | |||||||||||||||||||||||||||
|
Fort Pierce, FL
|
— | 440 | 3,560 | 117 | 440 | 3,677 | 590 | 2005 | 1973 | |||||||||||||||||||||||||||
|
Fredericksburg, VA
|
— | 1,000 | 20,000 | 303 | 1,000 | 20,303 | 3,040 | 2005 | 1999 | |||||||||||||||||||||||||||
|
Fremont, CA
|
20,302 | 3,400 | 25,300 | 1,427 | 3,400 | 26,727 | 3,370 | 2005 | 1987 | |||||||||||||||||||||||||||
|
Gardnerville, NV
|
13,121 | 1,143 | 10,831 | 629 | 1,143 | 11,460 | 6,259 | 1998 | 1999 | |||||||||||||||||||||||||||
125
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Gastonia, NC
|
— | 470 | 6,129 | — | 470 | 6,129 | 1,247 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Gastonia, NC
|
— | 310 | 3,096 | 22 | 310 | 3,118 | 679 | 2003 | 1994 | |||||||||||||||||||||||||||
|
Gastonia, NC
|
— | 400 | 5,029 | 120 | 400 | 5,149 | 1,052 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Georgetown, TX
|
— | 200 | 2,100 | — | 200 | 2,100 | 776 | 1997 | 1997 | |||||||||||||||||||||||||||
|
Gig Harbor, WA
|
6,165 | 1,560 | 15,947 | — | 1,560 | 15,947 | 409 | 2010 | 1994 | |||||||||||||||||||||||||||
|
Gilroy, CA
|
— | 760 | 13,880 | 23,860 | 760 | 37,740 | 3,089 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Goochland, VA
|
— | 350 | 3,697 | — | 350 | 3,697 | 236 | 2008 | 1991 | |||||||||||||||||||||||||||
|
Goshen, IN
|
— | 210 | 6,120 | — | 210 | 6,120 | 864 | 2005 | 2006 | |||||||||||||||||||||||||||
|
Graceville, FL
|
— | 150 | 13,000 | — | 150 | 13,000 | 1,575 | 2006 | 1980 | |||||||||||||||||||||||||||
|
Grand Ledge, MI
|
8,549 | 1,150 | 16,286 | — | 1,150 | 16,286 | — | 2010 | 1999 | |||||||||||||||||||||||||||
|
Grand Prairie, TX
|
— | 574 | 3,426 | — | 574 | 3,426 | 668 | 2005 | 1982 | |||||||||||||||||||||||||||
|
Granger, IN
|
— | 1,670 | 21,280 | — | 1,670 | 21,280 | 141 | 2010 | 2009 | |||||||||||||||||||||||||||
|
Granite City, IL
|
— | 610 | 7,143 | 842 | 610 | 7,985 | 4,804 | 1998 | 1973 | |||||||||||||||||||||||||||
|
Granite City, IL
|
— | 400 | 4,303 | 707 | 400 | 5,010 | 2,949 | 1999 | 1964 | |||||||||||||||||||||||||||
|
Greeneville, TN
|
— | 400 | 8,290 | — | 400 | 8,290 | 1,626 | 2004 | 1979 | |||||||||||||||||||||||||||
|
Greenfield, WI
|
— | 600 | 6,626 | 328 | 600 | 6,954 | 620 | 2006 | 2006 | |||||||||||||||||||||||||||
|
Greensboro, NC
|
— | 330 | 2,970 | 554 | 330 | 3,524 | 749 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Greensboro, NC
|
— | 560 | 5,507 | 1,013 | 560 | 6,520 | 1,374 | 2003 | 1997 | |||||||||||||||||||||||||||
|
Greenville, SC
|
— | 310 | 4,750 | — | 310 | 4,750 | 873 | 2004 | 1997 | |||||||||||||||||||||||||||
|
Greenville, SC
|
— | 5,400 | 100,523 | 634 | 5,400 | 101,157 | 2,681 | 2006 | 2009 | |||||||||||||||||||||||||||
|
Greenville, NC
|
— | 290 | 4,393 | 168 | 290 | 4,561 | 920 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Greenwood, IN
|
— | 1,550 | 22,770 | — | 1,550 | 22,770 | 150 | 2010 | 2007 | |||||||||||||||||||||||||||
|
Hamden, CT
|
— | 1,470 | 4,530 | — | 1,470 | 4,530 | 1,320 | 2002 | 1998 | |||||||||||||||||||||||||||
|
Hamilton, NJ
|
— | 440 | 4,469 | — | 440 | 4,469 | 1,088 | 2001 | 1998 | |||||||||||||||||||||||||||
|
Hanover, IN
|
— | 210 | 4,430 | — | 210 | 4,430 | 847 | 2004 | 2000 | |||||||||||||||||||||||||||
|
Hardin, IL
|
— | 50 | 5,350 | 135 | 50 | 5,485 | 2,968 | 2002 | 1996 | |||||||||||||||||||||||||||
|
Harleysville, PA
|
— | 960 | 11,355 | — | 960 | 11,355 | 482 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Harriman, TN
|
— | 590 | 8,060 | 158 | 590 | 8,218 | 2,258 | 2001 | 1972 | |||||||||||||||||||||||||||
|
Hattiesburg, MS
|
13,100 | 450 | 15,518 | — | 450 | 15,518 | — | 2010 | 2009 | |||||||||||||||||||||||||||
|
Haverford, PA
|
— | 1,880 | 33,993 | — | 1,880 | 33,993 | — | 2010 | 2000 | |||||||||||||||||||||||||||
|
Hemet, CA
|
— | 870 | 3,405 | — | 870 | 3,405 | 326 | 2007 | 1996 | |||||||||||||||||||||||||||
|
Hemet, CA
|
13,550 | 1,890 | 28,606 | — | 1,890 | 28,606 | 703 | 2010 | 1988 | |||||||||||||||||||||||||||
|
Hemet, CA
|
— | 430 | 9,630 | — | 430 | 9,630 | 258 | 2010 | 1988 | |||||||||||||||||||||||||||
|
Henderson, NV
|
— | 380 | 9,220 | 65 | 380 | 9,285 | 2,933 | 1998 | 1998 | |||||||||||||||||||||||||||
|
Henderson, NV
|
— | 380 | 4,360 | 41 | 380 | 4,401 | 1,205 | 1999 | 2000 | |||||||||||||||||||||||||||
|
Herculaneum, MO
|
— | 127 | 10,373 | 393 | 127 | 10,766 | 5,723 | 2002 | 1984 | |||||||||||||||||||||||||||
|
Hickory, NC
|
— | 290 | 987 | 232 | 290 | 1,219 | 347 | 2003 | 1994 | |||||||||||||||||||||||||||
|
High Point, NC
|
— | 560 | 4,443 | 793 | 560 | 5,236 | 1,091 | 2003 | 2000 | |||||||||||||||||||||||||||
|
High Point, NC
|
— | 370 | 2,185 | 410 | 370 | 2,595 | 579 | 2003 | 1999 | |||||||||||||||||||||||||||
|
High Point, NC
|
— | 330 | 3,395 | 28 | 330 | 3,423 | 720 | 2003 | 1994 | |||||||||||||||||||||||||||
|
High Point, NC
|
— | 430 | 4,143 | — | 430 | 4,143 | 863 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Highlands Ranch, CO
|
— | 940 | 3,721 | — | 940 | 3,721 | 921 | 2002 | 1999 | |||||||||||||||||||||||||||
|
Hilliard, FL
|
— | 150 | 6,990 | — | 150 | 6,990 | 2,499 | 1999 | 1990 | |||||||||||||||||||||||||||
|
Homestead, FL
|
— | 2,750 | 11,750 | — | 2,750 | 11,750 | 1,456 | 2006 | 1994 | |||||||||||||||||||||||||||
|
Hopedale, MA
|
— | 130 | 8,170 | — | 130 | 8,170 | 1,285 | 2005 | 1999 | |||||||||||||||||||||||||||
|
Houston, TX
|
— | 4,790 | 7,100 | — | 4,790 | 7,100 | 2,114 | 2003 | 1974 | |||||||||||||||||||||||||||
|
Houston, TX
|
10,183 | 860 | 18,715 | — | 860 | 18,715 | 1,636 | 2007 | 2006 | |||||||||||||||||||||||||||
|
Houston, TX
|
— | 5,090 | 9,471 | — | 5,090 | 9,471 | 435 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Houston, TX
|
10,549 | 630 | 5,970 | 750 | 630 | 6,720 | 1,597 | 2002 | 1995 | |||||||||||||||||||||||||||
|
Howell, NJ
|
10,741 | 1,050 | 21,703 | — | 1,050 | 21,703 | — | 2010 | 2007 | |||||||||||||||||||||||||||
|
Huron, OH
|
— | 160 | 6,088 | 1,452 | 160 | 7,540 | 963 | 2005 | 1983 | |||||||||||||||||||||||||||
|
Hutchinson, KS
|
— | 600 | 10,590 | — | 600 | 10,590 | 1,753 | 2004 | 1997 | |||||||||||||||||||||||||||
|
Indianapolis, IN
|
— | 495 | 6,287 | 22,565 | 495 | 28,852 | 3,309 | 2006 | 1981 | |||||||||||||||||||||||||||
|
Indianapolis, IN
|
— | 255 | 2,473 | 12,123 | 255 | 14,596 | 1,461 | 2006 | 1981 | |||||||||||||||||||||||||||
|
Irving, TX
|
— | 1,030 | 6,823 | 267 | 1,030 | 7,090 | 436 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Jamestown, TN
|
— | — | 6,707 | — | — | 6,707 | 3,018 | 2004 | 1966 | |||||||||||||||||||||||||||
|
Jefferson, OH
|
— | 80 | 9,120 | — | 80 | 9,120 | 1,321 | 2006 | 1984 | |||||||||||||||||||||||||||
|
Jefferson City, MO
|
— | 370 | 6,730 | 301 | 370 | 7,031 | 3,727 | 2002 | 1982 | |||||||||||||||||||||||||||
|
Jonesboro, GA
|
— | 460 | 1,304 | — | 460 | 1,304 | 281 | 2003 | 1992 | |||||||||||||||||||||||||||
|
Jonesboro, GA
|
— | 840 | 1,921 | — | 840 | 1,921 | 558 | 2003 | 1992 | |||||||||||||||||||||||||||
|
Kalida, OH
|
— | 480 | 8,173 | — | 480 | 8,173 | 796 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Kalispell, MT
|
— | 360 | 3,282 | — | 360 | 3,282 | 1,096 | 1998 | 1998 | |||||||||||||||||||||||||||
|
Kansas City, MO
|
6,097 | 1,820 | 34,898 | — | 1,820 | 34,898 | — | 2010 | 1980 | |||||||||||||||||||||||||||
|
Kansas City, MO
|
7,455 | 1,930 | 39,997 | — | 1,930 | 39,997 | — | 2010 | 1986 | |||||||||||||||||||||||||||
|
Kenner, LA
|
— | 1,100 | 10,036 | 125 | 1,100 | 10,161 | 5,565 | 1998 | 2000 | |||||||||||||||||||||||||||
|
Kennett Square, PA
|
— | 1,050 | 22,946 | — | 1,050 | 22,946 | — | 2010 | 2008 | |||||||||||||||||||||||||||
|
Kennewick, WA
|
9,320 | 1,820 | 27,991 | — | 1,820 | 27,991 | 660 | 2010 | 1994 | |||||||||||||||||||||||||||
|
Kenosha, WI
|
— | 1,500 | 9,139 | — | 1,500 | 9,139 | 475 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Kent, WA
|
— | 940 | 20,318 | 10,381 | 940 | 30,699 | 2,031 | 2007 | 2000 | |||||||||||||||||||||||||||
|
Kirkland, WA
|
— | 1,880 | 4,315 | — | 1,880 | 4,315 | 893 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Kissimmee, FL
|
— | 230 | 3,854 | — | 230 | 3,854 | 710 | 2004 | 1972 | |||||||||||||||||||||||||||
126
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
LaBelle, FL
|
— | 60 | 4,946 | — | 60 | 4,946 | 989 | 2004 | 1986 | |||||||||||||||||||||||||||
|
Lake Havasu City, AZ
|
— | 450 | 4,223 | — | 450 | 4,223 | 1,343 | 1998 | 1999 | |||||||||||||||||||||||||||
|
Lake Havasu City, AZ
|
— | 110 | 2,244 | 136 | 110 | 2,380 | 798 | 1998 | 1994 | |||||||||||||||||||||||||||
|
Lake Placid, FL
|
— | 150 | 12,850 | — | 150 | 12,850 | 2,415 | 2004 | 1984 | |||||||||||||||||||||||||||
|
Lancaster, CA
|
10,763 | 700 | 15,295 | — | 700 | 15,295 | 405 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Lawrenceville, VA
|
— | 170 | 4,780 | — | 170 | 4,780 | 294 | 2008 | 1989 | |||||||||||||||||||||||||||
|
Lecanto, FL
|
— | 200 | 6,900 | — | 200 | 6,900 | 1,217 | 2004 | 1986 | |||||||||||||||||||||||||||
|
Lee, MA
|
— | 290 | 18,135 | 926 | 290 | 19,061 | 4,534 | 2002 | 1998 | |||||||||||||||||||||||||||
|
Lenoir, NC
|
— | 190 | 3,748 | 641 | 190 | 4,389 | 910 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Lexington, NC
|
— | 200 | 3,900 | 1,015 | 200 | 4,915 | 1,111 | 2002 | 1997 | |||||||||||||||||||||||||||
|
Lincoln, NE
|
5,435 | 390 | 13,807 | — | 390 | 13,807 | 233 | 2010 | 2000 | |||||||||||||||||||||||||||
|
Linwood, NJ
|
— | 800 | 21,984 | — | 800 | 21,984 | — | 2010 | 1997 | |||||||||||||||||||||||||||
|
Litchfield, CT
|
— | 1,240 | 17,908 | — | 1,240 | 17,908 | — | 2010 | 1998 | |||||||||||||||||||||||||||
|
Little Neck, NY
|
— | 3,350 | 38,461 | — | 3,350 | 38,461 | — | 2010 | 2000 | |||||||||||||||||||||||||||
|
Littleton, MA
|
— | 1,240 | 2,910 | — | 1,240 | 2,910 | 863 | 1996 | 1975 | |||||||||||||||||||||||||||
|
Loma Linda, CA
|
— | 2,214 | 9,586 | — | 2,214 | 9,586 | 836 | 2008 | 1976 | |||||||||||||||||||||||||||
|
Longview, TX
|
— | 293 | 1,707 | — | 293 | 1,707 | 386 | 2005 | 1971 | |||||||||||||||||||||||||||
|
Longview, TX
|
— | 610 | 5,520 | — | 610 | 5,520 | 534 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Longwood, FL
|
— | 480 | 7,520 | — | 480 | 7,520 | 1,408 | 2004 | 1980 | |||||||||||||||||||||||||||
|
Los Angeles, CA
|
— | — | 11,430 | — | — | 11,430 | 246 | 2008 | 2008 | |||||||||||||||||||||||||||
|
Louisville, KY
|
— | 490 | 10,010 | — | 490 | 10,010 | 1,943 | 2005 | 1978 | |||||||||||||||||||||||||||
|
Louisville, KY
|
— | 430 | 7,135 | 163 | 430 | 7,298 | 1,990 | 2002 | 1974 | |||||||||||||||||||||||||||
|
Louisville, KY
|
— | 350 | 4,675 | 109 | 350 | 4,784 | 1,334 | 2002 | 1975 | |||||||||||||||||||||||||||
|
Lufkin, TX
|
— | 343 | 1,184 | — | 343 | 1,184 | 389 | 2005 | 1919 | |||||||||||||||||||||||||||
|
Manassas, VA
|
— | 750 | 7,446 | — | 750 | 7,446 | 1,473 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Manchester, NH
|
— | 340 | 4,360 | 159 | 340 | 4,519 | 681 | 2005 | 1984 | |||||||||||||||||||||||||||
|
Mansfield, TX
|
— | 660 | 5,251 | — | 660 | 5,251 | 513 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Manteca, CA
|
6,445 | 1,300 | 12,125 | 1,309 | 1,300 | 13,434 | 1,677 | 2005 | 1985 | |||||||||||||||||||||||||||
|
Margate, FL
|
— | 500 | 7,303 | 2,459 | 500 | 9,762 | 6,606 | 1998 | 1972 | |||||||||||||||||||||||||||
|
Marianna, FL
|
— | 340 | 8,910 | — | 340 | 8,910 | 1,076 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Martinsville, VA
|
— | 349 | — | — | 349 | — | — | 2003 | ||||||||||||||||||||||||||||
|
Marysville, CA
|
— | 450 | 4,172 | 44 | 450 | 4,216 | 1,176 | 1998 | 1999 | |||||||||||||||||||||||||||
|
Marysville, WA
|
4,775 | 620 | 4,780 | 229 | 620 | 5,009 | 926 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Matthews, NC
|
— | 560 | 4,738 | — | 560 | 4,738 | 1,021 | 2003 | 1998 | |||||||||||||||||||||||||||
|
McConnelsville, OH
|
— | 190 | 7,060 | — | 190 | 7,060 | 40 | 2010 | 1946 | |||||||||||||||||||||||||||
|
McHenry, IL
|
— | 1,632 | — | — | 1,632 | — | — | 2006 | ||||||||||||||||||||||||||||
|
McHenry, IL
|
— | 3,550 | 15,300 | 6,718 | 3,550 | 22,018 | 1,962 | 2006 | 2004 | |||||||||||||||||||||||||||
|
McKinney, TX
|
— | 1,570 | 7,389 | — | 1,570 | 7,389 | 162 | 2009 | 2010 | |||||||||||||||||||||||||||
|
Melbourne, FL
|
— | 7,070 | 48,257 | 970 | 7,070 | 49,227 | 1,934 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Melville, NY
|
— | 4,280 | 73,283 | — | 4,280 | 73,283 | — | 2010 | 2001 | |||||||||||||||||||||||||||
|
Memphis, TN
|
— | 970 | 4,246 | — | 970 | 4,246 | 1,084 | 2003 | 1981 | |||||||||||||||||||||||||||
|
Memphis, TN
|
— | 480 | 5,656 | — | 480 | 5,656 | 1,336 | 2003 | 1982 | |||||||||||||||||||||||||||
|
Memphis, TN
|
— | 940 | 5,963 | — | 940 | 5,963 | 1,337 | 2004 | 1951 | |||||||||||||||||||||||||||
|
Memphis, TN
|
— | 390 | 9,660 | — | 390 | 9,660 | — | 2010 | 1981 | |||||||||||||||||||||||||||
|
Menomonee Falls, WI
|
— | 1,020 | 6,984 | — | 1,020 | 6,984 | 607 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Merrillville, IN
|
— | 643 | 7,084 | 3,526 | 643 | 10,610 | 5,090 | 1997 | 1999 | |||||||||||||||||||||||||||
|
Mesa, AZ
|
6,365 | 950 | 9,087 | 232 | 950 | 9,319 | 2,630 | 1999 | 2000 | |||||||||||||||||||||||||||
|
Middleburg Heights, OH
|
— | 960 | 7,780 | — | 960 | 7,780 | 1,314 | 2004 | 1998 | |||||||||||||||||||||||||||
|
Middleton, WI
|
— | 420 | 4,006 | 600 | 420 | 4,606 | 989 | 2001 | 1991 | |||||||||||||||||||||||||||
|
Midland, MI
|
— | 200 | 11,025 | — | 200 | 11,025 | — | 2010 | 1994 | |||||||||||||||||||||||||||
|
Midwest City, OK
|
— | 470 | 5,673 | — | 470 | 5,673 | 3,036 | 1998 | 1958 | |||||||||||||||||||||||||||
|
Midwest City, OK
|
— | 484 | 5,516 | — | 484 | 5,516 | 937 | 2005 | 1987 | |||||||||||||||||||||||||||
|
Mill Creek, WA
|
30,914 | 10,150 | 60,274 | — | 10,150 | 60,274 | 1,339 | 2010 | 1998 | |||||||||||||||||||||||||||
|
Missoula, MT
|
— | 550 | 7,490 | — | 550 | 7,490 | 1,084 | 2005 | 1998 | |||||||||||||||||||||||||||
|
Monroe, NC
|
— | 470 | 3,681 | 648 | 470 | 4,329 | 921 | 2003 | 2001 | |||||||||||||||||||||||||||
|
Monroe, NC
|
— | 310 | 4,799 | 857 | 310 | 5,656 | 1,133 | 2003 | 2000 | |||||||||||||||||||||||||||
|
Monroe, NC
|
— | 450 | 4,021 | 114 | 450 | 4,135 | 875 | 2003 | 1997 | |||||||||||||||||||||||||||
|
Monroe, WA
|
14,585 | 2,560 | 34,460 | — | 2,560 | 34,460 | 776 | 2010 | 1994 | |||||||||||||||||||||||||||
|
Monteagle, TN
|
— | 310 | 3,318 | — | 310 | 3,318 | 830 | 2003 | 1980 | |||||||||||||||||||||||||||
|
Monterey, TN
|
— | — | 4,195 | — | — | 4,195 | 1,888 | 2004 | 1977 | |||||||||||||||||||||||||||
|
Monticello, FL
|
— | 140 | 4,471 | — | 140 | 4,471 | 920 | 2004 | 1986 | |||||||||||||||||||||||||||
|
Moorestown, NJ
|
— | 2,060 | 51,628 | — | 2,060 | 51,628 | — | 2010 | 2000 | |||||||||||||||||||||||||||
|
Morehead City, NC
|
— | 200 | 3,104 | 1,648 | 200 | 4,752 | 1,345 | 1999 | 1999 | |||||||||||||||||||||||||||
|
Morgantown, KY
|
— | 380 | 3,705 | — | 380 | 3,705 | 876 | 2003 | 1965 | |||||||||||||||||||||||||||
|
Moss Point, MS
|
— | 120 | 7,280 | — | 120 | 7,280 | 1,392 | 2004 | 1933 | |||||||||||||||||||||||||||
|
Mount Airy, NC
|
— | 270 | 6,430 | 118 | 270 | 6,548 | 851 | 2005 | 1998 | |||||||||||||||||||||||||||
|
Mountain City, TN
|
— | 220 | 5,896 | 660 | 220 | 6,556 | 2,958 | 2001 | 1976 | |||||||||||||||||||||||||||
|
Mt. Vernon, WA
|
— | 400 | 2,200 | 156 | 400 | 2,356 | 249 | 2006 | 2001 | |||||||||||||||||||||||||||
|
Myrtle Beach, SC
|
— | 6,890 | 41,526 | 283 | 6,890 | 41,809 | 1,681 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Nacogdoches, TX
|
— | 390 | 5,754 | — | 390 | 5,754 | 546 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Naples, FL
|
— | 1,716 | 17,306 | 923 | 1,716 | 18,229 | 12,497 | 1997 | 1999 | |||||||||||||||||||||||||||
127
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Naples, FL
|
— | 550 | 5,450 | — | 550 | 5,450 | 1,024 | 2004 | 1968 | |||||||||||||||||||||||||||
|
Nashville, TN
|
— | 4,910 | 29,590 | — | 4,910 | 29,590 | 1,983 | 2008 | 2007 | |||||||||||||||||||||||||||
|
Natchitoches, LA
|
— | 190 | 4,096 | — | 190 | 4,096 | 717 | 2005 | 1975 | |||||||||||||||||||||||||||
|
Needham, MA
|
— | 1,610 | 13,715 | 366 | 1,610 | 14,081 | 3,707 | 2002 | 1994 | |||||||||||||||||||||||||||
|
Neenah, WI
|
— | 630 | 15,120 | — | 630 | 15,120 | 234 | 2010 | 1991 | |||||||||||||||||||||||||||
|
New Haven, IN
|
— | 176 | 3,524 | — | 176 | 3,524 | 787 | 2004 | 1981 | |||||||||||||||||||||||||||
|
New Haven, CT
|
— | 160 | 4,778 | 1,682 | 160 | 6,460 | 1,877 | 2006 | 1958 | |||||||||||||||||||||||||||
|
New York, NY
|
— | 1,440 | 21,460 | 975 | 1,440 | 22,435 | 2,273 | 2006 | 1959 | |||||||||||||||||||||||||||
|
Newark, DE
|
— | 560 | 21,220 | — | 560 | 21,220 | 3,452 | 2004 | 1998 | |||||||||||||||||||||||||||
|
Newburyport, MA
|
— | 960 | 8,290 | — | 960 | 8,290 | 1,988 | 2002 | 1999 | |||||||||||||||||||||||||||
|
Norman, OK
|
— | 55 | 1,484 | — | 55 | 1,484 | 688 | 1995 | 1995 | |||||||||||||||||||||||||||
|
North Augusta, SC
|
— | 332 | 2,558 | — | 332 | 2,558 | 866 | 1999 | 1998 | |||||||||||||||||||||||||||
|
North Miami, FL
|
— | 430 | 3,918 | — | 430 | 3,918 | 985 | 2004 | 1968 | |||||||||||||||||||||||||||
|
North Miami, FL
|
— | 440 | 4,830 | — | 440 | 4,830 | 992 | 2004 | 1963 | |||||||||||||||||||||||||||
|
North Miami Beach, FL
|
— | 300 | 5,709 | 2,006 | 300 | 7,715 | 5,145 | 1998 | 1987 | |||||||||||||||||||||||||||
|
Norwalk, CT
|
— | 410 | 2,118 | 2,973 | 410 | 5,091 | 1,581 | 2004 | 1971 | |||||||||||||||||||||||||||
|
Ocala, FL
|
— | 1,340 | 10,564 | — | 1,340 | 10,564 | 374 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Ogden, UT
|
— | 360 | 6,700 | — | 360 | 6,700 | 1,144 | 2004 | 1998 | |||||||||||||||||||||||||||
|
Oklahoma City, OK
|
— | 510 | 10,694 | — | 510 | 10,694 | 1,463 | 1998 | 1979 | |||||||||||||||||||||||||||
|
Oklahoma City, OK
|
— | 590 | 7,513 | — | 590 | 7,513 | 518 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Oklahoma City, OK
|
— | 760 | 7,017 | — | 760 | 7,017 | 358 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Olympia, WA
|
7,387 | 550 | 16,689 | — | 550 | 16,689 | 434 | 2010 | 1995 | |||||||||||||||||||||||||||
|
Omaha, NE
|
— | 370 | 10,230 | — | 370 | 10,230 | 183 | 2010 | 1998 | |||||||||||||||||||||||||||
|
Omaha, NE
|
4,681 | 380 | 8,864 | — | 380 | 8,864 | 157 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Oneonta, NY
|
— | 80 | 5,020 | — | 80 | 5,020 | 424 | 2007 | 1996 | |||||||||||||||||||||||||||
|
Ormond Beach, FL
|
— | — | 2,739 | 73 | — | 2,812 | 1,213 | 2002 | 1983 | |||||||||||||||||||||||||||
|
Oshkosh, WI
|
— | 900 | 3,800 | 3,687 | 900 | 7,487 | 872 | 2006 | 2005 | |||||||||||||||||||||||||||
|
Oshkosh, WI
|
— | 400 | 23,237 | — | 400 | 23,237 | 1,212 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Oswego, IL
|
— | 900 | 8,047 | — | 900 | 8,047 | 505 | 2006 | 2008 | |||||||||||||||||||||||||||
|
Overland Park, KS
|
— | 1,120 | 8,360 | — | 1,120 | 8,360 | 1,259 | 2005 | 1970 | |||||||||||||||||||||||||||
|
Overland Park, KS
|
— | 3,730 | 27,076 | 340 | 3,730 | 27,416 | 768 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Overland Park, KS
|
— | 4,500 | 29,105 | — | 4,500 | 29,105 | — | 2010 | 1988 | |||||||||||||||||||||||||||
|
Owasso, OK
|
— | 215 | 1,380 | — | 215 | 1,380 | 544 | 1996 | 1996 | |||||||||||||||||||||||||||
|
Owensboro, KY
|
— | 240 | 6,760 | — | 240 | 6,760 | 1,134 | 1993 | 1966 | |||||||||||||||||||||||||||
|
Owensboro, KY
|
— | 225 | 13,275 | — | 225 | 13,275 | 2,135 | 2005 | 1964 | |||||||||||||||||||||||||||
|
Owenton, KY
|
— | 100 | 2,400 | — | 100 | 2,400 | 474 | 2005 | 1979 | |||||||||||||||||||||||||||
|
Oxford, MI
|
12,094 | 1,430 | 15,791 | — | 1,430 | 15,791 | — | 2010 | 2001 | |||||||||||||||||||||||||||
|
Palestine, TX
|
— | 180 | 4,320 | 1,300 | 180 | 5,620 | 579 | 2006 | 2005 | |||||||||||||||||||||||||||
|
Palm Coast, FL
|
— | 870 | 10,957 | — | 870 | 10,957 | 259 | 2008 | 2010 | |||||||||||||||||||||||||||
|
Panama City, FL
|
— | 300 | 9,200 | — | 300 | 9,200 | 1,734 | 2004 | 1992 | |||||||||||||||||||||||||||
|
Paris, TX
|
— | 490 | 5,452 | — | 490 | 5,452 | 1,513 | 2005 | 2006 | |||||||||||||||||||||||||||
|
Pasadena, TX
|
10,207 | 720 | 24,080 | — | 720 | 24,080 | 2,390 | 2007 | 2005 | |||||||||||||||||||||||||||
|
Paso Robles, CA
|
— | 1,770 | 8,630 | — | 1,770 | 8,630 | 2,143 | 2002 | 1998 | |||||||||||||||||||||||||||
|
Pawleys Island, SC
|
— | 2,020 | 32,590 | 5,249 | 2,020 | 37,839 | 4,609 | 2005 | 1997 | |||||||||||||||||||||||||||
|
Pigeon Forge, TN
|
— | 320 | 4,180 | 117 | 320 | 4,297 | 1,236 | 2001 | 1986 | |||||||||||||||||||||||||||
|
Pikesville, MD
|
— | 450 | 10,750 | — | 450 | 10,750 | 1,124 | 2007 | 1983 | |||||||||||||||||||||||||||
|
Pinehurst, NC
|
— | 290 | 2,690 | 484 | 290 | 3,174 | 699 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Piqua, OH
|
— | 204 | 1,885 | — | 204 | 1,885 | 665 | 1997 | 1997 | |||||||||||||||||||||||||||
|
Pittsburgh, PA
|
— | 1,750 | 8,572 | 115 | 1,750 | 8,687 | 1,408 | 2005 | 1998 | |||||||||||||||||||||||||||
|
Plano, TX
|
— | 1,305 | 9,095 | 952 | 1,305 | 10,047 | 1,515 | 2005 | 1977 | |||||||||||||||||||||||||||
|
Plattsmouth, NE
|
— | 250 | 5,650 | — | 250 | 5,650 | 107 | 2010 | 1999 | |||||||||||||||||||||||||||
|
Plymouth, MI
|
12,876 | 1,490 | 19,990 | — | 1,490 | 19,990 | — | 2010 | 1972 | |||||||||||||||||||||||||||
|
Port St. Joe, FL
|
— | 370 | 2,055 | — | 370 | 2,055 | 666 | 2004 | 1982 | |||||||||||||||||||||||||||
|
Port St. Lucie, FL
|
— | 8,700 | 47,230 | — | 8,700 | 47,230 | 932 | 2008 | 2010 | |||||||||||||||||||||||||||
|
Post Falls, ID
|
— | 2,700 | 14,217 | 2,181 | 2,700 | 16,398 | 920 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Prospect, CT
|
— | 820 | 1,441 | 2,503 | 820 | 3,944 | 1,356 | 2004 | 1970 | |||||||||||||||||||||||||||
|
Pueblo, CO
|
— | 370 | 6,051 | — | 370 | 6,051 | 2,460 | 1998 | 1989 | |||||||||||||||||||||||||||
|
Puyallup, WA
|
11,830 | 1,150 | 20,776 | — | 1,150 | 20,776 | 522 | 2010 | 1985 | |||||||||||||||||||||||||||
|
Quincy, FL
|
— | 200 | 5,333 | — | 200 | 5,333 | 1,105 | 2004 | 1983 | |||||||||||||||||||||||||||
|
Quincy, MA
|
— | 2,690 | 15,410 | — | 2,690 | 15,410 | 2,436 | 2004 | 1999 | |||||||||||||||||||||||||||
|
Quitman, MS
|
— | 60 | 10,340 | — | 60 | 10,340 | 1,861 | 2004 | 1976 | |||||||||||||||||||||||||||
|
Raleigh, NC
|
— | 10,000 | — | — | 10,000 | — | — | 2008 | ||||||||||||||||||||||||||||
|
Raytown, MO
|
— | 510 | 5,490 | — | 510 | 5,490 | 573 | 2006 | 2000 | |||||||||||||||||||||||||||
|
Rehoboth Beach, DE
|
— | 960 | 24,248 | — | 960 | 24,248 | — | 2010 | 1999 | |||||||||||||||||||||||||||
|
Reidsville, NC
|
— | 170 | 3,830 | 857 | 170 | 4,687 | 1,073 | 2002 | 1998 | |||||||||||||||||||||||||||
|
Reno, NV
|
— | 1,060 | 11,440 | — | 1,060 | 11,440 | 1,931 | 2004 | 1998 | |||||||||||||||||||||||||||
|
Richmond, VA
|
— | 1,211 | 2,889 | — | 1,211 | 2,889 | 897 | 2003 | 1995 | |||||||||||||||||||||||||||
|
Richmond, VA
|
— | 760 | 12,640 | — | 760 | 12,640 | 1,349 | 2007 | 1969 | |||||||||||||||||||||||||||
|
Ridgeland, MS
|
— | 520 | 7,675 | — | 520 | 7,675 | 1,521 | 2003 | 1997 | |||||||||||||||||||||||||||
|
Ridgely, TN
|
— | 300 | 5,700 | 97 | 300 | 5,797 | 1,534 | 2001 | 1990 | |||||||||||||||||||||||||||
|
Ringgold, LA
|
— | 30 | 4,174 | — | 30 | 4,174 | 705 | 2005 | 1984 | |||||||||||||||||||||||||||
128
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Rockledge, FL
|
— | 360 | 4,117 | — | 360 | 4,117 | 1,390 | 2001 | 1970 | |||||||||||||||||||||||||||
|
Rockwood, TN
|
— | 500 | 7,116 | 741 | 500 | 7,857 | 2,082 | 2001 | 1979 | |||||||||||||||||||||||||||
|
Rocky Hill, CT
|
— | 1,460 | 7,040 | — | 1,460 | 7,040 | 1,857 | 2002 | 1998 | |||||||||||||||||||||||||||
|
Rocky Hill, CT
|
— | 1,090 | 6,710 | 1,500 | 1,090 | 8,210 | 1,403 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Rogersville, TN
|
— | 350 | 3,278 | — | 350 | 3,278 | 822 | 2003 | 1980 | |||||||||||||||||||||||||||
|
Rohnert Park, CA
|
14,280 | 6,500 | 18,700 | 1,125 | 6,500 | 19,825 | 2,530 | 2005 | 1985 | |||||||||||||||||||||||||||
|
Romeoville, IL
|
— | 854 | 12,646 | 58,220 | 6,100 | 65,620 | 1,536 | 2006 | 2010 | |||||||||||||||||||||||||||
|
Romeoville, IL
|
— | 1,895 | — | — | 1,895 | — | — | 2006 | ||||||||||||||||||||||||||||
|
Roswell, GA
|
8,211 | 1,107 | 9,627 | 358 | 1,107 | 9,985 | 5,611 | 1997 | 1999 | |||||||||||||||||||||||||||
|
Royal Palm Beach, FL
|
— | 980 | 8,320 | — | 980 | 8,320 | 1,604 | 2004 | 1984 | |||||||||||||||||||||||||||
|
Ruston, LA
|
— | 130 | 9,403 | — | 130 | 9,403 | 1,407 | 2005 | 1965 | |||||||||||||||||||||||||||
|
Sacramento, CA
|
9,834 | 940 | 14,781 | — | 940 | 14,781 | 404 | 2010 | 1978 | |||||||||||||||||||||||||||
|
Saint Simons Island, GA
|
— | 6,440 | 50,060 | 963 | 6,440 | 51,023 | 3,212 | 2008 | 2007 | |||||||||||||||||||||||||||
|
Salem, OR
|
— | 449 | 5,172 | — | 449 | 5,172 | 1,727 | 1999 | 1998 | |||||||||||||||||||||||||||
|
Salisbury, NC
|
— | 370 | 5,697 | 168 | 370 | 5,865 | 1,187 | 2003 | 1997 | |||||||||||||||||||||||||||
|
San Angelo, TX
|
— | 260 | 8,800 | — | 260 | 8,800 | 1,456 | 2004 | 1997 | |||||||||||||||||||||||||||
|
San Antonio, TX
|
11,026 | 560 | 7,315 | — | 560 | 7,315 | 1,817 | 2002 | 2000 | |||||||||||||||||||||||||||
|
San Antonio, TX
|
10,163 | 640 | 13,360 | — | 640 | 13,360 | 1,386 | 2007 | 2004 | |||||||||||||||||||||||||||
|
San Juan Capistrano, CA
|
— | 1,390 | 6,942 | — | 1,390 | 6,942 | 1,839 | 2000 | 2001 | |||||||||||||||||||||||||||
|
San Ramon, CA
|
9,851 | 2,430 | 17,488 | — | 2,430 | 17,488 | 467 | 2010 | 1989 | |||||||||||||||||||||||||||
|
Sarasota, FL
|
— | 475 | 3,175 | — | 475 | 3,175 | 1,326 | 1996 | 1995 | |||||||||||||||||||||||||||
|
Sarasota, FL
|
— | 560 | 8,474 | — | 560 | 8,474 | 2,703 | 1999 | 2000 | |||||||||||||||||||||||||||
|
Sarasota, FL
|
— | 600 | 3,400 | — | 600 | 3,400 | 713 | 2004 | 1982 | |||||||||||||||||||||||||||
|
Scituate, MA
|
— | 1,740 | 10,640 | — | 1,740 | 10,640 | 1,484 | 2005 | 1976 | |||||||||||||||||||||||||||
|
Scottsdale, AZ
|
— | 2,500 | 3,890 | 710 | 2,500 | 4,600 | 291 | 2008 | 1999 | |||||||||||||||||||||||||||
|
Seattle, WA
|
7,921 | 5,190 | 9,350 | — | 5,190 | 9,350 | 389 | 2010 | 1962 | |||||||||||||||||||||||||||
|
Seattle, WA
|
8,040 | 3,420 | 15,555 | — | 3,420 | 15,555 | 444 | 2010 | 2000 | |||||||||||||||||||||||||||
|
Seattle, WA
|
9,548 | 2,630 | 10,257 | — | 2,630 | 10,257 | 328 | 2010 | 2003 | |||||||||||||||||||||||||||
|
Seattle, WA
|
29,655 | 10,670 | 37,291 | — | 10,670 | 37,291 | 919 | 2010 | 2005 | |||||||||||||||||||||||||||
|
Selbyville, DE
|
— | 750 | 25,912 | — | 750 | 25,912 | — | 2010 | 2008 | |||||||||||||||||||||||||||
|
Seven Fields, PA
|
— | 484 | 4,663 | 59 | 484 | 4,722 | 1,585 | 1999 | 1999 | |||||||||||||||||||||||||||
|
Seville, OH
|
— | 230 | 1,770 | — | 230 | 1,770 | 387 | 2005 | 1981 | |||||||||||||||||||||||||||
|
Shawnee, OK
|
— | 80 | 1,400 | — | 80 | 1,400 | 574 | 1996 | 1995 | |||||||||||||||||||||||||||
|
Sheboygan, WI
|
— | 80 | 5,320 | 3,774 | 80 | 9,094 | 663 | 2006 | 2006 | |||||||||||||||||||||||||||
|
Shelby, MS
|
— | 60 | 5,340 | — | 60 | 5,340 | 991 | 2004 | 1979 | |||||||||||||||||||||||||||
|
Shelbyville, KY
|
— | 630 | 3,870 | — | 630 | 3,870 | 630 | 2005 | 1965 | |||||||||||||||||||||||||||
|
Sherman, TX
|
— | 700 | 5,221 | — | 700 | 5,221 | 565 | 2005 | 2006 | |||||||||||||||||||||||||||
|
Shrewsbury, NJ
|
— | 2,120 | 38,116 | — | 2,120 | 38,116 | — | 2010 | 2000 | |||||||||||||||||||||||||||
|
Silvis, IL
|
— | 880 | 16,420 | — | 880 | 16,420 | 147 | 2010 | 2005 | |||||||||||||||||||||||||||
|
Smithfield, NC
|
— | 290 | 5,680 | — | 290 | 5,680 | 1,169 | 2003 | 1998 | |||||||||||||||||||||||||||
|
Sonoma, CA
|
15,400 | 1,100 | 18,400 | 869 | 1,100 | 19,269 | 2,467 | 2005 | 1988 | |||||||||||||||||||||||||||
|
South Boston, MA
|
— | 385 | 2,002 | 5,218 | 385 | 7,220 | 2,460 | 1995 | 1961 | |||||||||||||||||||||||||||
|
South Pittsburg, TN
|
— | 430 | 5,628 | — | 430 | 5,628 | 1,193 | 2004 | 1979 | |||||||||||||||||||||||||||
|
Sparks, NV
|
— | 3,700 | 46,526 | — | 3,700 | 46,526 | 1,789 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Spartanburg, SC
|
— | 3,350 | 15,750 | 9,028 | 3,350 | 24,778 | 2,498 | 2005 | 1997 | |||||||||||||||||||||||||||
|
Spring City, TN
|
— | 420 | 6,085 | 2,579 | 420 | 8,664 | 2,179 | 2001 | 1987 | |||||||||||||||||||||||||||
|
St. Charles, IL
|
— | 990 | 15,265 | — | 990 | 15,265 | 647 | 2006 | 2009 | |||||||||||||||||||||||||||
|
St. Louis, MO
|
— | 750 | 6,030 | — | 750 | 6,030 | 1,436 | 1995 | 1994 | |||||||||||||||||||||||||||
|
St. Louis, MO
|
— | 1,890 | 14,430 | — | 1,890 | 14,430 | — | 2010 | 1963 | |||||||||||||||||||||||||||
|
Stanwood, WA
|
10,501 | 2,260 | 28,474 | — | 2,260 | 28,474 | 689 | 2010 | 1998 | |||||||||||||||||||||||||||
|
Starke, FL
|
— | 120 | 10,180 | — | 120 | 10,180 | 1,903 | 2004 | 1990 | |||||||||||||||||||||||||||
|
Statesville, NC
|
— | 150 | 1,447 | 266 | 150 | 1,713 | 376 | 2003 | 1990 | |||||||||||||||||||||||||||
|
Statesville, NC
|
— | 310 | 6,183 | 8 | 310 | 6,191 | 1,228 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Statesville, NC
|
— | 140 | 3,627 | — | 140 | 3,627 | 746 | 2003 | 1999 | |||||||||||||||||||||||||||
|
Staunton, VA
|
— | 310 | 11,090 | — | 310 | 11,090 | 1,196 | 2007 | 1959 | |||||||||||||||||||||||||||
|
Stillwater, OK
|
— | 80 | 1,400 | — | 80 | 1,400 | 577 | 1995 | 1995 | |||||||||||||||||||||||||||
|
Stockton, CA
|
6,773 | 2,280 | 5,983 | — | 2,280 | 5,983 | 254 | 2010 | 1988 | |||||||||||||||||||||||||||
|
Stuart, FL
|
— | 390 | 8,110 | — | 390 | 8,110 | 1,503 | 2004 | 1985 | |||||||||||||||||||||||||||
|
Swanton, OH
|
— | 330 | 6,370 | — | 330 | 6,370 | 1,132 | 2004 | 1950 | |||||||||||||||||||||||||||
|
Tampa, FL
|
— | 830 | 6,370 | — | 830 | 6,370 | 1,470 | 2004 | 1968 | |||||||||||||||||||||||||||
|
Texarkana, TX
|
— | 192 | 1,403 | — | 192 | 1,403 | 552 | 1996 | 1996 | |||||||||||||||||||||||||||
|
Toledo, OH
|
16,896 | 2,040 | 47,129 | — | 2,040 | 47,129 | — | 2010 | 1985 | |||||||||||||||||||||||||||
|
Toms River, NJ
|
— | 1,610 | 34,627 | — | 1,610 | 34,627 | — | 2010 | 2005 | |||||||||||||||||||||||||||
|
Torrington, CT
|
— | 360 | 1,261 | 1,274 | 360 | 2,535 | 767 | 2004 | 1966 | |||||||||||||||||||||||||||
|
Troy, OH
|
— | 200 | 2,000 | 4,254 | 200 | 6,254 | 832 | 1997 | 1997 | |||||||||||||||||||||||||||
|
Troy, OH
|
— | 470 | 16,730 | — | 470 | 16,730 | 2,862 | 2004 | 1971 | |||||||||||||||||||||||||||
|
Tucson, AZ
|
— | 930 | 13,399 | — | 930 | 13,399 | 1,923 | 2005 | 1985 | |||||||||||||||||||||||||||
|
Tulsa, OK
|
— | 1,390 | 7,110 | — | 1,390 | 7,110 | 127 | 2010 | 1998 | |||||||||||||||||||||||||||
|
Tulsa, OK
|
6,579 | 1,330 | 21,285 | — | 1,330 | 21,285 | — | 2010 | 1986 | |||||||||||||||||||||||||||
|
Tulsa, OK
|
8,598 | 1,500 | 20,861 | — | 1,500 | 20,861 | — | 2010 | 1984 | |||||||||||||||||||||||||||
|
Twin Falls, ID
|
— | 550 | 14,740 | — | 550 | 14,740 | 3,557 | 2002 | 1991 | |||||||||||||||||||||||||||
129
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Tyler, TX
|
— | 650 | 5,268 | — | 650 | 5,268 | 511 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Uhrichsville, OH
|
— | 24 | 6,716 | — | 24 | 6,716 | 925 | 2006 | 1977 | |||||||||||||||||||||||||||
|
Vacaville, CA
|
14,683 | 900 | 17,100 | 1,127 | 900 | 18,227 | 2,312 | 2005 | 1986 | |||||||||||||||||||||||||||
|
Vallejo, CA
|
22,409 | 4,000 | 18,000 | 1,341 | 4,000 | 19,341 | 2,428 | 2005 | 1989 | |||||||||||||||||||||||||||
|
Vallejo, CA
|
— | 2,330 | 15,407 | — | 2,330 | 15,407 | 444 | 2010 | 1990 | |||||||||||||||||||||||||||
|
Valparaiso, IN
|
— | 112 | 2,558 | — | 112 | 2,558 | 688 | 2001 | 1998 | |||||||||||||||||||||||||||
|
Valparaiso, IN
|
— | 108 | 2,962 | — | 108 | 2,962 | 780 | 2001 | 1999 | |||||||||||||||||||||||||||
|
Vancouver, WA
|
10,000 | 1,820 | 19,042 | — | 1,820 | 19,042 | 484 | 2010 | 2006 | |||||||||||||||||||||||||||
|
Venice, FL
|
— | 500 | 6,000 | — | 500 | 6,000 | 1,108 | 2004 | 1987 | |||||||||||||||||||||||||||
|
Venice, FL
|
— | 1,150 | 10,674 | — | 1,150 | 10,674 | 302 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Vero Beach, FL
|
— | 263 | 3,187 | — | 263 | 3,187 | 830 | 2001 | 1999 | |||||||||||||||||||||||||||
|
Vero Beach, FL
|
— | 297 | 3,263 | — | 297 | 3,263 | 858 | 2001 | 1996 | |||||||||||||||||||||||||||
|
Vero Beach, FL
|
— | 2,930 | 40,070 | 3,202 | 2,930 | 43,272 | 3,677 | 2007 | 2003 | |||||||||||||||||||||||||||
|
W. Hartford, CT
|
— | 2,650 | 5,980 | — | 2,650 | 5,980 | 1,146 | 2004 | 1905 | |||||||||||||||||||||||||||
|
Wake Forest, NC
|
— | 200 | 3,003 | 1,742 | 200 | 4,745 | 1,417 | 1998 | 1999 | |||||||||||||||||||||||||||
|
Wareham, MA
|
— | 875 | 10,313 | 1,701 | 875 | 12,014 | 2,917 | 2002 | 1989 | |||||||||||||||||||||||||||
|
Warren, OH
|
— | 240 | 3,810 | — | 240 | 3,810 | 660 | 2005 | 1973 | |||||||||||||||||||||||||||
|
Waterbury, CT
|
— | 370 | 2,166 | 1,859 | 370 | 4,025 | 1,085 | 2006 | 1972 | |||||||||||||||||||||||||||
|
Waterford, CT
|
— | 1,360 | 12,540 | — | 1,360 | 12,540 | 3,043 | 2002 | 2000 | |||||||||||||||||||||||||||
|
Waukesha, WI
|
— | 1,100 | 14,910 | — | 1,100 | 14,910 | 402 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Waxahachie, TX
|
— | 650 | 5,763 | — | 650 | 5,763 | 410 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Weatherford, TX
|
— | 660 | 5,261 | — | 660 | 5,261 | 514 | 2006 | 2007 | |||||||||||||||||||||||||||
|
Webster, TX
|
9,713 | 360 | 5,940 | — | 360 | 5,940 | 1,470 | 2002 | 2000 | |||||||||||||||||||||||||||
|
West Haven, CT
|
— | 580 | 1,620 | 1,529 | 580 | 3,149 | 1,019 | 2004 | 1971 | |||||||||||||||||||||||||||
|
West Worthington, OH
|
— | 510 | 5,090 | — | 510 | 5,090 | 733 | 2006 | 1980 | |||||||||||||||||||||||||||
|
Westerville, OH
|
— | 740 | 8,287 | 2,736 | 740 | 11,023 | 5,344 | 1998 | 2001 | |||||||||||||||||||||||||||
|
Westlake, OH
|
— | 1,330 | 17,926 | — | 1,330 | 17,926 | 4,559 | 2001 | 1985 | |||||||||||||||||||||||||||
|
Westlake, OH
|
— | 571 | 5,411 | — | 571 | 5,411 | 2,121 | 1998 | 1957 | |||||||||||||||||||||||||||
|
Westmoreland, TN
|
— | 330 | 1,822 | 2,634 | 330 | 4,456 | 1,218 | 2001 | 1994 | |||||||||||||||||||||||||||
|
White Hall, IL
|
— | 50 | 5,550 | 670 | 50 | 6,220 | 3,316 | 2002 | 1971 | |||||||||||||||||||||||||||
|
White Lake, MI
|
11,145 | 2,920 | 20,179 | — | 2,920 | 20,179 | — | 2010 | 2000 | |||||||||||||||||||||||||||
|
Whitemarsh, PA
|
— | 2,310 | 6,190 | 1,702 | 2,310 | 7,892 | 1,236 | 2005 | 1967 | |||||||||||||||||||||||||||
|
Whittier, CA
|
12,295 | 4,470 | 22,151 | — | 4,470 | 22,151 | 596 | 2010 | 1988 | |||||||||||||||||||||||||||
|
Wichita, KS
|
— | 1,400 | 11,000 | — | 1,400 | 11,000 | 1,289 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Williamsburg, VA
|
— | 1,360 | 7,440 | — | 1,360 | 7,440 | 805 | 2007 | 1970 | |||||||||||||||||||||||||||
|
Williamstown, KY
|
— | 70 | 6,430 | — | 70 | 6,430 | 1,044 | 2005 | 1987 | |||||||||||||||||||||||||||
|
Wilmington, NC
|
— | 210 | 2,991 | — | 210 | 2,991 | 990 | 1999 | 1999 | |||||||||||||||||||||||||||
|
Winchester, VA
|
— | 640 | 1,510 | — | 640 | 1,510 | 112 | 2008 | 1964 | |||||||||||||||||||||||||||
|
Winston-Salem, NC
|
— | 360 | 2,514 | 459 | 360 | 2,973 | 630 | 2003 | 1996 | |||||||||||||||||||||||||||
|
Winston-Salem, NC
|
— | 5,700 | 13,550 | 13,154 | 5,700 | 26,704 | 2,730 | 2005 | 1997 | |||||||||||||||||||||||||||
|
Woodbridge, VA
|
— | 680 | 4,423 | 330 | 680 | 4,753 | 1,155 | 2002 | 1977 | |||||||||||||||||||||||||||
|
Worcester, MA
|
— | 3,500 | 54,099 | — | 3,500 | 54,099 | 1,448 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Worcester, MA
|
— | 2,300 | 9,060 | — | 2,300 | 9,060 | 576 | 2008 | 1993 | |||||||||||||||||||||||||||
|
Zionsville, IN
|
— | 1,610 | 22,400 | — | 1,610 | 22,400 | 148 | 2010 | 2009 | |||||||||||||||||||||||||||
|
Total senior housing and care facilities
|
660,567 | 479,062 | 4,993,512 | 330,111 | 484,308 | 5,318,377 | 599,276 | |||||||||||||||||||||||||||||
|
Medical facilities:
|
||||||||||||||||||||||||||||||||||||
|
Akron, OH
|
— | 300 | 20,200 | — | 300 | 20,200 | 528 | 2009 | 2008 | |||||||||||||||||||||||||||
|
Amarillo, TX
|
— | 72 | 11,928 | 1,400 | 72 | 13,328 | 1,793 | 2005 | 1986 | |||||||||||||||||||||||||||
|
Arcadia, CA
|
10,154 | 5,408 | 23,219 | 1,082 | 5,618 | 24,091 | 3,567 | 2006 | 1984 | |||||||||||||||||||||||||||
|
Atlanta, GA
|
— | 4,931 | 18,720 | 1,481 | 5,293 | 19,839 | 3,691 | 2006 | 1992 | |||||||||||||||||||||||||||
|
Austell, GA
|
— | 2,223 | 7,982 | 59 | 2,223 | 8,041 | 2,048 | 2006 | 1999 | |||||||||||||||||||||||||||
|
Bartlett, TN
|
8,498 | 187 | 15,015 | 657 | 187 | 15,672 | 2,205 | 2007 | 2004 | |||||||||||||||||||||||||||
|
Boynton Beach, FL
|
4,225 | 214 | 6,574 | 206 | 214 | 6,780 | 978 | 2007 | 2004 | |||||||||||||||||||||||||||
|
Boynton Beach, FL
|
4,603 | 2,048 | 7,692 | 188 | 2,048 | 7,880 | 1,620 | 2006 | 1995 | |||||||||||||||||||||||||||
|
Boynton Beach, FL
|
4,129 | 2,048 | 7,403 | 645 | 2,048 | 8,048 | 1,169 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Boynton Beach, FL
|
6,164 | 109 | 11,235 | 458 | 117 | 11,685 | 1,624 | 2007 | 1996 | |||||||||||||||||||||||||||
|
Boardman, OH
|
— | 1,200 | 12,800 | — | 1,200 | 12,800 | 862 | 2008 | 2008 | |||||||||||||||||||||||||||
|
Boardman, OH
|
— | 80 | 13,619 | — | 80 | 13,619 | — | 2010 | 2007 | |||||||||||||||||||||||||||
|
Bellaire, TX
|
— | 4,551 | 45,900 | 205 | 4,551 | 46,105 | 5,270 | 2006 | 2005 | |||||||||||||||||||||||||||
|
Bellaire, TX
|
— | 2,972 | 33,445 | 1,238 | 2,972 | 34,683 | 4,462 | 2006 | 2005 | |||||||||||||||||||||||||||
|
Birmingham, AL
|
— | 651 | 39,552 | 1,157 | 651 | 40,709 | 6,014 | 2006 | 1971 | |||||||||||||||||||||||||||
|
Bowling Green, KY
|
— | 3,800 | 26,700 | 45 | 3,800 | 26,745 | 1,726 | 2008 | 1992 | |||||||||||||||||||||||||||
|
Bellingham, MA
|
— | 9,270 | — | — | 9,270 | — | — | 2010 | ||||||||||||||||||||||||||||
|
Bellevue, NE
|
— | 4,500 | 99,186 | — | 4,500 | 99,186 | 1,465 | 2008 | 2010 | |||||||||||||||||||||||||||
|
Bellevue, NE
|
— | — | 15,833 | — | — | 15,833 | 239 | 2010 | 2010 | |||||||||||||||||||||||||||
|
Boca Raton, FL
|
13,809 | 109 | 34,002 | 934 | 124 | 34,921 | 5,075 | 2006 | 1995 | |||||||||||||||||||||||||||
|
Bridgeton, MO
|
11,972 | 450 | 21,221 | — | 450 | 21,221 | — | 2010 | 2006 | |||||||||||||||||||||||||||
|
Cedar Grove, WI
|
— | 113 | 618 | — | 113 | 618 | 19 | 2010 | 1986 | |||||||||||||||||||||||||||
|
Clarkson Valley, MO
|
— | — | — | 35,592 | — | 35,592 | 568 | 2009 | 2010 | |||||||||||||||||||||||||||
130
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Claremore, OK
|
8,357 | 132 | 12,829 | 270 | 132 | 13,099 | 1,811 | 2007 | 2005 | |||||||||||||||||||||||||||
|
Corpus Christi, TX
|
— | 77 | 3,923 | — | 77 | 3,923 | 653 | 2005 | 1968 | |||||||||||||||||||||||||||
|
Coral Springs, FL
|
— | 1,598 | 10,627 | 541 | 1,635 | 11,131 | 1,967 | 2006 | 1993 | |||||||||||||||||||||||||||
|
Covington, KY
|
— | 1,290 | 8,093 | 1,150 | 1,290 | 9,243 | 261 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Dallas, TX
|
15,533 | 137 | 28,690 | 257 | 137 | 28,947 | 4,174 | 2006 | 1995 | |||||||||||||||||||||||||||
|
Denton, TX
|
12,327 | — | 19,407 | 395 | — | 19,802 | 2,180 | 2007 | 2005 | |||||||||||||||||||||||||||
|
Delray Beach, FL
|
— | 1,882 | 34,767 | 3,333 | 1,941 | 38,041 | 6,299 | 2006 | 1985 | |||||||||||||||||||||||||||
|
Durham, NC
|
— | 6,814 | 10,825 | 1,838 | 7,007 | 12,470 | 3,451 | 2006 | 1980 | |||||||||||||||||||||||||||
|
Durham, NC
|
— | — | — | 157 | 13 | 144 | 52 | 2006 | 1980 | |||||||||||||||||||||||||||
|
Edina, MN
|
6,033 | 310 | 15,132 | — | 310 | 15,132 | — | 2010 | 2003 | |||||||||||||||||||||||||||
|
El Paso, TX
|
— | 112 | 15,888 | 44 | 112 | 15,932 | 2,259 | 2005 | 1994 | |||||||||||||||||||||||||||
|
El Paso, TX
|
10,405 | 677 | 17,075 | 516 | 677 | 17,591 | 2,794 | 2006 | 1997 | |||||||||||||||||||||||||||
|
El Paso, TX
|
— | 2,400 | 32,800 | 424 | 2,400 | 33,224 | 2,886 | 2008 | 2003 | |||||||||||||||||||||||||||
|
El Paso, TX
|
— | 600 | 6,700 | — | 600 | 6,700 | 511 | 2008 | 2003 | |||||||||||||||||||||||||||
|
Fayetteville, GA
|
3,327 | 959 | 7,540 | 388 | 959 | 7,928 | 1,282 | 2006 | 1999 | |||||||||||||||||||||||||||
|
Fresno, CA
|
— | 2,500 | 35,800 | 73 | 2,500 | 35,873 | 2,314 | 2008 | 1991 | |||||||||||||||||||||||||||
|
Franklin, TN
|
— | 2,338 | 12,138 | 267 | 2,338 | 12,405 | 1,933 | 2007 | 1988 | |||||||||||||||||||||||||||
|
Franklin, WI
|
8,122 | 6,872 | 7,550 | — | 6,872 | 7,550 | 242 | 2010 | 1984 | |||||||||||||||||||||||||||
|
Frisco, TX
|
9,253 | — | 18,635 | 48 | — | 18,683 | 2,458 | 2007 | 2004 | |||||||||||||||||||||||||||
|
Frisco, TX
|
— | — | 15,309 | 1,023 | — | 16,332 | 2,185 | 2007 | 2004 | |||||||||||||||||||||||||||
|
Fort Wayne, IN
|
— | 170 | 8,232 | — | 170 | 8,232 | 722 | 2006 | 2006 | |||||||||||||||||||||||||||
|
Green Bay, WI
|
10,223 | — | 14,891 | — | — | 14,891 | 422 | 2010 | 2002 | |||||||||||||||||||||||||||
|
Green Bay, WI
|
— | — | 31,794 | — | — | 31,794 | 1,010 | 2010 | 2002 | |||||||||||||||||||||||||||
|
Glendale, CA
|
8,311 | 37 | 18,398 | — | 37 | 18,398 | 2,421 | 2007 | 2002 | |||||||||||||||||||||||||||
|
Gallatin, TN
|
— | 20 | 19,480 | — | 20 | 19,480 | — | 2010 | 1997 | |||||||||||||||||||||||||||
|
Greeley, CO
|
— | 877 | 6,707 | — | 877 | 6,707 | 1,031 | 2007 | 1997 | |||||||||||||||||||||||||||
|
Germantown, TN
|
— | 3,049 | 12,456 | 561 | 3,049 | 13,017 | 1,808 | 2006 | 2002 | |||||||||||||||||||||||||||
|
Greeneville, TN
|
— | 970 | 10,032 | — | 970 | 10,032 | — | 2010 | 2005 | |||||||||||||||||||||||||||
|
Jupiter, FL
|
7,255 | 2,252 | 11,415 | 69 | 2,252 | 11,484 | 1,952 | 2006 | 2001 | |||||||||||||||||||||||||||
|
Jupiter, FL
|
4,518 | — | 5,858 | 2,868 | 2,825 | 5,901 | 943 | 2007 | 2004 | |||||||||||||||||||||||||||
|
Killeen, TX
|
— | 760 | 22,977 | — | 760 | 22,977 | — | 2010 | 2010 | |||||||||||||||||||||||||||
|
Kenosha, WI
|
10,528 | — | 18,058 | — | — | 18,058 | 501 | 2010 | 1993 | |||||||||||||||||||||||||||
|
Lafayette, LA
|
— | 1,928 | 10,483 | 26 | 1,928 | 10,509 | 1,629 | 2006 | 1993 | |||||||||||||||||||||||||||
|
Lenexa, KS
|
12,440 | 540 | 16,013 | — | 540 | 16,013 | — | 2010 | 2008 | |||||||||||||||||||||||||||
|
Los Gatos, CA
|
— | 488 | 22,386 | 466 | 488 | 22,852 | 3,644 | 2006 | 1993 | |||||||||||||||||||||||||||
|
Lakeway, TX
|
— | 2,801 | — | — | 2,801 | — | — | 2007 | ||||||||||||||||||||||||||||
|
Lincoln, NE
|
11,550 | 1,420 | 29,692 | — | 1,420 | 29,692 | — | 2010 | 2003 | |||||||||||||||||||||||||||
|
Loxahatchee, FL
|
— | 1,340 | 6,509 | 10 | 1,340 | 6,519 | 1,004 | 2006 | 1993 | |||||||||||||||||||||||||||
|
Loxahatchee, FL
|
2,708 | 1,553 | 4,694 | 466 | 1,562 | 5,151 | 700 | 2006 | 1994 | |||||||||||||||||||||||||||
|
Loxahatchee, FL
|
— | 1,637 | 5,048 | 762 | 1,646 | 5,801 | 752 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Los Alamitos, CA
|
8,442 | — | 18,635 | 158 | 39 | 18,754 | 2,506 | 2007 | 2003 | |||||||||||||||||||||||||||
|
Lake St Louis, MO
|
— | 240 | 11,937 | — | 240 | 11,937 | — | 2010 | 2008 | |||||||||||||||||||||||||||
|
Las Vegas, NV
|
— | 6,127 | — | — | 6,127 | — | — | 2007 | ||||||||||||||||||||||||||||
|
Las Vegas, NV
|
— | 6,734 | 54,886 | 89 | 6,734 | 54,975 | 7,170 | 2006 | 1991 | |||||||||||||||||||||||||||
|
Las Vegas , NV
|
6,058 | 74 | 15,287 | 250 | 74 | 15,537 | 2,756 | 2006 | 2000 | |||||||||||||||||||||||||||
|
Las Vegas, NV
|
— | 2,319 | 4,612 | 688 | 2,319 | 5,300 | 785 | 2006 | 1991 | |||||||||||||||||||||||||||
|
Las Vegas, NV
|
3,095 | — | 6,921 | 499 | 433 | 6,987 | 998 | 2007 | 1997 | |||||||||||||||||||||||||||
|
Lakewood, CA
|
— | 146 | 14,885 | 483 | 146 | 15,368 | 2,145 | 2006 | 1993 | |||||||||||||||||||||||||||
|
Lawrenceville, GA
|
— | 2,279 | 10,732 | 49 | 2,298 | 10,762 | 1,706 | 2006 | 2001 | |||||||||||||||||||||||||||
|
Lawrenceville, GA
|
— | 1,054 | 4,974 | 25 | 1,070 | 4,983 | 822 | 2006 | 2002 | |||||||||||||||||||||||||||
|
Marinette, WI
|
8,391 | — | 13,538 | — | — | 13,538 | 452 | 2010 | 2002 | |||||||||||||||||||||||||||
|
Malabar, FL
|
— | 5,000 | 12,000 | — | 5,000 | 12,000 | — | 2010 | 2008 | |||||||||||||||||||||||||||
|
Middletown, NY
|
— | 1,756 | 20,364 | 465 | 1,756 | 20,829 | 4,247 | 2006 | 1998 | |||||||||||||||||||||||||||
|
Midwest City, OK
|
— | 146 | 3,854 | — | 146 | 3,854 | 625 | 2005 | 1996 | |||||||||||||||||||||||||||
|
Melbourne, FL
|
— | 600 | 9,400 | — | 600 | 9,400 | — | 2010 | 1986 | |||||||||||||||||||||||||||
|
Melbourne, FL
|
— | 1,400 | 24,400 | — | 1,400 | 24,400 | — | 2010 | 2003 | |||||||||||||||||||||||||||
|
Melbourne, FL
|
— | 7,000 | 69,000 | — | 7,000 | 69,000 | — | 2010 | 2009 | |||||||||||||||||||||||||||
|
Merced, CA
|
— | — | 13,772 | — | — | 13,772 | 417 | 2009 | 2010 | |||||||||||||||||||||||||||
|
Mesa, AZ
|
— | 1,558 | 9,561 | 225 | 1,558 | 9,786 | 1,469 | 2008 | 1989 | |||||||||||||||||||||||||||
|
Meridian, ID
|
— | 3,600 | 20,802 | 251 | 3,600 | 21,053 | 1,941 | 2006 | 2008 | |||||||||||||||||||||||||||
|
Marlton, NJ
|
— | — | 38,300 | 36 | — | 38,336 | 2,475 | 2008 | 1994 | |||||||||||||||||||||||||||
|
Merrillville, IN
|
— | 700 | 11,699 | 154 | 700 | 11,853 | 835 | 2007 | 2008 | |||||||||||||||||||||||||||
|
Merrillville, IN
|
— | — | 22,134 | — | — | 22,134 | 1,623 | 2008 | 2006 | |||||||||||||||||||||||||||
|
Morrow, GA
|
— | 818 | 8,064 | 151 | 834 | 8,199 | 1,213 | 2007 | 1990 | |||||||||||||||||||||||||||
|
Mount Juliet, TN
|
5,288 | 1,566 | 11,697 | — | 1,566 | 11,697 | 1,703 | 2007 | 2005 | |||||||||||||||||||||||||||
|
Muskego, WI
|
1,758 | 964 | 2,159 | — | 964 | 2,159 | 60 | 2010 | 1993 | |||||||||||||||||||||||||||
|
Milwaukee, WI
|
25,963 | — | 44,535 | — | — | 44,535 | 1,208 | 2010 | 1983 | |||||||||||||||||||||||||||
|
Milwaukee, WI
|
7,289 | 1,425 | 11,520 | — | 1,425 | 11,520 | 451 | 2010 | 1962 | |||||||||||||||||||||||||||
|
Milwaukee, WI
|
5,067 | 540 | 8,457 | — | 540 | 8,457 | 254 | 2010 | 1930 | |||||||||||||||||||||||||||
|
Milwaukee, WI
|
1,749 | 922 | 2,185 | — | 922 | 2,185 | 107 | 2010 | 1958 | |||||||||||||||||||||||||||
|
Niagara Falls, NY
|
— | 1,335 | 17,702 | 731 | 1,524 | 18,244 | 2,833 | 2007 | 1990 | |||||||||||||||||||||||||||
131
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Nashville , TN
|
— | 1,806 | 7,165 | 748 | 1,806 | 7,913 | 1,487 | 2006 | 1986 | |||||||||||||||||||||||||||
|
Nashville, TN
|
— | 4,300 | — | — | 4,300 | — | — | 2010 | ||||||||||||||||||||||||||||
|
New Berlin, WI
|
6,774 | 3,739 | 8,290 | — | 3,739 | 8,290 | 249 | 2010 | 1993 | |||||||||||||||||||||||||||
|
Okatie, SC
|
7,983 | 171 | 17,791 | 53 | 194 | 17,821 | 1,913 | 2007 | 1998 | |||||||||||||||||||||||||||
|
Orange Village, OH
|
— | 610 | 7,419 | 28 | 610 | 7,447 | 1,385 | 2007 | 1985 | |||||||||||||||||||||||||||
|
Oshkosh, WI
|
10,381 | — | 15,881 | — | — | 15,881 | 433 | 2010 | 2000 | |||||||||||||||||||||||||||
|
Oshkosh, WI
|
— | — | 18,339 | — | — | 18,339 | 505 | 2010 | 2000 | |||||||||||||||||||||||||||
|
Palm Springs , CA
|
— | 365 | 12,396 | 909 | 365 | 13,305 | 1,989 | 2006 | 1998 | |||||||||||||||||||||||||||
|
Phoenix, AZ
|
29,194 | 1,149 | 48,018 | 5,921 | 1,149 | 53,939 | 6,803 | 2006 | 1998 | |||||||||||||||||||||||||||
|
Pineville, NC
|
— | 961 | 6,974 | 901 | 1,069 | 7,767 | 1,077 | 2006 | 1988 | |||||||||||||||||||||||||||
|
Plantation, FL
|
9,824 | 8,563 | 10,666 | 1,519 | 8,575 | 12,173 | 2,503 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Plantation, FL
|
9,147 | 8,848 | 9,262 | — | 8,896 | 9,214 | 3,563 | 2006 | 1996 | |||||||||||||||||||||||||||
|
Plano, TX
|
— | 195 | 14,805 | 500 | 195 | 15,305 | 2,133 | 2005 | 1995 | |||||||||||||||||||||||||||
|
Plano, TX
|
— | 5,423 | 20,752 | — | 5,423 | 20,752 | 3,107 | 2008 | 2007 | |||||||||||||||||||||||||||
|
Plymouth, WI
|
1,757 | 1,250 | 1,870 | — | 1,250 | 1,870 | 63 | 2010 | 1991 | |||||||||||||||||||||||||||
|
Palmer, AK
|
19,746 | — | 29,705 | 630 | 217 | 30,118 | 3,723 | 2007 | 2006 | |||||||||||||||||||||||||||
|
Palm Springs, FL
|
2,774 | 739 | 4,066 | — | 739 | 4,066 | 690 | 2006 | 1993 | |||||||||||||||||||||||||||
|
Palm Springs, FL
|
— | 1,182 | 7,765 | 103 | 1,182 | 7,868 | 1,502 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Pearland, TX
|
— | 781 | 5,517 | 3 | 781 | 5,520 | 969 | 2006 | 2000 | |||||||||||||||||||||||||||
|
Pearland, TX
|
1,279 | 948 | 4,556 | 74 | 948 | 4,630 | 705 | 2006 | 2002 | |||||||||||||||||||||||||||
|
Reno, NV
|
— | 1,117 | 21,972 | 260 | 1,117 | 22,232 | 3,404 | 2010 | 1991 | |||||||||||||||||||||||||||
|
Sacramento, CA
|
— | 866 | 12,756 | 423 | 866 | 13,179 | 1,748 | 2006 | 1990 | |||||||||||||||||||||||||||
|
San Bernardino, CA
|
— | 3,700 | 14,300 | 326 | 3,700 | 14,626 | 876 | 2008 | 1993 | |||||||||||||||||||||||||||
|
San Diego, CA
|
— | — | 22,003 | 74 | — | 22,077 | 1,333 | 2008 | 1992 | |||||||||||||||||||||||||||
|
Seattle, WA
|
— | 4,410 | 39,015 | — | 4,410 | 39,015 | — | 2010 | 2010 | |||||||||||||||||||||||||||
|
Shakopee, MN
|
7,266 | 420 | 11,360 | — | 420 | 11,360 | — | 2010 | 1996 | |||||||||||||||||||||||||||
|
Shakopee, MN
|
12,337 | 640 | 18,094 | — | 640 | 18,094 | — | 2010 | 2007 | |||||||||||||||||||||||||||
|
Sheboygan, WI
|
1,818 | 1,012 | 2,216 | — | 1,012 | 2,216 | 75 | 2010 | 1958 | |||||||||||||||||||||||||||
|
Somerville, NJ
|
— | 3,400 | 22,244 | 2 | 3,400 | 22,246 | 1,345 | 2008 | 2007 | |||||||||||||||||||||||||||
|
San Antonio, TX
|
— | 2,050 | 16,251 | 771 | 2,050 | 17,022 | 3,690 | 2006 | 1999 | |||||||||||||||||||||||||||
|
San Antonio, TX
|
— | — | 17,303 | — | — | 17,303 | 2,387 | 2007 | 2007 | |||||||||||||||||||||||||||
|
Stafford, VA
|
— | — | 11,260 | — | — | 11,260 | 502 | 2008 | 2009 | |||||||||||||||||||||||||||
|
St. Louis, MO
|
7,602 | — | 17,247 | 447 | 336 | 17,358 | 2,662 | 2007 | 2001 | |||||||||||||||||||||||||||
|
Suffolk, VA
|
— | 1,530 | 10,979 | — | 1,530 | 10,979 | 327 | 2010 | 2007 | |||||||||||||||||||||||||||
|
Summit, WI
|
— | 2,899 | 87,666 | — | 2,899 | 87,666 | 4,600 | 2008 | 2009 | |||||||||||||||||||||||||||
|
Sewell, NJ
|
— | — | 53,360 | 3,979 | — | 57,339 | 3,100 | 2007 | 2009 | |||||||||||||||||||||||||||
|
Oro Valley, AZ
|
10,363 | 89 | 18,339 | 325 | 89 | 18,664 | 2,424 | 2007 | 2004 | |||||||||||||||||||||||||||
|
Tucson, AZ
|
— | 1,302 | 4,925 | 146 | 1,302 | 5,071 | 827 | 2008 | 1995 | |||||||||||||||||||||||||||
|
Tempe, AZ
|
5,522 | — | 9,112 | 1,864 | 1,486 | 9,490 | 1,486 | 2007 | 1996 | |||||||||||||||||||||||||||
|
Tallahassee, FL
|
— | — | 16,404 | — | — | 16,404 | — | 2010 | 2011 | |||||||||||||||||||||||||||
|
Tomball, TX
|
— | 1,404 | 5,071 | 560 | 1,404 | 5,631 | 1,242 | 2006 | 1982 | |||||||||||||||||||||||||||
|
Trussville, AL
|
— | 1,336 | 2,177 | 119 | 1,336 | 2,296 | 828 | 2006 | 1990 | |||||||||||||||||||||||||||
|
Tulsa, OK
|
— | 3,003 | 6,025 | 20 | 3,003 | 6,045 | 1,307 | 2006 | 1992 | |||||||||||||||||||||||||||
|
Viera, FL
|
— | 1,600 | 10,600 | — | 1,600 | 10,600 | — | 2010 | 1998 | |||||||||||||||||||||||||||
|
Van Nuys, CA
|
— | — | 36,187 | — | — | 36,187 | 1,094 | 2009 | 1991 | |||||||||||||||||||||||||||
|
Voorhees, NJ
|
— | 6,404 | 24,251 | 1,203 | 6,404 | 25,454 | 3,181 | 2006 | 1997 | |||||||||||||||||||||||||||
|
Pewaukee, WI
|
— | 4,700 | 20,669 | — | 4,700 | 20,669 | 2,308 | 2007 | 2007 | |||||||||||||||||||||||||||
|
Webster, TX
|
— | 2,418 | 12,028 | 32 | 2,418 | 12,060 | 2,043 | 2006 | 1991 | |||||||||||||||||||||||||||
|
Wellington, FL
|
7,066 | 107 | 16,933 | 129 | 107 | 17,062 | 2,259 | 2006 | 2000 | |||||||||||||||||||||||||||
|
Wellington , FL
|
6,338 | — | 13,697 | 351 | 381 | 13,667 | 1,702 | 2007 | 2003 | |||||||||||||||||||||||||||
|
Warrington, PA
|
— | 85 | 23,231 | 1,653 | 3,104 | 21,865 | 3,360 | 2008 | 2001 | |||||||||||||||||||||||||||
|
West Palm Beach, FL
|
7,061 | 628 | 14,740 | 100 | 628 | 14,840 | 2,217 | 2006 | 1993 | |||||||||||||||||||||||||||
|
West Palm Beach, FL
|
6,518 | 610 | 14,618 | 80 | 610 | 14,698 | 2,691 | 2006 | 1991 | |||||||||||||||||||||||||||
|
West Allis, WI
|
2,486 | 1,106 | 3,309 | — | 1,106 | 3,309 | 135 | 2010 | 1961 | |||||||||||||||||||||||||||
|
West Seneca, NY
|
12,698 | 917 | 22,435 | 879 | 1,296 | 22,935 | 3,140 | 2007 | 1990 | |||||||||||||||||||||||||||
|
Yorkville, IL
|
— | 1,419 | 2,816 | 73 | 1,419 | 2,889 | 623 | 2006 | 1980 | |||||||||||||||||||||||||||
|
Total medical facilities
|
463,478 | 232,281 | 2,486,537 | 90,758 | 242,742 | 2,566,834 | 237,690 | |||||||||||||||||||||||||||||
|
Construction in progress
|
— | — | 356,793 | — | — | 356,793 | — | |||||||||||||||||||||||||||||
|
Total continuing operations properties
|
1,124,045 | 711,343 | 7,836,842 | 420,869 | 727,050 | 8,242,004 | 836,966 | |||||||||||||||||||||||||||||
|
Assets held for sale:
|
||||||||||||||||||||||||||||||||||||
|
Cedar Hill, TX
|
— | 171 | 894 | — | 171 | 894 | — | 1997 | 1996 | |||||||||||||||||||||||||||
|
Chicago, IL
|
— | 3,650 | 1,900 | — | 3,650 | 1,900 | — | 2002 | 1979 | |||||||||||||||||||||||||||
|
Duncan, OK
|
— | 103 | 802 | — | 103 | 802 | — | 1995 | 1996 | |||||||||||||||||||||||||||
|
Desoto, TX
|
— | 205 | 844 | — | 205 | 844 | — | 1996 | 1996 | |||||||||||||||||||||||||||
|
Edmond, OK
|
— | 175 | 940 | — | 175 | 940 | — | 1995 | 1996 | |||||||||||||||||||||||||||
|
Enid, OK
|
— | 90 | 817 | — | 90 | 817 | — | 1995 | 1995 | |||||||||||||||||||||||||||
|
Midwest City, OK
|
— | 95 | 813 | — | 95 | 813 | — | 1996 | 1995 | |||||||||||||||||||||||||||
|
Oklahoma City, OK
|
— | 87 | 919 | — | 87 | 919 | — | 1996 | 1996 | |||||||||||||||||||||||||||
132
Table of Contents
|
Gross Amount at Which
|
||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Cost Capitalized
|
Carried at Close of Period | ||||||||||||||||||||||||||||||||||
|
Buildings &
|
Subsequent to
|
Buildings &
|
Accumulated
|
Year
|
Year
|
|||||||||||||||||||||||||||||||
|
Description
|
Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Depreciation | Acquired | Built | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
|
Oklahoma City, OK
|
— | 130 | 802 | — | 130 | 802 | — | 1995 | 1996 | |||||||||||||||||||||||||||
|
Palestine, TX
|
— | 173 | 853 | — | 173 | 853 | — | 1996 | 1996 | |||||||||||||||||||||||||||
|
Ponca City, OK
|
— | 114 | 906 | — | 114 | 906 | — | 1995 | 1995 | |||||||||||||||||||||||||||
|
Waxahachie, TX
|
— | 154 | 865 | — | 154 | 865 | — | 1996 | 1996 | |||||||||||||||||||||||||||
|
Houston, TX
|
— | 360 | 1,999 | — | 360 | 1,999 | — | 2002 | 1999 | |||||||||||||||||||||||||||
|
Houston, TX
|
— | 360 | 2,006 | — | 360 | 2,006 | — | 2002 | 1999 | |||||||||||||||||||||||||||
|
Oklahoma City, OK
|
— | 220 | 1,994 | — | 220 | 1,994 | — | 1999 | 1999 | |||||||||||||||||||||||||||
|
Total assets held for sale
|
— | 6,087 | 17,354 | — | 6,087 | 17,354 | — | |||||||||||||||||||||||||||||
|
Total investments in real property owned
|
$ | 1,124,045 | $ | 717,430 | $ | 7,854,196 | $ | 420,869 | $ | 733,137 | $ | 8,259,358 | $ | 836,966 | ||||||||||||||||||||||
| (1) | Represents real property asset associated with a capital lease. |
133
Table of Contents
HEALTH
CARE REIT, INC.
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Reconciliation of real property:
|
||||||||||||
|
Investment in real estate:
|
||||||||||||
|
Balance at beginning of year
|
$ | 6,336,291 | $ | 5,979,575 | $ | 5,117,005 | ||||||
|
Additions:
|
||||||||||||
|
Acquisitions
|
1,707,421 | 67,673 | 451,363 | |||||||||
|
Improvements
|
398,510 | 590,394 | 646,161 | |||||||||
|
Conversions from loans receivable
|
10,070 | — | 23,097 | |||||||||
|
Assumed other items, net
|
208,314 | — | 1,899 | |||||||||
|
Assumed debt
|
559,508 | — | — | |||||||||
|
Purchase price adjustments
|
— | 665 | — | |||||||||
|
Reclassification of lease commissions
|
— | — | 2,359 | |||||||||
|
Total additions
|
2,883,823 | 658,732 | 1,124,879 | |||||||||
|
Deductions:
|
||||||||||||
|
Cost of real estate sold
|
(216,300 | ) | (260,956 | ) | (219,079 | ) | ||||||
|
Reclassification of accumulated depreciation and amortization
for assets held for sale
|
(10,372 | ) | (15,837 | ) | (10,582 | ) | ||||||
|
Impairment of assets
|
(947 | ) | (25,223 | ) | (32,648 | ) | ||||||
|
Total deductions
|
(227,619 | ) | (302,016 | ) | (262,309 | ) | ||||||
|
Balance at end of year(2)
|
$ | 8,992,495 | $ | 6,336,291 | $ | 5,979,575 | ||||||
|
Accumulated depreciation:
|
||||||||||||
|
Balance at beginning of year
|
$ | 677,851 | $ | 600,781 | $ | 478,373 | ||||||
|
Additions:
|
||||||||||||
|
Depreciation and amortization expenses
|
202,543 | 164,923 | 163,045 | |||||||||
|
Amortization of above market leases
|
2,524 | 2,061 | 3,477 | |||||||||
|
Reclassification of lease commissions
|
— | — | 423 | |||||||||
|
Total additions
|
205,067 | 166,984 | 166,945 | |||||||||
|
Deductions:
|
||||||||||||
|
Sale of properties
|
(31,919 | ) | (74,244 | ) | (33,578 | ) | ||||||
|
Reclassification of accumulated depreciation and amortization
for assets held for sale
|
(14,033 | ) | (15,670 | ) | (10,959 | ) | ||||||
|
Total deductions
|
(45,952 | ) | (89,914 | ) | (44,537 | ) | ||||||
|
Balance at end of year
|
$ | 836,966 | $ | 677,851 | $ | 600,781 | ||||||
| (2) | The aggregate cost for tax purposes for real property equals $8,802,656,000, $6,378,056,000 and $5,977,346,000 at December 31, 2010, 2009 and 2008, respectively. |
134
Table of Contents
HEALTH
CARE REIT, INC.
SCHEDULE IV —
MORTGAGE LOANS ON REAL ESTATE
December 31,
2010
| (In thousands) | ||||||||||||||||||||||||||
|
Principal Amount
|
||||||||||||||||||||||||||
|
of Loans Subject to
|
||||||||||||||||||||||||||
|
Final
|
Periodic
|
Carrying
|
Delinquent
|
|||||||||||||||||||||||
|
Maturity
|
Payment
|
Prior
|
Face Amount
|
Amount of
|
Principal or
|
|||||||||||||||||||||
|
Description
|
Interest Rate | Date | Terms | Liens | of Mortgages | Mortgages | Interest | |||||||||||||||||||
|
First mortgage relating to one senior housing facility in New
York
|
7.60 | % | 06/30/13 |
Monthly Payments
$234,829 |
$ | — | $ | 40,000 | $ | 37,799 | $ | — | ||||||||||||||
|
First mortgage relating to one hospital in California
|
8.11 | % | 12/01/17 |
Monthly Payments
$99,373 |
— | 17,500 | 15,218 | — | ||||||||||||||||||
|
First mortgage relating to one hospital in California
|
9.50 | % | 06/01/20 |
Monthly Payments
$146,191 |
— | 17,500 | 13,747 | — | ||||||||||||||||||
|
First mortgage relating to one senior housing facility in North
Carolina
|
7.35 | % | 04/30/15 |
Monthly Payments
$40,234 |
— | 7,000 | 6,525 | — | ||||||||||||||||||
|
First mortgage relating to one medical office building in Georgia
|
6.50 | % | 10/01/14 |
Monthly Payments
$33,042 |
— | 6,100 | 6,100 | — | ||||||||||||||||||
|
First mortgage relating to one hospital in California
|
9.63 | % | 01/14/14 |
Monthly Payments
$140,072 |
— | 18,800 | 4,888 | — | ||||||||||||||||||
|
First mortgage relating to one senior housing facility in Arizona
|
3.55 | % | 01/01/13 |
Monthly Payments
$12,511 |
— | 4,151 | 4,151 | 4,151 | ||||||||||||||||||
|
Second mortgage relating to one hospital in California
|
9.13 | % | 10/31/13 |
Monthly Payments
$137,558 |
13,747 | 13,000 | 4,107 | — | ||||||||||||||||||
|
Second mortgage relating to one senior housing facility in
Wisconsin
|
15.21 | % | 01/15/15 |
Monthly Payments
$42,625 |
7,792 | 3,300 | 3,300 | — | ||||||||||||||||||
|
Seven first mortgages relating to four senior housing facilities
and three medical office buildings
|
From 3.00 |
%
to 10.90% |
From 09/01/11
to 06/30/20 |
Monthly Payments
from $739 to 52,811 |
— | 13,605 | 11,598 | — | ||||||||||||||||||
|
Second mortgage relating to one hospital in Massachusetts
|
12.17 | % | 06/30/10 |
Monthly Payments
$16,900 |
4,100 | 2,000 | 1,850 | 1,850 | ||||||||||||||||||
|
Totals
|
$ | 25,639 | $ | 142,956 | $ | 109,283 | $ | 6,001 | ||||||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Reconciliation of mortgage loans:
|
||||||||||||
|
Balance at beginning of year
|
$ | 74,517 | $ | 137,292 | $ | 143,091 | ||||||
|
Additions:
|
||||||||||||
|
New mortgage loans
|
73,439 | 9,456 | 22,142 | |||||||||
|
Total additions
|
73,439 | 9,456 | 22,142 | |||||||||
|
Deductions:
|
||||||||||||
|
Collections of principal(1)
|
(10,540 | ) | (54,696 | ) | (4,844 | ) | ||||||
|
Conversions to real property
|
(10,070 | ) | — | (23,097 | ) | |||||||
|
Charge-offs
|
(18,063 | ) | (17,535 | ) | — | |||||||
|
Total deductions
|
(38,673 | ) | (72,231 | ) | (27,941 | ) | ||||||
|
Balance at end of year
|
$ | 109,283 | $ | 74,517 | $ | 137,292 | ||||||
| (1) | Includes collection of negative principal amortization. |
135
Table of Contents
EXHIBIT INDEX
| 1 | .1 | Form of Equity Distribution Agreement, dated as of November 12, 2010, entered into by and between the Company and each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. (filed with the Commission as Exhibit 1.1 to the Company’s Form 8-K filed November 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 2 | .1(a) | Agreement and Plan of Merger, dated as of September 12, 2006, by and among the Company, Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K filed September 15, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 2 | .1(b) | Amendment No. 1 to Agreement and Plan of Merger, dated as of October 12, 2006, by and among the Company, Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K filed October 13, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(a) | Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(b) | Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(c) | Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(d) | Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed June 13, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(e) | Certificate of Designation of 7 7 / 8 % Series D Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A/A filed July 8, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(f) | Certificate of Designation of 7 5 / 8 % Series F Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A filed September 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(g) | Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.9 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(h) | Certificate of Change of Location of Registered Office and of Registered Agent of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-Q filed August 6, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .1(i) | Certificate of Designation of 6% Series H Cumulative Convertible and Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed January 11, 2011 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 3 | .2 | Second Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed October 29, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(a) | Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(b) | Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(c) | Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 14, 2003 (File No. 001-08923), and incorporated herein by reference thereto). |
136
Table of Contents
| 4 | .1(d) | Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(e) | Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(f) | Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed October 30, 2003 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(g) | Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 13, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(h) | Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed April 28, 2005 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .1(i) | Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 30, 2005 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .2(a) | Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .2(b) | Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .2(c) | Supplemental Indenture No. 2, dated as of July 20, 2007, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed July 20, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(a) | Indenture, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(b) | Supplemental Indenture No. 1, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(c) | Amendment No. 1 to Supplemental Indenture No. 1, dated as of June 18, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the Company’s Form 8-K filed June 18, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(d) | Supplemental Indenture No. 2, dated as of April 7, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed April 7, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(e) | Amendment No. 1 to Supplemental Indenture No. 2, dated as of June 8, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the Company’s Form 8-K filed June 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .3(f) | Supplemental Indenture No. 3, dated as of September 10, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto). |
137
Table of Contents
| 4 | .3(g) | Supplemental Indenture No. 4, dated as of November 16, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed November 16, 2010 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 4 | .4 | Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto). | ||
| 4 | .5 | Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto). | ||
| 10 | .1 | Fourth Amended and Restated Loan Agreement, dated as of August 6, 2007, by and among the Company and certain of its subsidiaries, the banks signatory thereto, KeyBank National Association, as administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC, Bank of America, N.A., JPMorgan Chase Bank, N.A., Calyon New York Branch, Barclays Bank PLC and Fifth Third Bank, as documentation agents (filed with the SEC as Exhibit 10.2 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 10 | .2 | Health Care REIT, Inc. Interest Rate & Currency Risk Management Policy adopted on May 6, 2004 (filed with the Commission as Exhibit 10.6 to the Company’s Form 10-Q filed July 23, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | ||
| 10 | .3(a) | The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .3(b) | First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-40771) filed November 21, 1997, and incorporated herein by reference thereto).* | ||
| 10 | .3(c) | Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.3 to the Company’s Form S-8 (File No. 333-73916) filed November 21, 2001, and incorporated herein by reference thereto).* | ||
| 10 | .3(d) | Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.15 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .3(e) | Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.17 to the Company’s Form 10-K filed March 16, 2005 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .4(a) | Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .4(b) | First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .4(c) | Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q/A filed October 27, 2004 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(a) | Amended and Restated Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the Commission as Appendix A to the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders, filed March 25, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(b) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(c) | Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.6 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(d) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.8 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* |
138
Table of Contents
| 10 | .5(e) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(f) | Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.7 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(g) | Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.9 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(h) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(i) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(j) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(k) | Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(l) | Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(m) | Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.23 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(n) | Form of Restricted Stock Agreement for the Chief Executive Officer under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(o) | Form of Restricted Stock Agreement for Executive Officers under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.4 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(p) | Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(q) | Form of Amendment to Deferred Stock Unit Grant Agreements for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.10 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(r) | Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.11 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .5(s) | Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.5 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .6 | Fifth Amended and Restated Employment Agreement, dated December 2, 2010, by and between the Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed December 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .7 | Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Scott A. Estes (filed with the Commission as Exhibit 10.4 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .8 | Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.3 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* |
139
Table of Contents
| 10 | .9 | Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Jeffrey H. Miller (filed with the Commission as Exhibit 10.8 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .10 | Employment Agreement, dated January 19, 2009, between the Company and John T. Thomas (filed with the Commission as Exhibit 10.10 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .11 | Third Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Erin C. Ibele (filed with the Commission as Exhibit 10.11 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .12 | Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.12 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .13 | Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and Fred S. Klipsch (filed with the Commission as Exhibit 10.5 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .14 | Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and Frederick L. Farrar (filed with the Commission as Exhibit 10.14 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .15 | Amended and Restated Health Care REIT, Inc. Supplemental Executive Retirement Plan, dated December 29, 2008 (filed with the Commission as Exhibit 10.12 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .16 | Form of Indemnification Agreement between the Company and each director, executive officer and officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed February 18, 2005 (File No. 001-08923), and incorporated herein by reference thereto).* | ||
| 10 | .17 | Summary of Director Compensation.* | ||
| 12 | Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Unaudited). | |||
| 14 | Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto). | |||
| 21 | Subsidiaries of the Company. | |||
| 23 | Consent of Ernst & Young LLP, independent registered public accounting firm. | |||
| 24 | .1 | Power of Attorney executed by William C. Ballard, Jr. (Director). | ||
| 24 | .2 | Power of Attorney executed by Pier C. Borra (Director). | ||
| 24 | .3 | Power of Attorney executed by Thomas J. DeRosa (Director). | ||
| 24 | .4 | Power of Attorney executed by Jeffrey H. Donahue (Director). | ||
| 24 | .5 | Power of Attorney executed by Peter J. Grua (Director). | ||
| 24 | .6 | Power of Attorney executed by Fred S. Klipsch (Director). | ||
| 24 | .7 | Power of Attorney executed by Sharon M. Oster (Director). | ||
| 24 | .8 | Power of Attorney executed by Jeffrey R. Otten (Director). | ||
| 24 | .9 | Power of Attorney executed by R. Scott Trumbull (Director). | ||
| 24 | .10 | Power of Attorney executed by George L. Chapman (Director, Chairman of the Board, Chief Executive Officer and President and Principal Executive Officer). | ||
| 24 | .11 | Power of Attorney executed by Scott A. Estes (Executive Vice President and Chief Financial Officer and Principal Financial Officer). | ||
| 24 | .12 | Power of Attorney executed by Paul D. Nungester, Jr. (Vice President and Controller and Principal Accounting Officer). | ||
| 31 | .1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | ||
| 31 | .2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | ||
| 32 | .1 | Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer. | ||
| 32 | .2 | Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer. |
| * | Management Contract or Compensatory Plan or Arrangement. |
140
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. (removed and Reserved)Part IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules