HEALTH CARE REIT INC /DE/
Item 1. Business
General
Health Care REIT, Inc. is a real estate investment trust (“REIT”) that has been at the forefront of seniors 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 seniors housing and health care real estate, including seniors housing communities, skilled nursing/post-acute 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 across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, customer 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, resident fees and services and principal payments on loans receivable. Permanent financing 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, 2011:
Investments
Percentage of
Number of
# Beds/Units
Investment per
Type of Property
(in thousands)
Investments
Properties
or Sq. Ft.
metric(1)
States
Seniors housing triple-net
$
4,029,818
28.1%
25,133
units
$
163,293
per unit
Skilled nursing/post-acute
3,527,468
24.6%
39,825
beds
89,997
per bed
Seniors housing operating
2,792,088
19.5%
12,420
units
224,806
per unit
Hospitals
911,482
6.4%
2,165
beds
421,007
per bed
Medical office buildings(2)
2,727,450
19.0%
11,276,994
sq. ft.
per sq. ft.
Life science buildings(2)
337,800
2.4%
n/a
Totals
$
14,326,106
100.0%
(1) Investment per metric was computed by using the total committed investment amount of $14,609,005,000, which includes net real estate investments, our share of investments in unconsolidated entities and unfunded construction commitments for which initial funding has commenced which amounted to $13,942,350,000, $383,756,000 and $282,899,000, respectively.
(2) Includes our share of investments in unconsolidated entities. Please see Note 7 to our consolidated financial statements for additional information.
Property Types
We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three business segments - seniors housing triple-net, seniors housing operating, 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.
Seniors Housing Triple-Net
Our seniors housing triple-net properties include independent living/continuing care retirement communities, assisted living facilities, Alzheimer’s/dementia facilities, skilled nursing/post-acute facilities and combinations thereof. We invest in seniors housing triple-net real estate primarily through acquisitions and development. 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.
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/Post-Acute Facilities. Skilled nursing/post-acute 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 and are subject to triple-net operating leases. All facilities offer some level of rehabilitation services. Some facilities offer rehabilitation units specializing in cardiac, orthopedic, dialysis, neurological or pulmonary rehabilitation, which focus on higher acuity patients.
Our seniors housing triple-net segment accounted for 45%, 57% and 67% of total revenues (including discontinued operations and our pro rata share of unconsolidated entities) for the years ended December 31, 2011, 2010 and 2009, respectively. We lease 150 facilities to Genesis HealthCare, LLC pursuant to a long-term, triple-net master lease. In addition to rent, the master lease requires Genesis to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under the ground leases. All obligations under the master lease have been guaranteed by FC-GEN Operations Investment, LLC. For the year ended December 31, 2011, our lease with Genesis accounted for approximately 26% of our seniors housing triple-net segment revenues and 12% of our total revenues.
Seniors Housing Operating
Our seniors housing operating properties include independent living facilities, assisted living facilities, Alzheimer’s facilities and combinations thereof. Descriptions of these facility types are provided above under Seniors Housing Triple-Net. We invest in seniors housing operating real estate primarily through acquisitions. Properties are primarily held in consolidated entities with operating partners, structured to take advantage of the REIT Investment Diversification Act of 2007 (“RIDEA”). 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.
Our seniors housing operating segment accounted for 31%, 7% and 0% of total revenues (including discontinued operations and our pro rata share of unconsolidated entities) for the years ended December 31, 2011, 2010 and 2009, respectively. We have partnerships with Merrill Gardens LLC, Benchmark Senior Living, LLC and Silverado Senior Living, Inc. to own and operate portfolios of 48, 34 and 19 facilities, respectively. In each instance, our partner provides management services to the properties pursuant to an incentive-based management contract. We rely on our partners to effectively and efficiently manage these properties. The following table provides information about our seniors housing operating concentration for the year ended December 31, 2011:
Partner % of Segment Revenues % of Total Revenues
Merrill Gardens LLC 34% 11%
Benchmark Senior Living, LLC 36% 11%
Silverado Senior Living, Inc. 21% 6%
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 seniors housing triple-net investments. Our life science investments represent investments in an unconsolidated joint venture entity (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 87% of our medical office building portfolio is affiliated with health systems by having buildings on hospital campuses or serving as satellite locations for the health system and their physicians.
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.
Life Science Buildings. The life science building portfolio consists of laboratory and office facilities specifically designed and constructed for use by biotechnology and pharmaceutical companies. These facilities, located adjacent to The Massachusetts Institute of Technology, which is a well established market known for pharmaceutical and biotechnology research, are similar to commercial office buildings with advanced HVAC, ventilation, electrical and mechanical systems.
Our medical facilities segment accounted for 24%, 35% and 33% of total revenues (including discontinued operations and our pro rata share of unconsolidated entities) for the years ended December 31, 2011, 2010 and 2009, respectively.
Investments
We invest in seniors housing and health care real estate primarily through acquisitions and developments. For additional information regarding acquisition and development activity, please see Note 3 to our consolidated financial statements. We diversify our investment portfolio by property type, customer 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 seniors housing triple-net 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 properties are primarily comprised of land, building, improvements and related rights. Our hospitals and seniors housing triple-net 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.
At December 31, 2011, approximately 93% of our hospitals and seniors housing triple-net 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, 2011, 86.6% of our portfolio included leases with full pass through, 11.6% with a partial expense reimbursement (modified gross) and 1.8% with no expense reimbursement (gross). Our medical office building leases are non-cancellable operating leases that have a weighted average remaining term of 8.4 years at December 31, 2011 and are often 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, 2011, we had outstanding construction investments of $189,502,000 and were committed to providing additional funds of approximately $282,899,000 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, 2011, we had outstanding real estate loans of $292,507,000. The interest yield averaged approximately 9% 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, 2011 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 venture entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation.
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. Accounting Standards
Codification (“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.
Investments in Unconsolidated Entities
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 our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. Other equity investments include an investment in available-for-sale securities and an investment in a private company where we do not have the ability to exercise influence over the company, so the investment is accounted for under the cost method. These equity investments represented a minimal ownership interest in these companies. 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.
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 seniors 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
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 ability to successfully manage the risks associated with international expansion and operations;
• 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 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, seniors 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;
• the movement of U.S. and Canadian exchange rates;
• 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 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. Operating 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 continued weakened economy may have an 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.
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”) or determination of need 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 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, provided $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 mandated a six-month extension of the increase in federal Medicaid funding for states through June 30, 2011, although the enhanced federal Medicaid funding was scaled back for the first two quarters of 2011. Under both the ARRA and H.R. 1586, states meeting certain eligibility requirements temporarily received 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 were paid for by the federal government went up, and each state’s share went down. No similar extension of increased matching has been offered since June 30, 2011, and states’ FMAP rates have returned to levels comparable to pre-ARRA rates. 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. General and professional liability insurance coverage may be restricted or very costly, which 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.
Unfavorable resolution of pending and future litigation matters and disputes could have a material adverse effect on our financial condition.
From time to time, we may be directly involved in a number of legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits allegedly arising out of our actions or the actions of our operators/tenants or managers in which such operators/tenants or managers have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses. An unfavorable resolution of pending or future litigation may have a material adverse effect on our business, results of operations and financial condition. Regardless of its outcome, litigation may result in substantial costs and expenses and significantly divert the attention of management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, pending or future litigation. In addition, pending litigation or future litigation, government proceedings or environmental matters could lead to increased costs or interruption of our normal business operations.
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 our seniors housing operating properties
We are exposed to various operational risks with respect to our seniors housing operating properties that may increase our costs or adversely affect our ability to generate revenues. These risks include fluctuations in occupancy, Medicare and Medicaid reimbursement, if applicable, and private pay rates; economic conditions; competition; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; state regulation and rights of residents related to entrance fees; the availability and increases in cost of labor (as a result of unionization or otherwise). Any one or a combination of these factors may adversely affect our revenue and operations.
Risk factors related to life science facilities
Our tenants in the life science 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 science 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.
Risk factors related to indebtedness
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 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 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.
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 seniors 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 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 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 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.
Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations
International development, ownership, and operating activities involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the 75% gross income test or the 95% gross income test that we must satisfy annually in order to qualify and maintain our status as a REIT; challenges with respect to the repatriation of foreign earnings and cash; changes in foreign political, regulatory, and economic conditions, including regionally, nationally, and locally; challenges in managing international operations; challenges of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment and legal proceedings; foreign ownership restrictions with respect to operations in countries; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and economic instability; and changes in applicable laws and regulations in the United States that affect foreign operations. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected.
Risk factors related to changes in currency exchange rates
As we expand our operations internationally, currency exchange rate fluctuations could affect our results of operations and financial position. We expect to generate an increasing portion of our revenue and expenses in such foreign currencies as the Canadian dollar. Although we may enter into foreign exchange agreements with financial institutions and/or obtain local currency mortgage debt in order to reduce our exposure to fluctuations in the value of foreign currencies, we cannot assure you that foreign currency fluctuations will not have a material adverse effect on us.
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 to pay dividends to stockholders in order to maintain REIT status or avoid an excise tax. 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 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 lease certain qualified health care properties we acquire to taxable REIT subsidiaries (or limited liability companies of which the taxable REIT subsidiaries are members), which lessees contract with managers (or related parties) to manage the health care operations at these properties. The rents from this taxable REIT subsidiary lessee structure are 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 manager 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 Internal Revenue Service as “true leases,” we may be subject to adverse tax consequences
We have purchased certain properties and leased them back to the sellers of such properties, and we may enter similar transactions in the future. 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 Internal Revenue Service 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 Internal Revenue Service, 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 certificate of incorporation and by-laws contain anti-takeover 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.
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 California 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, 2011 (dollars in thousands):
Seniors Housing Triple-Net
Property Location
Number of Properties(2)
Total Investment
Annualized Income(1)
Alabama
$
2,733
$
Arizona
21,029
2,318
California
44,296
9,768
Colorado
97,493
11,279
Connecticut
225,515
23,539
Delaware
152,039
14,474
Florida
533,093
50,338
Georgia
75,319
5,849
Idaho
38,119
5,426
Illinois
161,360
14,818
Indiana
256,037
26,087
Iowa
8,800
Kansas
110,092
9,201
Kentucky
57,902
8,275
Louisiana
5,411
1,396
Maryland
336,982
26,808
Massachusetts
468,485
52,241
Michigan
106,596
8,210
Minnesota
35,392
2,823
Mississippi
51,507
5,703
Missouri
26,597
2,025
Montana
12,542
2,010
Nebraska
38,215
4,088
Nevada
79,611
9,666
New Hampshire
192,468
18,931
New Jersey
1,150,170
92,993
New York
165,329
15,742
North Carolina
196,495
27,892
Ohio
366,441
32,551
Oklahoma
50,420
6,476
Oregon
7,174
1,854
Pennsylvania
763,939
72,392
Rhode Island
48,814
4,804
South Carolina
248,563
17,191
Tennessee
201,574
28,837
Texas
391,219
43,111
Utah
6,353
Vermont
28,418
2,798
Virginia
129,459
14,794
Washington
107,972
11,044
West Virginia
406,133
39,342
Wisconsin
151,183
15,261
Total
$
7,557,287
$
744,564
(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.
(2) Excludes unconsolidated entities.
Seniors Housing Operating
Medical Facilities
Property Location
Number of Properties(2)
Total Investment
Annualized Income(1)
Number of Properties(2)
Total Investment
Annualized Income(1)
Alabama
$
18,357
$
5,160
$
37,302
$
4,732
Alaska
-
-
-
25,594
3,468
Arizona
14,371
9,001
89,874
10,846
Arkansas
-
-
-
29,784
2,642
California
796,594
173,320
520,589
59,672
Colorado
-
-
-
6,218
Connecticut
361,558
100,681
-
-
-
Florida
6,904
3,819
473,760
41,877
Georgia
13,961
7,301
151,262
17,291
Idaho
-
-
-
21,977
2,616
Illinois
68,514
9,209
14,672
Indiana
-
-
-
82,379
9,021
Iowa
36,952
4,995
-
-
-
Kansas
-
-
-
47,516
6,023
Kentucky
-
-
-
28,248
4,366
Louisiana
-
-
-
20,806
1,789
Maine
26,536
5,386
25,393
2,590
Massachusetts
331,365
77,882
11,363
-
Minnesota
-
-
-
85,347
10,560
Missouri
74,130
8,285
162,604
12,931
Nebraska
-
-
-
154,578
17,608
Nevada
36,336
8,075
127,064
10,417
New Hampshire
52,589
11,358
-
-
-
New Jersey
-
-
-
219,231
17,446
New Mexico
20,801
1,315
40,280
3,934
New York
-
-
-
90,353
9,257
North Carolina
-
-
-
32,268
1,803
Ohio
88,614
7,604
56,882
8,923
Oklahoma
42,182
2,333
21,562
2,335
Pennsylvania
-
-
-
17,848
10,469
Rhode Island
78,910
23,114
-
-
-
South Carolina
-
-
-
8,907
1,128
Tennessee
-
-
-
99,543
10,663
Texas
112,445
37,342
430,539
43,116
Utah
18,951
8,392
-
-
-
Vermont
30,024
6,451
-
-
-
Virginia
-
-
-
40,846
3,996
Washington
561,994
78,088
104,206
7,513
Wisconsin
-
-
-
314,178
29,862
Total
$
2,792,088
$
589,109
$
3,592,975
$
370,028
(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.
(2) Excludes unconsolidated entities.
The following table sets forth occupancy and average annualized income for these property types:
Occupancy(1)
Average Annualized Income(2)
Seniors housing triple net
88.2%
88.9%
$
14,428
$
16,241
per unit
Skilled nursing/post-acute
88.0%
84.9%
9,583
6,519
per bed
Seniors housing operating
90.1%
91.9%
47,432
30,458
per unit
Hospitals
59.0%
62.9%
43,929
30,951
per bed
Medical office buildings
93.4%
93.1%
per sq. ft.
(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. Occupancy for seniors housing operating represents occupancy as of December 31. Occupancy for other properties represents average quarterly operating occupancy based on the quarters ended September 30 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 for certain portions of our portfolio as of December 31, 2011 (dollars in thousands):
Expiration Year
Thereafter
Seniors housing triple-net:
Properties
-
Base rent(1)
$
13,382
$
52,944
$
27,423
$
2,026
$
-
$
16,923
$
36,823
$
28,397
$
40,482
$
61,317
$
418,794
% of base rent
1.9%
7.6%
3.9%
0.3%
0.0%
2.4%
5.3%
4.1%
5.8%
8.8%
60.0%
Hospitals:
Properties
-
-
-
-
-
-
-
-
Base rent(1)
$
-
$
-
$
-
$
-
$
-
$
2,350
$
$
-
$
5,959
$
-
$
72,653
% of base rent
0.0%
0.0%
0.0%
0.0%
0.0%
2.9%
0.0%
0.0%
7.4%
0.0%
89.7%
Medical office buildings:
Square feet
600,231
508,617
551,737
463,525
841,189
671,729
413,574
538,893
416,013
694,015
4,107,804
Base rent(1)
$
15,083
$
11,621
$
11,647
$
10,023
$
19,302
$
15,500
$
9,151
$
12,765
$
11,036
$
16,170
$
87,791
% of base rent
6.9%
5.3%
5.3%
4.6%
8.8%
7.0%
4.2%
5.8%
5.0%
7.3%
39.9%
(1) The most recent monthly base rent including straight line for leases with fixed escalators or annual cash rents with contingent escalators. Base rent does not include tenant recoveries or amortization of above and 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.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
There were 5,030 stockholders of record as of January 31, 2012. 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
First Quarter
$
52.74
$
46.75
$
0.690
Second Quarter
55.21
49.79
0.715
Third Quarter
54.63
41.03
0.715
Fourth Quarter
55.17
43.65
0.715
First Quarter
$
46.79
$
39.82
$
0.680
Second Quarter
46.44
38.42
0.690
Third Quarter
48.54
40.85
0.690
Fourth Quarter
52.06
44.07
0.690
Our Board of Directors has approved a new quarterly cash dividend rate of $0.74 per share of common stock per quarter, commencing with the February 2012 dividend. The declaration and payment of quarterly dividends remains subject to the review and approval of the Board of Directors.
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, 2011, 120 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. 2006 equals $100 and dividends are assumed to be reinvested.
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
S & P 500
100.0
105.49
66.46
84.05
96.71
98.76
Health Care REIT, Inc.
100.0
109.65
109.98
124.12
141.91
172.09
FTSE NAREIT Equity
100.0
84.31
52.50
67.20
85.98
93.10
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.
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31, 2011 are derived from our audited consolidated financial statements (in thousands, except per share data):
Year Ended December 31,
Operating Data
Revenues(1)
$
392,988
$
483,010
$
523,288
$
657,297
$
1,421,162
Expenses:
Interest expense(1)
120,210
119,279
96,856
151,296
318,395
Depreciation and amortization(1)
109,668
127,992
140,692
186,963
418,406
Property operating expenses(1)
32,494
39,648
42,501
79,293
379,476
General and administrative(1)
37,465
47,193
49,691
54,626
77,201
Transaction costs
-
-
-
46,660
70,224
Provision for loan losses
-
23,261
29,684
2,010
Realized loss on derivatives
-
23,393
-
-
-
Loss (gain) on extinguishment of debt
(1,081)
(2,094)
25,107
34,171
(979)
Total expenses
298,756
355,505
378,108
582,693
1,264,733
Income from continuing operations before income taxes and income from unconsolidated entities
94,232
127,505
145,180
74,604
156,429
Income tax expense
(188)
(1,306)
(168)
(364)
(1,388)
Income from unconsolidated entities
-
-
-
6,673
5,772
Income from continuing operations
94,044
126,199
145,012
80,913
160,813
Income from discontinued operations, net(1)
44,549
157,226
47,915
47,971
51,903
Net income
138,593
283,425
192,927
128,884
212,716
Preferred stock dividends
25,130
23,201
22,079
21,645
60,502
Net income (loss) attributable to noncontrolling interests
(342)
(4,894)
Net income attributable to common stockholders
$
113,225
$
260,098
$
171,190
$
106,882
$
157,108
Other Data
Average number of common shares outstanding:
Basic
78,861
93,732
114,207
127,656
173,741
Diluted
79,409
94,309
114,612
128,208
174,401
Per Share Data
Basic:
Income from continuing operations attributable to common stockholders
$
0.87
$
1.10
$
1.08
$
0.46
$
0.61
Discontinued operations, net
0.56
1.68
0.42
0.38
0.30
Net income attributable to common stockholders *
$
1.44
$
2.77
$
1.50
$
0.84
$
0.90
Diluted:
Income from continuing operations attributable to common stockholders
$
0.86
$
1.09
$
1.08
$
0.46
$
0.60
Discontinued operations, net
0.56
1.67
0.42
0.37
0.30
Net income attributable to common stockholders *
$
1.43
$
2.76
$
1.49
$
0.83
$
0.90
Cash distributions per common share
$
2.2791
$
2.70
$
2.72
$
2.74
$
2.835
* 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, 2011, to discontinued operations for all periods presented. See Note 5 to our audited consolidated financial statements.
December 31,
Balance Sheet Data
Net real estate investments
$
5,012,620
$
5,854,179
$
6,080,620
$
8,590,833
$
13,942,350
Total assets
5,219,240
6,215,031
6,367,186
9,451,734
14,924,606
Total long-term obligations
2,683,760
2,847,676
2,414,022
4,469,736
7,240,752
Total liabilities
2,784,289
2,976,746
2,559,735
4,714,081
7,612,309
Total preferred stock
330,243
289,929
288,683
291,667
1,010,417
Total equity
2,434,951
3,238,285
3,807,451
4,733,100
7,278,647
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 seniors 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 seniors housing and health care real estate, including seniors 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, 2011:
Investments
Percentage of
Number of
# Beds/Units
Investment per
Type of Property
(in thousands)
Investments
Properties
or Sq. Ft.
metric(1)
States
Seniors housing triple-net
$
4,029,818
28.1%
25,133
units
$
163,293
per unit
Skilled nursing/post-acute
3,527,468
24.6%
39,825
beds
89,997
per bed
Seniors housing operating
2,792,088
19.5%
12,420
units
224,806
per unit
Hospitals
911,482
6.4%
2,165
beds
421,007
per bed
Medical office buildings(2)
2,727,450
19.0%
11,276,994
sq. ft.
per sq. ft.
Life science buildings(2)
337,800
2.4%
n/a
Totals
$
14,326,106
100.0%
(1) Investment per metric was computed by using the total committed investment amount of $14,609,005,000, which includes net real estate investments, our share of investments in unconsolidated entities and unfunded construction commitments for which initial funding has commenced which amounted to $13,942,350,000, $383,756,000 and $282,899,000, respectively.
(2) Includes our share of investments in unconsolidated entities. 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 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 seniors 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;
· 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 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. The United States Supreme Court has agreed to review the constitutionality of the Health Reform Laws and will hear arguments beginning March 26, 2012. 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.
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 have faced a specified percentage decrease in their annual update for discharges since 2010. Additionally, beginning in 2012, long-term care hospitals will be subject to
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
the productivity adjustments, which may decrease the federal payment rates for long-term care hospitals. Similar productivity adjustments and other adjustments to payment rates have applied to inpatient rehabilitation facilities, psychiatric hospitals and outpatient hospitals since 2010.
The Health Reform Laws revise other reimbursement provisions that may affect our business. For example, the Health Reform Laws 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. To account for excess readmissions, the Health Reform Laws also call for a reduction of 1% in payments for those hospitals with higher-than-average risk-adjusted readmission rates beginning October 1, 2012, 2% beginning in fiscal year 2014, and 3% from fiscal year 2015 onward. These reductions 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. As another example, on November 2, 2011, CMS published the final rule implementing section 3022 of the PPACA, which contains provisions relating to Medicare payment to providers and suppliers participating in Accountable Care Organizations (“ACOs”) under the Medicare Shared Servings Program. Under the program, Medicare will share a percentage of savings with ACOs that meet certain quality and saving requirements, thereby allowing providers to receive incentive payments in addition to their traditional fee-for-service payments. Under the program, more experienced providers may assume the risk of losses in exchange for greater potential rewards: ACOs may share up to 50% of the savings under the one-sided model and up to 60% of the savings under the two-sided model, depending on their quality and performance. The amount of shared losses for which an ACO is liable in the two-sided model may not exceed the following percentages of its updated benchmark: 5% in the first performance year, 7.5% in the second year, and 10% in the third year. These shared losses could affect the ability of ACO operators or tenants to meet their financial obligations to us. 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. 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.
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 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 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. Additionally, the PPACA requires certain entities - including providers, suppliers, Medicaid managed care organizations, Medicare Advantage organizations, and prescription drug program sponsors - to report and return overpayments to the appropriate payer by the later of (a) sixty (60) days after the date the overpayment was “identified,” or (b) the date that the “corresponding cost report” is due. The entity also must notify the payer in writing of the reason for the overpayment. A violation of these requirements may result in criminal liability, civil liability under the FCA, and/or exclusion from the federal health care programs. On February 14, 2012, CMS published a proposed rule implementing the PPACA requirement that health care providers and suppliers report and return self-identified overpayments by the later of 60 days after the date the overpayment was identified, or the date any corresponding cost report is due, if
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
applicable. The Health Reform Laws also amend the Federal Anti-Kickback Statute to state that any items or services “resulting from” a violation of the Anti-Kickback Statute constitutes a “false or fraudulent claim” under the Federal False Claims Act. 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 are assessed an annual administrative fee and are 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.
However, in light of the implementation of those PPACA provisions relating to Medicare payment to providers and suppliers participating in ACOs under the Medicare Shared Savings Program, on November 2, 2011, CMS and OIG jointly published the final rule establishing waivers of certain fraud and abuse laws to ACOs. These waivers include automatic AKS, Stark, and CMP waivers that may be applied in certain situations and that will apply uniformly to each ACO, ACO participant, and ACO provider/supplier. Notably, the final rule states that CMS and OIG intend to closely monitor ACOs through June 2013 to ensure that these waivers are not causing “undesirable effects” and need to be narrowed to prevent fraud and abuse.
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 affect employers that provide health plans to their employees. The new laws 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 proposed and final rulemakings that may potentially increase or decrease government reimbursement to 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 1, 2011, CMS issued a final rule updating the long-term acute care hospital prospective payment system for fiscal year 2012. Among other things, the final rule increased payment rates for acute care hospitals by 1% and long-term care hospitals by 1.8%. In the rule, CMS included a negative 2%, rather than the proposed negative 3.15%, documentation and coding adjustment for long-term care hospitals. CMS also released a final rulemaking for the prospective payment system and consolidated billing for skilled nursing facilities for fiscal year 2012 on August 8, 2011, which included the 11.1%, or $3.87 billion, decrease in RUG payments made to skilled nursing facilities previously discussed. CMS announced that the reasons for this rate reduction were to correct for the unintended spike in payment levels, particularly those associated with higher paying RUGs, and to align reimbursement with cost. As part of these changes, effective October, 1, 2011, all rate categories will be updated for the full market basket; increase of 2.7%, less a 1% productivity adjustment required by Section 3401(b) of the PPACA.
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 1, 2011, CMS published the calendar year 2012 Physician Fee Schedule final rule with comment period. Most notably, the final rule calls for a negative 27.4% update for 2012 under the statutory SGR formula. In February 2012, Congress passed the Middle Class Tax Relief and Job Creation Act of 2012, which blocks the cut through the end of 2012. Also discussed in the final rule are at least two initiatives that could negatively impact the reimbursement levels received by our operators and tenants. CMS is expanding its multiple procedure payment reduction policy to the professional interpretation of advance imaging services to recognize the overlapping activities that go into valuing these services. In addition, the rule finalizes quality and cost measures that will be used in establishing a new value-based modifier that would adjust physician payments based on whether
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
they are providing higher quality and more efficient care. The PPACA requires CMS to begin making payment adjustments to certain physicians and physician groups on January 1, 2015, and to apply the modifier to all physicians by January 1, 2017. The rule finalizes calendar year 2013 as the initial performance year for purposes of adjusting payments in calendar year 2015.
Additionally, on November 1, 2011, CMS published a final rule with comment period for outpatient care hospitals and ambulatory surgical centers. CMS estimates that the cumulative effect of all changes to payment rates for calendar year 2012 will have a positive effect, resulting in a 1.9% estimated increase in Medicare payments to providers paid under the HOPPS. As required by PPACA, the rule also provides for a payment adjustment for designated cancer hospitals, resulting in an expected increase in payments to cancer hospitals by 11.3%, and increases payment rates to ambulatory surgical centers by 1.6%.
Finally, on November 21, 2011, the Joint Select Committee on Deficit Reduction, which was created by the Budget Control Act of 2011, concluded its work, and issued a statement that it was not able to make a bipartisan agreement, thus triggering the sequestration process. The sequestration process will result in spending reductions starting in 2013, including Medicare cuts. Such cuts could affect government reimbursement to our operators and tenants.
Economic Outlook
Economic fundamentals leading into 2012 have set a generally positive pace with U.S. Gross Domestic Product growth projected to pick up through the coming year. However, there are several important caveats to note as the world economy continues to face headwinds and risks weigh to the downside. Positive outlooks are conditional on fiscal policy in payroll taxes and unemployment insurance benefits and upon the easing of the European debt situation. A repeat of volatility experienced in 2011 is likely in 2012, as perceptions about the strength of the U.S. economy and the Euro zone will vary over time as events unfold. However, this volatility has led to increased interest in the historically stable returns provided by healthcare real estate.
As a consequence of this interest, significant debt and equity investment capital was available to our sector in 2011 resulting in a record year of acquisition activity. We participated in this growth and continue to actively invest and pursue investment opportunities that meet our strategic underwriting criteria. Our strategy has resulted in robust portfolio growth and strong returns for our shareholders. With further industry consolidation anticipated in 2012, we expect to continue to our success. We believe the opportunities in which we invest will continue to generate consistent, reliable and growing cash flows for our shareholders, regardless of economic volatility.
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 seniors 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, resident fees and services, 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, 2011, rental income, resident fees and services and interest income represented 65%, 32%, and 3% 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 collectability assessment. Rental income related to leases
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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.
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 capital expenditures and construction advances), loan advances, property operating expenses and general and administrative expenses.
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. It is also possible that 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, 2011, we had $163,482,000 of cash and cash equivalents, $69,620,000 of restricted cash and $1,395,000,000 of available borrowing capacity under our primary unsecured line of credit arrangement.
Key Transactions in 2011
We completed the following key transactions during the year ended December 31, 2011:
· our Board of Directors increased the annual cash dividend to $2.96 per common share ($0.74 per share quarterly), as compared to $2.835 per common share for 2011, beginning in February 2012. The dividend declared for the quarter ended December 31, 2011 represents the 163rd consecutive quarterly dividend payment;
· we completed $5,986,262,000 of gross investments and had $351,701,000 of investment payoffs;
· we completed a public offering of 28,750,000 shares of common stock with net proceeds of $1,358,543,000 in March;
· we completed a public offering of 14,375,000 shares of 6.5% convertible preferred stock with net proceeds of $696,437,000 in March;
· we issued $1,400,000,000 of senior unsecured notes due 2016 to 2041 bearing interest rates of 3.625% to 6.5% with net proceeds of $1,381,086,000 in March;
· we extended our unsecured line of credit arrangement to July 2015 and expanded it to $2,000,000,000 in July 2011;
· we completed a public offering of 12,650,000 shares of common stock with net proceeds of $606,595,000 in November; and
· we announced plans to declassify the Board of Directors.
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):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended December 31,
Net income attributable to common stockholders
$
171,190
$
106,882
$
157,108
Funds from operations
316,977
280,022
524,902
Net operating income(1)
547,678
640,346
1,087,205
Per share data (fully diluted):
Net income attributable to common stockholders
$
1.49
$
0.83
$
0.90
Funds from operations
2.77
2.18
3.01
(1) Includes our share of net operating income from unconsolidated entities.
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,
Debt to book capitalization ratio
39%
49%
50%
Debt to undepreciated book capitalization ratio
35%
45%
46%
Debt to market capitalization ratio
30%
38%
38%
Adjusted interest coverage ratio
3.78x
3.39x
3.02x
Adjusted fixed charge coverage ratio
3.09x
2.76x
2.37x
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 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 by investment balance for the periods presented:
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
December 31,
Asset mix:
Real property
93%
91%
95%
Real estate loans receivable
7%
5%
2%
Investments in unconsolidated entities
0%
4%
3%
Investment mix:(1)
Seniors housing triple-net
42%
37%
28%
Skilled nursing/post-acute
25%
14%
25%
Seniors housing operating
0%
12%
20%
Hospitals
10%
9%
6%
Medical office buildings
23%
24%
19%
Life science buildings
0%
4%
2%
Customer mix:(1)
Genesis HealthCare, LLC
17%
Merrill Gardens, LLC
8%
8%
Benchmark Senior Living, LLC
6%
Brandywine Senior Living, LLC
7%
5%
Senior Living Communities, LLC
7%
7%
4%
Senior Star Living
5%
Brookdale Senior Living, Inc.
5%
4%
Signature Health Care LLC
5%
Emeritus Corporation
4%
Life Care Centers of America, Inc,
4%
Remaining customers
75%
69%
60%
Geographic mix:(1)
New Jersey
10%
California
9%
10%
10%
Massachusetts
7%
7%
8%
Florida
12%
10%
7%
Texas
11%
8%
7%
Washington
6%
Ohio
6%
Remaining states
55%
59%
58%
(1) Includes our share of investments in unconsolidated entities.
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.
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):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended December 31,
Net operating income:
Seniors housing triple-net
$
399,363
$
422,466
$
663,018
Seniors housing operating
-
18,385
141,943
Medical facilities(1)
147,145
196,621
281,554
Non-segment/corporate
1,170
2,874
Net operating income
$
547,678
$
640,346
$
1,087,205
(1) Includes our share of net operating income from unconsolidated entities.
Payment coverage. Payment coverage of our triple-net customers continues to remain strong. Our overall payment coverage is at 1.91 times. The table below reflects our recent historical trends of portfolio coverage. Coverage data reflects the 12 months ended for the periods presented. Coverage represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us.
September 30, 2009
September 30, 2010
September 30, 2011
CBMF
CAMF
CBMF
CAMF
CBMF
CAMF
Seniors housing triple-net
1.51x
1.30x
1.54x
1.32x
1.38x
1.19x
Skilled nursing/post-acute
2.29x
1.69x
2.42x
1.79x
2.22x
1.71x
Hospitals
2.47x
2.14x
2.66x
2.33x
2.47x
2.13x
Weighted averages
2.01x
1.59x
2.12x
1.68x
1.91x
1.54x
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 capital expenditures and 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.
The following is a summary of our sources and uses of cash flows (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31, 2009
December 31, 2010
$
%
December 31, 2011
$
%
$
%
Cash and cash equivalents at beginning of period
$
23,370
$
35,476
$
12,106
52%
$
131,570
$
96,094
271%
$
108,200
463%
Cash provided from operating activities
381,259
364,741
(16,518)
-4%
588,224
223,483
61%
206,965
54%
Cash used in investing activities
(270,060)
(2,312,039)
(2,041,979)
756%
(4,520,129)
(2,208,090)
96%
(4,250,069)
1574%
Cash provided from (used in) financing activities
(99,093)
2,043,392
2,142,485
n/a
3,963,817
1,920,425
94%
4,062,910
n/a
Cash and cash equivalents at end of period
$
35,476
$
131,570
$
96,094
271%
$
163,482
$
31,912
24%
$
128,006
361%
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
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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
One Year Change
Year Ended
One Year Change
Two Year Change
December 31, 2009
December 31, 2010
$
%
December 31, 2011
$
%
$
%
Gross straight-line rental income
$
19,415
$
14,717
$
(4,698)
-24%
$
41,068
$
26,351
179%
$
21,653
112%
Cash receipts due to real property sales
(4,422)
(1,341)
3,081
-70%
(815)
-39%
3,607
-82%
Prepaid rent receipts
(26,252)
(7,196)
19,056
-73%
(8,675)
(1,479)
21%
17,577
-67%
Amortization related to above (below) market leases, net
1,713
2,856
1,143
67%
2,507
(349)
-12%
46%
$
(9,546)
$
9,036
$
18,582
n/a
$
34,085
$
25,049
277%
$
43,631
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.
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, 2009
December 31, 2010
December 31, 2011
Properties
Amount
Properties
Amount
Properties
Amount
Real property acquisitions:
Seniors housing triple-net
$
11,650
$
1,028,529
$
3,320,664
Seniors housing operating
-
-
816,000
1,747,485
Medical facilities
56,023
626,414
610,843
Land parcels
-
-
4,300
19,084
Total acquisitions
67,673
2,475,243
5,698,076
Less: Assumed debt
-
(559,508)
(961,928)
Assumed other items, net
-
(208,314)
(210,411)
Cash disbursed for acquisitions
67,673
1,707,421
4,525,737
Construction in progress additions
492,897
306,832
301,604
Capital improvements to existing properties
38,389
59,923
77,781
Total cash invested in real property
598,959
2,074,176
4,905,122
Real property dispositions:
Seniors housing triple-net
101,155
170,290
150,755
Medical facilities
85,558
14,092
35,295
Total dispositions
186,713
184,382
186,050
Less: Gains (losses) on sales of real property
43,394
36,115
61,160
Seller financing on sales of real property
(6,100)
(1,470)
-
Proceeds from real property sales
224,007
219,027
247,210
Net cash investments in real property
(33)
$
374,952
$
1,855,149
$
4,657,912
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Capitalization Rates
Capitalization rates for acquisitions represent annualized contractual or projected income to be received in cash divided by investment amounts. Capitalization rates for dispositions represent annualized contractual income that was being received in cash at date of disposition divided by disposition cash proceeds. For the year ended December 31, 2011, weighted-average capitalization rates for acquisitions and dispositions were as follows:
Acquisitions
Dispositions
Seniors housing triple-net
8.0%
6.8%
Seniors housing operating
6.8%
n/a
Medical facilities
7.4%
7.3%
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Seniors
Seniors
Seniors
Housing
Medical
Housing
Medical
Housing
Medical
Triple-net
Facilities
Totals
Triple-net
Facilities
Totals
Triple-net
Facilities
Totals
Advances on real estate loans receivable:
Investments in new loans
$
20,036
$
-
$
20,036
$
9,742
$
41,644
$
51,386
$
18,541
$
-
$
18,541
Draws on existing loans
52,910
1,471
54,381
46,113
1,236
47,349
29,752
3,184
32,936
Sub-total
72,946
1,471
74,417
55,855
42,880
98,735
48,293
3,184
51,477
Less: Seller financing on property sales
-
-
-
-
(1,470)
(1,470)
-
-
-
Net cash advances on real estate loans
72,946
1,471
74,417
55,855
41,410
97,265
48,293
3,184
51,477
Receipts on real estate loans receivable:
Loan payoffs
61,659
32,197
93,856
5,619
6,233
11,852
162,705
2,943
165,648
Principal payments on loans
15,890
2,033
17,923
24,203
7,440
31,643
17,856
5,307
23,163
Total receipts on real estate loans
77,549
34,230
111,779
29,822
13,673
43,495
180,561
8,250
188,811
Net advances (receipts) on real estate loans
$
(4,603)
$
(32,759)
$
(37,362)
$
26,033
$
27,737
$
53,770
$
(132,268)
$
(5,066)
$
(137,334)
The contributions to unconsolidated entities for the year ended December 31, 2010 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. The distributions by unconsolidated entities for the year ended December 31, 2011 primarily represent cash received for return of capital from those same joint ventures. Please see Note 7 to our consolidated financial statements for additional information. Changes in restricted cash represent net cash fundings to and disbursements from earnest money deposits and secured debt escrow accounts.
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 and preferred stock and dividend payments.
The changes in our senior unsecured notes are due to (i) the repayment of $3,000 of convertible senior unsecured notes in December 2011; (ii) the issuance of $400,000,000 of 3.625% senior unsecured notes due 2016, $600,000,000 of 5.25% senior unsecured notes due 2022 and $400,000,000 of 6.50% senior unsecured notes due 2041 in March 2011; (iii) the issuance of $494,403,000 of convertible senior unsecured notes in March and June 2010; (iv) the repurchase of $441,326,000 of convertible senior unsecured notes in March and June 2010; (v) the issuance of $450,000,000 of senior unsecured notes in April and June 2010; (vi) the issuance of $450,000,000 of senior unsecured notes in September 2010; (vii) the issuance of $450,000,000 of senior unsecured notes in November 2010; and (viii) the extinguishment of $183,147,000 of various senior unsecured notes in March and September 2009. 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, 2011, we assumed 55 secured loans totaling $940,855,000 with an average rate of 4.85% secured by 55 properties. Also during the year ended December 31, 2011, we issued 9 secured loans totaling $114,903,000 with a rate of 5.78%. During the year ended December 31, 2011, we extinguished $55,317,000 of secured debt with an average rate of 5.95%
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
and recognized a gain of $979,000. 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.
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 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 or the 4.75% convertible senior unsecured notes due 2027 prior to July 15, 2012 unless such redemption is necessary to preserve our status as a REIT. However, on or after December 1, 2014 or July 15, 2012 (as applicable), 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.
In March 2011, we completed a public offering of 14,375,000 shares of 6.5% convertible preferred stock for net proceeds of $696,437,000. 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
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
March 2011 public issuance
28,750,000
$
49.25
$
1,415,938
$
1,358,543
November 2011 public issuance
12,650,000
50.00
632,500
606,595
2011 Dividend reinvestment plan issuances
2,534,707
48.44
122,794
121,846
2011 Equity shelf program issuances
848,620
50.53
42,888
41,982
2011 Option exercises
232,081
37.17
8,628
8,628
2011 Totals
45,015,408
$
2,222,748
$
2,137,594
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):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Per Share
Amount
Per Share
Amount
Per Share
Amount
Common Stock
$
2.72000
$
311,760
$
2.74000
$
348,578
$
2.83500
$
483,746
Series D Preferred Stock
1.96875
7,875
1.96875
7,875
1.96875
7,875
Series E Preferred Stock
1.50000
1.12500
-
-
Series F Preferred Stock
1.90625
13,344
1.90625
13,344
1.90625
13,344
Series G Preferred Stock
1.87500
1.40640
-
-
Series H Preferred Stock
-
-
-
-
2.85840
1,000
Series I Preferred Stock
-
-
-
-
1.33159
38,283
Totals
$
333,839
$
370,223
$
544,248
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 investment in unconsolidated entities 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%. In addition, at December 31, 2011, we had other investments in unconsolidated entities with our ownership ranging from 10% to 50%. 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, 2011, we had five outstanding letter of credit obligations totaling $5,515,000 and expiring between 2012 and 2014. 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, 2011 (in thousands):
Payments Due by Period
Contractual Obligations
Total
2013-2014
2015-2016
Thereafter
Unsecured line of credit arrangements
$
610,000
$
5,000
$
-
$
605,000
$
-
Senior unsecured notes(1)
4,464,927
76,853
300,000
950,000
3,138,074
Secured debt(1)
2,298,553
162,116
550,527
429,210
1,156,700
Contractual interest obligations
3,202,072
355,462
642,895
528,569
1,675,146
Capital lease obligations
90,482
8,059
73,977
8,447
-
Operating lease obligations
356,464
6,166
12,944
12,018
325,336
Purchase obligations
340,369
195,384
110,290
34,695
-
Other long-term liabilities
5,935
-
1,900
3,560
Total contractual obligations
$
11,368,802
$
809,040
$
1,691,107
$
2,569,839
$
6,298,816
(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, 2011, we had a $2,000,000,000 unsecured line of credit arrangement with a consortium of 31 banks with an option to upsize the facility by up to an additional $500,000,000 through an accordion feature, allowing for an aggregate commitment of up to $2,500,000,000. The revolving credit facility is scheduled to expire July 27, 2015. 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 (1.65% at December 31, 2011). The applicable margin is based on certain of our debt ratings and was 1.35% at December 31, 2011. 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 0.25% at December 31, 2011. Principal is due
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
upon expiration of the agreement. At December 31, 2011, we had $ 605,000,000 outstanding under the unsecured line of credit arrangement and $5,000,000 outstanding under an unsecured revolving demand note. Contractual interest obligations of $35,690,000 are estimated based on the assumption that the balance of $610,000,000 at December 31, 2011 is constant until maturity at interest rates in effect at December 31, 2011.
We have $4,464,927,000 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 $2,397,250,533 at December 31, 2011. A total of $788,074,000 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.
We have consolidated secured debt with total outstanding principal of $2,108,384,000, collateralized by owned properties, with annual interest rates ranging from 1.22% to 10.00%, payable monthly. The carrying values of the properties securing the debt totaled $4,048,469,000 at December 31, 2011. Total contractual interest obligations on consolidated secured debt totaled $729,000,860 at December 31, 2011. Our share of non-recourse debt associated with unconsolidated entities (as reflected in the contractual obligations table above) is $190,169,000 at December 31, 2011. Our share of contractual interest obligations on our unconsolidated entities’ secured debt is $40,131,000 at December 31, 2011.
At December 31, 2011, we had operating lease obligations of $356,464,000 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, 2011, we had outstanding construction financings of $189,502,000 for leased properties and were committed to providing additional financing of approximately $282,899,000 to complete construction. At December 31, 2011, we had contingent purchase obligations totaling $57,470,000. 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. Benefit payments are expected to total $2,375,000 during the next five fiscal years and $3,560,000 thereafter. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $5,623,000 and $4,066,000 at December 31, 2011 and December 31, 2010, respectively.
Capital Structure
As of December 31, 2011, we had total equity of $7,278,647,000 and a total debt balance of $7,156,756,000, which represents a debt to total book capitalization ratio of 50%. Our ratio of debt to market capitalization was 38% at December 31, 2011. For the year ended December 31, 2011, our adjusted interest coverage ratio was 3.02x and our adjusted fixed charge coverage ratio was 2.37x. Also, at December 31, 2011, we had $163,482,000 of cash and cash equivalents, $69,620,000 of restricted cash and $1,395,000,000 of available borrowing capacity under our primary 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, 2011, 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.
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, 2012, 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, 2012, 5,876,205 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 $630,015,000 aggregate amount of our common stock
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
(“Equity Shelf Program”). As of January 31, 2012, we had $457,112,000 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, resident fees and services, 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
One Year Change
Year Ended
One Year Change
Two Year Change
December 31, 2009
December 31, 2010
Amount
%
December 31, 2011
Amount
%
Amount
%
Net income attributable to common stockholders
$
171,190
$
106,882
$
(64,308)
-38%
$
157,108
$
50,226
47%
$
(14,082)
-8%
Funds from operations
316,977
280,022
(36,955)
-12%
524,902
244,880
87%
207,925
66%
Adjusted EBITDA
525,791
568,429
42,638
8%
971,525
403,096
71%
445,734
85%
Net operating income
547,678
640,346
92,668
17%
1,087,205
446,859
70%
539,527
99%
Per share data (fully diluted):
Net income attributable to common stockholders
$
1.49
$
0.83
$
(0.66)
-44%
$
0.90
$
0.07
8%
$
(0.59)
-40%
Funds from operations
2.77
2.18
(0.59)
-21%
3.01
0.83
38%
0.24
9%
Adjusted interest coverage ratio
3.78x
3.39x
-0.39x
-10%
3.02x
-0.37x
-11%
-0.76x
-20%
Adjusted fixed charge coverage ratio
3.09x
2.76x
-0.33x
-11%
2.37x
-0.39x
-14%
-0.72x
-23%
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, 2011:
• $12,194,000 ($0.07 per diluted share) of impairment charges;
• $2,010,000 ($0.01 per diluted share) of provisions for loan losses;
• $70,224,000 ($0.40 per diluted share) of transaction costs;
• $1,653,000 ($0.01 per diluted share) of held for sale hospital operating expenses;
• $979,000 ($0.01 per diluted share) of net gains on extinguishments of debt;
• $3,774,000 ($0.02 per diluted share) of additional other income related to a lease and loan termination; and
• $61,160,000 ($0.35 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, 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;
• $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 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 increase in fully diluted average common shares outstanding is primarily the result of public common stock offerings and
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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, 2009 to December 31, 2011 (in thousands):
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Totals
Beginning balance
104,704
123,385
147,097
104,704
Public offerings
15,017
20,700
41,400
77,117
DRIP issuances
1,499
1,957
2,534
5,990
ESP issuances
1,953
3,233
Preferred stock conversions
-
Option exercises
Other, net
Ending balance
123,385
147,097
192,275
192,275
Average number of shares outstanding:
Basic
114,207
127,656
173,741
Diluted
114,612
128,208
174,401
We evaluate our business and make resource allocations on our three business segments - seniors housing triple-net, seniors housing operating and medical facilities. Please see Note 17 to our consolidated financial statements for additional information.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Seniors Housing Triple-net
The following is a summary of our results of operations for the seniors housing triple-net segment (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Revenues:
Rental income
$
308,650
$
347,706
$
39,056
13%
$
612,617
$
264,911
76%
$
303,967
98%
Interest income
35,945
36,176
1%
34,068
(2,108)
-6%
(1,877)
-5%
Other income
2,909
3,385
16%
6,620
3,235
96%
3,711
128%
Prepayment fees
2,400
-
(2,400)
-100%
-
-
n/a
(2,400)
-100%
349,904
387,267
37,363
11%
653,305
266,038
69%
303,401
87%
Expenses:
Interest expense
2,879
7,780
4,901
170%
13,238
5,458
70%
10,359
360%
Depreciation and amortization
82,752
98,561
15,809
19%
175,625
77,064
78%
92,873
112%
Transaction costs
-
20,613
20,613
n/a
27,993
7,380
36%
27,993
n/a
Loss (gain) on extinguishment of debt
2,057
7,791
5,734
279%
-
(7,791)
-100%
(2,057)
-100%
Provision for loan losses
23,261
29,684
6,423
28%
-
(29,684)
-100%
(23,261)
-100%
110,949
164,429
53,480
48%
216,856
52,427
32%
105,907
95%
Income from continuing operations before income taxes and income (loss) from unconsolidated entities
238,955
222,838
(16,117)
-7%
436,449
213,611
96%
197,494
83%
Income tax expense
(607)
-
-100%
(143)
(143)
n/a
-76%
Income (loss) from unconsolidated entities
-
-
-
n/a
(9)
(9)
n/a
(9)
n/a
Income from continuing operations
238,348
222,838
(15,510)
-7%
436,297
213,459
96%
197,949
83%
Discontinued operations:
Gain (loss) on sales of properties
32,084
36,274
4,190
13%
59,108
22,834
63%
27,024
84%
Impairment of assets
-
-
-
n/a
(1,103)
(1,103)
n/a
(1,103)
n/a
Income from discontinued operations, net
21,168
15,216
(5,952)
-28%
4,949
(10,267)
-67%
(16,219)
-77%
Discontinued operations, net
53,252
51,490
(1,762)
-3%
62,954
11,464
22%
9,702
18%
Net income
291,600
274,328
(17,272)
-6%
499,251
224,923
82%
207,651
71%
Less: Net income attributable to noncontrolling interests
-
(18)
(18)
n/a
-1311%
n/a
Net income attributable to common stockholders
$
291,600
$
274,346
$
(17,254)
-6%
$
499,033
$
224,687
82%
$
207,433
71%
The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed seniors housing triple-net 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. For the three months ended December 31, 2011, we had no lease renewals but we had 12 leases with rental rate increasers ranging from 0.25% to 0.41% in our seniors housing triple-net portfolio.
Interest expense for the years ended December 31, 2011, 2010 and 2009 represents $15,306,000, $15,111,000 and $12,622,000,
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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 seniors housing triple-net property secured debt principal activity (dollars in thousands):
Year Ended
Year Ended
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
94,234
6.996%
$
298,492
5.998%
$
172,862
5.265%
Debt transferred
-
0.000%
(131,214)
6.100%
-
0.000%
Debt issued
265,527
5.982%
81,977
4.600%
-
0.000%
Debt assumed
-
0.000%
78,794
5.867%
90,120
4.819%
Debt extinguished
(47,502)
7.414%
(150,982)
5.924%
-
0.000%
Principal payments
(13,767)
7.640%
(4,205)
4.388%
(3,982)
5.556%
Ending balance
$
298,492
5.998%
$
172,862
5.265%
$
259,000
5.105%
Monthly averages
$
205,549
6.309%
$
242,123
5.663%
$
234,392
5.141%
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, 2011 primarily represent costs incurred with the Genesis transaction (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, 2011, we sold 39 seniors housing triple-net properties for net gains of $59,108,000 as compared to 31 properties for net gains of $36,274,000 in 2010 and 21 properties for net gains of $32,084,000 in 2009. At December 31, 2011, we had one seniors housing triple-net facility that satisfied the requirements for held for sale treatment. We recognized an impairment loss of $1,102,000 on certain 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, 2011 as discontinued operations for the periods presented. Please refer to Note 5 to our consolidated financial statements for further discussion.
Year Ended December 31,
Rental income
$
49,459
$
35,198
$
9,713
Expenses:
Interest expense
9,743
7,331
2,068
Provision for depreciation
18,548
12,651
2,696
Income (loss) from discontinued operations, net
$
21,168
$
15,216
$
4,949
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 seniors 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 seniors housing and CCRC development projects. This was offset by a net reduction of the allowance balance by $3,907,000. We did not record any provision for loan loss or have any loan write-offs for seniors housing triple-net investments during the year ended December 31, 2011. 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.”
During the year ended December 31, 2011 a portion of our seniors housing triple-net properties were formed through partnership interests. Net income attributable to noncontrolling interests for the year ended December 31, 2011 represents our partners share of net income (loss) relating to those properties. In connection with a seniors housing triple-net partnership, we also acquired a minority interest in a separate unconsolidated entity. This investment is reflected as an investment in unconsolidated entities on our consolidated balance sheet. Accordingly, our proportionate share of net income (loss) is reflected as income (loss) from unconsolidated entities on our consolidated income statement.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Seniors Housing Operating
As discussed in Note 3 to our consolidated financial statements, we completed the acquisition of three additional seniors housing operating partnerships and added certain properties to existing partnerships during the year ended December 31, 2011. The results of operations for these partnerships have been included in our consolidated results of operations from the dates of acquisition. The seniors housing operating partnerships were formed using the structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). When considering new partnerships utilizing the RIDEA structure, we look for opportunities with best-in-class operators with a strong seasoned leadership team, high-quality real estate in attractive markets, growth potential above the standard rent escalators in our triple-net lease seniors housing portfolio, and alignment of economic interests with our operating partner. Our seniors housing operating partnerships offer us the opportunity for external growth because we have the right to fund future seniors housing investment opportunities sourced by our operating partners. There were no seniors housing operating segment investments prior to September 1, 2010. The following is a summary of our seniors housing operating results of operations (dollars in thousands):
Year Ended
One Year Change
December 31,
December 31,
$
%
Revenues:
Resident fees and services
$
51,006
$
456,085
$
405,079
794%
Expenses:
Interest expense
7,794
46,342
38,548
495%
Property operating expenses
32,621
314,142
281,521
863%
Depreciation and amortization
15,504
138,192
122,688
791%
Transaction costs
20,936
36,328
15,392
74%
Loss (gain) on extinguishment of debt
-
(979)
(979)
n/a
76,855
534,025
457,170
595%
Income from continuing operations before income from unconsolidated entities
(25,849)
(77,940)
(52,091)
202%
Income tax expense
(229)
-
n/a
Income from unconsolidated entities
-
(1,531)
(1,531)
n/a
Net income
(26,078)
(79,471)
(53,393)
205%
Less: Net income attributable to noncontrolling interests
(1,656)
(6,006)
(4,350)
263%
Net income attributable to common stockholders
$
(24,422)
$
(73,465)
$
(49,043)
201%
The fluctuation in revenues, expenses and other items is primarily due to the timing of transactions. Amounts for the year ended December 31, 2010 primarily represent four months of activity for our original Merrill Gardens partnership. Amounts for the year ended December 31, 2011 represent a full year of activity for the original Merrill Gardens partnership plus amounts related to all subsequent RIDEA partnerships. Please refer to Note 3 to our consolidated financial statements for additional information. The following is a summary of our seniors housing operating property secured debt principal activity (dollars in thousands):
Year Ended
Year Ended
December 31, 2010
December 31, 2011
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
-
0.000%
$
487,706
5.939%
Debt transferred
131,214
6.100%
-
0.000%
Debt issued
75,179
6.386%
114,903
5.779%
Debt assumed
318,125
5.855%
780,955
4.269%
Debt extinguished
(35,017)
6.723%
(55,317)
5.949%
Principal payments
(1,795)
6.165%
(9,648)
5.474%
Ending balance
$
487,706
5.939%
$
1,318,599
4.665%
Monthly averages
$
350,259
5.957%
$
969,265
5.679%
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Medical Facilities
The following is a summary of our results of operations for the medical facilities segment (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Revenues:
Rental income
$
165,965
$
210,484
$
44,519
27%
$
300,095
$
89,611
43%
$
134,130
81%
Interest income
4,940
4,679
(261)
-5%
7,002
2,323
50%
2,062
42%
Other income
1,309
(324)
-25%
3,985
3,000
305%
2,676
204%
172,214
216,148
43,934
26%
311,082
94,934
44%
138,868
81%
Expenses:
Interest expense
17,411
22,593
5,182
30%
29,931
7,338
32%
12,520
72%
Property operating expenses
42,501
46,673
4,172
10%
65,334
18,661
40%
22,833
54%
Depreciation and amortization
57,941
72,896
14,955
26%
104,589
31,693
43%
46,648
81%
Transaction costs
-
5,112
5,112
n/a
5,903
n/a
5,903
n/a
Loss (gain) on extinguishment of debt
3,781
1,308
(2,473)
-65%
-
(1,308)
-100%
(3,781)
-100%
Provision for loan losses
-
-
-
n/a
2,010
2,010
n/a
2,010
n/a
121,634
148,582
26,948
22%
207,767
59,185
40%
86,133
71%
Income from continuing operations before income taxes and income from unconsolidated entities
50,580
67,566
16,986
34%
103,315
35,749
53%
52,735
104%
Income tax expense
(233)
(77)
-67%
(361)
(284)
369%
(128)
55%
Income from unconsolidated entities
-
6,673
6,673
n/a
7,312
n/a
7,312
n/a
Income from continuing operations
50,347
74,162
23,815
47%
110,266
36,104
49%
59,919
119%
Discontinued operations:
Gain (loss) on sales of properties
11,310
(159)
(11,469)
n/a
2,052
2,211
-1391%
(9,258)
-82%
Impairment of assets
(25,223)
(947)
24,276
-96%
(11,091)
(10,144)
1071%
14,132
-56%
Income (loss) from discontinued operations, net
8,577
(2,412)
(10,989)
n/a
(2,009)
-17%
(10,586)
-123%
Discontinued operations, net
(5,336)
(3,518)
1,818
-34%
(11,048)
(7,530)
214%
(5,712)
107%
Net income (loss)
45,011
70,644
25,633
57%
99,218
28,574
40%
54,207
120%
Less: Net income (loss) attributable to noncontrolling interests
(342)
2,031
2,373
n/a
(1,137)
-56%
1,236
-361%
Net income (loss) attributable to common stockholders
$
45,353
$
68,613
$
23,260
51%
$
98,324
$
29,711
43%
$
52,971
117%
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, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2011, our consolidated medical office building portfolio signed 55,562 square feet of new leases and 103,954 square feet of renewals. The weighted average term of these leases was five years, with a rate of $23.06 per square foot and tenant improvement and lease commission costs of $10.53 per square foot. Substantially all of these leases during the referenced quarter contain an annual fixed or contingent escalation rent structure ranging from the change in
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
CPI to 3%. For the three months ended December 31, 2011, we had no lease renewals but we had two leases with rental rate increasers ranging from 0.25% to 0.50% in our hospital portfolio.
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, 2011, 2010 and 2009 represents $31,467,000, $24,926,000 and $20,584,000, 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
Year Ended
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
354,146
5.799%
$
314,065
5.677%
$
463,477
5.286%
Debt assumed
-
0.000%
167,737
6.637%
69,779
5.921%
Debt extinguished
(34,213)
6.933%
(8,494)
6.045%
-
0.000%
Principal payments
(5,868)
5.721%
(9,831)
6.279%
(13,190)
6.208%
Ending balance
$
314,065
5.677%
$
463,477
5.286%
$
520,066
5.981%
Monthly averages
$
341,103
5.764%
$
458,196
5.961%
$
489,923
6.179%
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, 2011 represent costs incurred in connection with the acquisition of new properties. Income tax expense is primarily related to third party management fee income.
We recorded $2,010,000 of provision for loan losses during the year ended December 31, 2011. This amount includes the write-off of a loan totaling $3,286,000 primarily relating to a medical facility loan offset by a net reduction in the allowance for loan loss $1,276,000, resulting in an allowance for loan losses of $0 at December 31, 2011.
Income from unconsolidated entities for the year ended December 30, 2010 and 2011 includes our share of net income related to our joint venture investment with Forest City Enterprises. Income from unconsolidated entities for the year ended December 31, 2011 also includes our share of net income related to certain unconsolidated property investments related to our strategic joint venture relationship with a national medical office building company. See Note 7 to our consolidated financial statements for additional information. The following is a summary of our pro rata net income from these investments for the year ended December 31, 2011 (in thousands):
Year Ended December 31,
One Year Change
$
%
Revenues
$
19,756
$
23,626
$
3,870
20%
Operating expenses
5,751
6,945
1,194
21%
Net operating income
14,005
16,681
2,676
19%
Depreciation and amortization
4,646
6,156
1,510
33%
Interest expense
4,228
5,829
1,601
38%
Loss on extinguishment of debt
-
n/a
Asset management fee
16%
Net income
$
4,383
$
3,471
$
(912)
-21%
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
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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. During the year ended December 31, 2011, we sold three medical facilities for net gains of $2,052,000. At December 31, 2011, we had five medical facilities held for sale and we recorded an impairment charge of $6,791,000 to reduce the carrying values of certain properties to their estimated fair values less costs to sell. The following illustrates the reclassification impact as a result of classifying medical facilities sold prior to or held for sale at December 31, 2011 as discontinued operations for the periods presented. Please refer to Note 5 to our consolidated financial statements for further discussion.
Year Ended December 31,
Rental income
$
15,837
$
10,022
$
6,421
Other income
8,059
-
-
Expenses:
Interest expense
3,173
2,333
1,536
Property operating expenses
6,464
7,171
4,394
Provision for depreciation
5,682
2,930
2,503
Income (loss) from discontinued operations, net
$
8,577
$
(2,412)
$
(2,012)
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 Change
Year Ended
One Year Change
Two Year Change
December 31, 2009
December 31, 2010
$
%
December 31, 2011
$
%
$
%
Revenues:
Other income
$
1,170
$
2,874
$
1,704
146%
$
$
(2,184)
-76%
$
(480)
-41%
Expenses:
Interest expense
76,566
113,129
36,563
48%
228,884
115,755
102%
152,318
199%
General and administrative
49,691
54,626
4,935
10%
77,201
22,575
41%
27,510
55%
Loss (gain) on extinguishments of debt
19,269
25,072
5,803
30%
-
(25,072)
-100%
(19,269)
n/a
145,526
192,827
47,301
33%
306,085
113,258
59%
160,559
110%
Loss from continuing operations before income taxes
(144,356)
(189,953)
(45,597)
32%
(305,395)
(115,442)
61%
(161,039)
112%
Income tax expense (benefit)
(58)
(730)
n/a
(884)
(826)
1424%
(1,556)
-232%
Net loss
(143,684)
(190,011)
(46,327)
32%
(306,279)
(116,268)
61%
(162,595)
113%
Preferred stock dividends
22,079
21,645
(434)
-2%
60,502
38,857
180%
38,423
174%
Net loss attributable to common stockholders
$
(165,763)
$
(211,656)
$
(45,893)
28%
$
(366,781)
$
(155,125)
73%
$
(201,018)
121%
Other income primarily represents income from non-real estate activities such as interest earned on temporary investments of cash reserves.
The following is a summary of our non-segment/corporate interest expense (dollars in thousands):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31, 2009
December 31, 2010
$
%
December 31, 2011
$
%
$
%
Senior unsecured notes
$
106,347
$
122,492
$
16,145
15%
$
222,559
$
100,067
82%
$
116,212
109%
Secured debt
n/a
(41)
-6%
n/a
Unsecured lines of credit
4,629
3,974
(655)
-14%
7,917
3,943
99%
3,288
71%
Capitalized interest
(41,170)
(20,792)
20,378
-49%
(13,164)
7,628
-37%
28,006
-68%
Interest SWAP savings
(161)
(161)
-
0%
(161)
-
0%
-
0%
Loan expense
6,656
6,971
5%
11,129
4,158
60%
4,473
67%
Totals
$
76,566
$
113,129
$
36,563
48%
$
228,884
$
115,755
102%
$
152,318
199%
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
Year Ended
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
1,845,000
5.782%
$
1,661,853
5.557%
$
3,064,930
5.129%
Debt issued
-
0.000%
1,844,403
4.653%
1,400,000
5.143%
Debt extinguished(1)
(183,147)
7.823%
(441,326)
4.750%
(3)
4.750%
Ending balance
$
1,661,853
5.557%
$
3,064,930
5.129%
$
4,464,927
5.133%
Monthly averages
$
1,778,261
5.713%
$
2,221,056
5.263%
$
4,141,853
5.133%
(1) We recognized losses of $19,269,000, $25,072,000 and $0 in connection with the extinguishments for the years ended December 31, 2009, 2010 and 2011, respectively.
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. 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 arrangements 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 arrangements (dollars in thousands):
Year Ended December 31,
Balance outstanding at year end
$
140,000
$
300,000
$
610,000
Maximum amount outstanding at any month end
$
559,000
$
560,000
$
710,000
Average amount outstanding (total of daily
principal balances divided by days in period)
$
241,463
$
268,762
$
240,104
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding)
1.92%
1.48%
1.51%
General and administrative expenses as a percentage of consolidated revenues (including revenues from discontinued operations) for the years ended December 31, 2011, 2010 and 2009 were 5.37%, 7.78% and 8.33%, respectively. The increase in general and administrative expenses is primarily related to costs associated with our initiatives to attract and retain appropriate personnel to achieve our business objectives. The decline in percent of revenue is primarily related to the increasing revenue base as a result of our seniors housing operating partnerships.
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):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended
Year Ended
Year Ended
December 31, 2009
December 31, 2010
December 31, 2011
Weighted Avg.
Weighted Avg.
Weighted Avg.
Shares
Dividend Rate
Shares
Dividend Rate
Shares
Dividend Rate
Beginning balance
11,516,302
7.696%
11,474,093
7.697%
11,349,854
7.663%
Shares issued
-
0.000%
349,854
6.000%
14,375,000
6.500%
Shares redeemed
-
0.000%
(5,513)
7.500%
-
0.000%
Shares converted
(42,209)
7.478%
(468,580)
7.262%
-
0.000%
Ending balance
11,474,093
7.697%
11,349,854
7.663%
25,724,854
7.013%
Monthly averages
11,482,557
7.697%
11,321,886
7.699%
22,407,546
7.089%
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 and impairment of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated entities.
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. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and preferred dividends.
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 adjusted for stock-based compensation expense, provision for loan losses and gain/loss on extinguishment of debt. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Effective July 27, 2011, our covenant requires an adjusted fixed charge ratio of at least 1.50 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 table below reflects 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
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
transaction costs and depreciation and amortization. Unconsolidated entity amounts represent our share of unconsolidated entities’ depreciation and amortization. Amounts are in thousands except for per share data.
Year Ended December 31,
FFO Reconciliation:
Net income attributable to common stockholders
$
171,190
$
106,882
$
157,108
Depreciation and amortization
164,923
202,543
423,605
Impairment of assets
25,223
12,194
Loss (gain) on sales of properties
(43,394)
(36,115)
(61,160)
Noncontrolling interests
(965)
(2,749)
(18,557)
Unconsolidated entities
-
8,514
11,712
Funds from operations
$
316,977
$
280,022
$
524,902
Average common shares outstanding:
Basic
114,207
127,656
173,741
Diluted
114,612
128,208
174,401
Per share data:
Net income attributable to common stockholders
Basic
$
1.50
$
0.84
$
0.90
Diluted
1.49
0.83
0.90
Funds from operations
Basic
$
2.78
$
2.19
$
3.02
Diluted
2.77
2.18
3.01
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,
Adjusted EBITDA Reconciliation:
Net income
$
192,927
$
128,884
$
212,716
Interest expense
109,772
160,960
321,998
Income tax expense (benefit)
1,388
Depreciation and amortization
164,923
202,543
423,605
Stock-based compensation expense
9,633
11,823
10,786
Provision for loan losses
23,261
29,684
2,010
Loss (gain) on extinguishment of debt
25,107
34,171
(979)
Adjusted EBITDA
$
525,791
$
568,429
$
971,524
Adjusted Interest Coverage Ratio:
Interest expense
$
109,772
$
160,960
$
321,998
Capitalized interest
41,170
20,792
13,164
Non-cash interest expense
(11,898)
(13,945)
(13,905)
Total interest
139,044
167,807
321,257
Adjusted EBITDA
$
525,791
$
568,429
$
971,524
Adjusted interest coverage ratio
3.78x
3.39x
3.02x
Adjusted Fixed Charge Coverage Ratio:
Interest expense
$
109,772
$
160,960
$
321,998
Capitalized interest
41,170
20,792
13,164
Non-cash interest expense
(11,898)
(13,945)
(13,905)
Secured debt principal payments
9,292
16,652
27,804
Preferred dividends
22,079
21,645
60,502
Total fixed charges
170,415
206,104
409,563
Adjusted EBITDA
$
525,791
$
568,429
$
971,524
Adjusted fixed charge coverage ratio
3.09x
2.76x
2.37x
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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 entities are included in medical facilities. Amounts are in thousands.
Year Ended December 31,
NOI Reconciliation:
Total revenues:
Seniors housing triple-net:
Rental income:
Seniors housing triple-net
$
190,684
$
220,383
$
306,810
Skilled nursing/post-acute
167,426
162,521
315,520
Sub-total
358,110
382,904
622,330
Interest income
35,944
36,176
34,068
Other income
5,308
3,386
6,620
Total seniors housing triple-net
399,362
422,466
663,018
Seniors housing operating:
Resident fees and services
-
51,006
456,085
Medical facilities:
Rental income
Hospitals
44,967
50,071
70,022
Medical office buildings
136,834
170,435
241,159
Life science buildings
-
34,002
43,429
Sub-total
181,801
254,508
354,610
Interest income
4,941
4,679
7,002
Other income
9,369
3,985
Total medical facilities revenues
196,111
260,172
365,597
Corporate other income
1,170
2,874
Total revenues
596,643
736,518
1,485,390
Property operating expenses:
Seniors housing operating
-
32,621
314,142
Medical facilities:
Hospitals
-
1,753
1,871
Medical office buildings
48,965
52,091
69,021
Life science buildings
-
9,707
13,151
Sub-total
48,965
63,551
84,043
Total property operating expenses
48,965
96,172
398,185
Net operating income:
Seniors housing triple-net
399,362
422,466
663,018
Seniors housing operating
-
18,385
141,943
Medical facilities
147,146
196,621
281,554
Non-segment/corporate
1,170
2,874
Net operating income
$
547,678
$
640,346
$
1,087,205
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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.
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 2011.
The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate:
Nature of Critical
Accounting Estimate
Assumptions/Approach
Used
Principles of Consolidation
The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of joint venture entities 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.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Nature of Critical
Accounting Estimate
Assumptions/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, 2011, we sold 42 properties, for net gains of $61,160,000. At December 31, 2011, we had five medical facilities and one seniors housing triple-net facility that satisfied the requirements for held for sale treatment. During the twelve months ended December 31, 2011, we recorded impairment charges of $12,194,000 related to certain held for sale properties 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 $2,010,000 of provision for loan losses during the year ended December 31, 2011. This amount includes the write-off of loans totaling $3,286,000 primarily related to a hospital. This was offset by a net reduction of the allowance balance by $1,276,000, resulting in an allowance for loan losses of $0 relating to real estate loans with outstanding balances of $6,244,000, all of which were on non-accrual status at December 31, 2011.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Nature of Critical
Accounting Estimate
Assumptions/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 and related costs 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, 2011, we recognized $41,070,000 of interest income, $456,085,000 of resident fees and services, and $928,846,000 of rental income, including discontinued operations. For the year ended December 31, 2011, cash receipts on leases with deferred revenue provisions equaled $9,490,000 as compared to gross straight-line rental income recognized of $41,068,000. At December 31, 2011, our straight-line receivable balance was $119,555,000, net of reserves totaling $265,000. Also at December 31, 2011, we had real estate loans with outstanding balances of $6,244,000 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, 2011, we participated in eight interest rate swap agreements which are reported at their fair value of $2,854,000 in other liabilities.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Nature of Critical
Accounting Estimate
Assumptions/Approach
Used
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, 2011, we recorded $261,960,000, $62,789,000 and $98,856,000 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 38.5 years, 11.8 years and 2.7 years, respectively, for the year ended December 31, 2011.
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 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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 seniors 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, 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, 2011
December 31, 2010
Principal
Change in
Principal
Change in
balance
fair value
balance
fair value
Senior unsecured notes
$
4,464,927
$
(342,460)
$
3,064,930
$
(248,884)
Secured debt
1,693,283
(82,583)
1,030,070
(51,973)
Totals
$
6,158,210
$
(425,043)
$
4,095,000
$
(300,857)
As of December 31, 2011, we had eight interest rate swaps for a total aggregate notional amount of $135,445,000. The swaps hedge interest payments associated with long-term LIBOR based borrowings and mature between December 31, 2012 and December 31, 2013.
Our variable rate debt, including our unsecured line of credit arrangements, is reflected at fair value. At December 31, 2011, we had $610,000,000 outstanding related to our variable rate lines of credit and $415,101,000 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 $10,251,000. 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 have resulted in increased annual interest expense of $4,036,000.
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.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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, 2011 and 2010, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2011. 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, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, 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, 2011, 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 17, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
February 17, 2012
December 31,
December 31,
Assets
(In thousands)
Real estate investments:
Real property owned:
Land and land improvements
$
1,116,756
$
727,050
Buildings and improvements
13,073,747
7,627,132
Acquired lease intangibles
428,199
258,079
Real property held for sale, net of accumulated depreciation
36,115
23,441
Construction in progress
189,502
356,793
Gross real property owned
14,844,319
8,992,495
Less accumulated depreciation and amortization
(1,194,476)
(836,966)
Net real property owned
13,649,843
8,155,529
Real estate loans receivable:
Real estate loans receivable
292,507
436,580
Less allowance for losses on loans receivable
-
(1,276)
Net real estate loans receivable
292,507
435,304
Net real estate investments
13,942,350
8,590,833
Other assets:
Investments in unconsolidated entities
241,722
237,107
Goodwill
68,321
51,207
Deferred loan expenses
58,584
32,960
Cash and cash equivalents
163,482
131,570
Restricted cash
69,620
79,069
Receivables and other assets
380,527
328,988
Total other assets
982,256
860,901
Total assets
$
14,924,606
$
9,451,734
Liabilities and equity
Liabilities:
Borrowings under unsecured line of credit arrangements
$
610,000
$
300,000
Senior unsecured notes
4,434,107
3,034,949
Secured debt
2,112,649
1,125,906
Capital lease obligations
83,996
8,881
Accrued expenses and other liabilities
371,557
244,345
Total liabilities
7,612,309
4,714,081
Redeemable noncontrolling interests
33,650
4,553
Equity:
Preferred stock
1,010,417
291,667
Common stock
192,299
147,155
Capital in excess of par value
7,019,714
4,932,468
Treasury stock
(13,535)
(11,352)
Cumulative net income
1,893,806
1,676,196
Cumulative dividends
(2,972,129)
(2,427,881)
Accumulated other comprehensive income (loss)
(11,928)
(11,099)
Other equity
6,120
5,697
Total Health Care REIT, Inc. stockholders’ equity
7,124,764
4,602,851
Noncontrolling interests
153,883
130,249
Total equity
7,278,647
4,733,100
Total liabilities and equity
$
14,924,606
$
9,451,734
See accompanying notes
Year Ended December 31,
Revenues:
Rental income
$
912,712
$
558,191
$
474,615
Resident fees and services
456,085
51,006
-
Interest income
41,070
40,855
40,885
Other income
11,295
7,245
7,788
Total revenues
1,421,162
657,297
523,288
Expenses:
Interest expense
318,395
151,296
96,856
Property operating expenses
379,476
79,293
42,501
Depreciation and amortization
418,406
186,963
140,692
General and administrative
77,201
54,626
49,691
Transaction costs
70,224
46,660
-
Loss (gain) on extinguishment of debt
(979)
34,171
25,107
Provision for loan losses
2,010
29,684
23,261
Total expenses
1,264,733
582,693
378,108
Income from continuing operations before income taxes
and income from unconsolidated entities
156,429
74,604
145,180
Income tax (expense) benefit
(1,388)
(364)
(168)
Income from unconsolidated entities
5,772
6,673
-
Income from continuing operations
160,813
80,913
145,012
Discontinued operations:
Gain (loss) on sales of properties
61,160
36,115
43,394
Impairment of assets
(12,194)
(947)
(25,223)
Income (loss) from discontinued operations, net
2,937
12,803
29,744
Discontinued operations, net
51,903
47,971
47,915
Net income
212,716
128,884
192,927
Less: Preferred stock dividends
60,502
21,645
22,079
Net income (loss) attributable to noncontrolling interests(1)
(4,894)
(342)
Net income attributable to common stockholders
$
157,108
$
106,882
$
171,190
Average number of common shares outstanding:
Basic
173,741
127,656
114,207
Diluted
174,401
128,208
114,612
Earnings per share:
Basic:
Income from continuing operations
attributable to common stockholders
$
0.61
$
0.46
$
1.08
Discontinued operations, net
0.30
0.38
0.42
Net income attributable to common stockholders*
$
0.90
$
0.84
$
1.50
Diluted:
Income from continuing operations
attributable to common stockholders
$
0.60
$
0.46
$
1.08
Discontinued operations, net
0.30
0.37
0.42
Net income attributable to common stockholders*
$
0.90
$
0.83
$
1.49
* Amounts may not sum due to rounding
(1) Includes amounts attributable to redeemable noncontrolling interests
See accompanying notes
CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
(in thousands)
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
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
Unrecognized SERP actuarial gain (loss)
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
Net proceeds from sale of common stock
16,969
628,070
645,039
Conversion of preferred stock
(1,246)
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
128,884
Other comprehensive income:
Unrealized gain (loss) on equity investments
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
Net proceeds from sale of common stock
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)
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
Comprehensive income:
Net income
217,610
(3,591)
214,019
Other comprehensive income:
Unrealized gain (loss) on equity investments
(122)
(122)
Unrecognized SERP actuarial gain (loss)
(2,115)
(2,115)
Cash flow hedge activity
1,408
1,408
Total comprehensive income
213,190
Contributions by noncontrolling interests
6,468
65,361
71,829
Distributions to noncontrolling interests
(38,136)
(38,136)
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures
2,895
138,989
(2,183)
(1,494)
138,207
Net proceeds from sale of common stock
42,249
1,964,102
2,006,351
Net proceeds from sale of preferred stock
718,750
(22,313)
696,437
Option compensation expense
1,917
1,917
Cash dividends paid:
Common stock cash dividends
(483,746)
(483,746)
Preferred stock cash dividends
(60,502)
(60,502)
Balances at December 31, 2011
$
1,010,417
$
192,299
$
7,019,714
$
(13,535)
$
1,893,806
$
(2,972,129)
$
(11,928)
$
6,120
$
153,883
$
7,278,647
See accompanying notes
CONSOLIDATED STATEMENTS OF INCOME
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Year Ended December 31,
(In thousands)
Operating activities
Net income
$
212,716
$
128,884
$
192,927
Adjustments to reconcile net income to
net cash provided from (used in) operating activities:
Depreciation and amortization
423,605
202,543
164,923
Other amortization expenses
16,851
17,169
15,412
Provision for loan losses
2,010
29,684
23,261
Impairment of assets
12,194
25,223
Stock-based compensation expense
10,786
11,823
9,633
Loss (gain) on extinguishment of debt
(979)
34,171
25,107
Income from unconsolidated entities
(5,772)
(6,673)
-
Rental income in excess of cash received
(31,578)
(6,594)
11,259
Amortization related to above (below) market leases, net
(2,507)
(2,856)
(1,713)
Loss (gain) on sales of properties
(61,160)
(36,115)
(43,394)
Other income less than (in excess of) cash received
-
-
(5,000)
Distributions by unconsolidated entities
6,149
-
-
Increase (decrease) in accrued expenses and other liabilities
10,653
12,293
(311)
Decrease (increase) in receivables and other assets
(4,744)
(20,535)
(36,068)
Net cash provided from (used in) operating activities
588,224
364,741
381,259
Investing activities
Investment in real property, net of cash acquired
(4,905,122)
(2,074,176)
(598,959)
Capitalized interest
(13,164)
(20,792)
(41,170)
Investment in real estate loans receivable
(51,477)
(97,265)
(74,417)
Other investments, net of payments
(22,986)
(133,894)
(22,133)
Principal collected on real estate loans receivable
188,811
43,495
111,779
Contributions to unconsolidated entities
(2,784)
(196,413)
-
Distributions by unconsolidated entities
9,135
-
Decrease (increase) in restricted cash
30,248
(52,124)
130,833
Proceeds from sales of real property
247,210
219,027
224,007
Net cash provided from (used in) investing activities
(4,520,129)
(2,312,039)
(270,060)
Financing activities
Net increase (decrease) under unsecured lines of credit arrangements
310,000
160,000
(430,000)
Proceeds from issuance of senior unsecured notes
1,381,086
1,821,683
-
Payments to extinguish senior unsecured notes
(3)
(495,542)
(201,048)
Net proceeds from the issuance of secured debt
119,030
154,306
276,277
Payments on secured debt
(85,111)
(217,711)
(107,736)
Net proceeds from the issuance of common stock
2,137,594
995,438
704,533
Net proceeds from the issuance of preferred stock
696,437
-
-
Decrease (increase) in deferred loan expenses
(28,867)
(3,869)
(7,431)
Contributions by noncontrolling interests(1)
8,604
2,611
2,255
Distributions to noncontrolling interests(1)
(30,705)
(3,301)
(2,104)
Cash distributions to stockholders
(544,248)
(370,223)
(333,839)
Net cash provided from (used in) financing activities
3,963,817
2,043,392
(99,093)
Increase (decrease) in cash and cash equivalents
31,912
96,094
12,106
Cash and cash equivalents at beginning of period
131,570
35,476
23,370
Cash and cash equivalents at end of period
$
163,482
$
131,570
$
35,476
Supplemental cash flow information:
Interest paid
$
285,884
$
156,207
$
143,697
Income taxes paid
(1) Includes amounts attributable to redeemable noncontrolling interests.
See accompanying notes.
CONSOLIDATED STATEMENTS OF EQUITY
HEALTH CARE REIT, INC. AND SUBSIDIARIES
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 seniors housing and health care real estate. Our full service platform also offers property management and development services to our customers. As of December 31, 2011, our diversified portfolio consisted of 937 properties in 46 states. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities.
2. Accounting Policies and Related Matters
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture entities 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. Leases in our medical office building portfolio typically include some form of operating expense reimbursement by the tenant. Certain payments made to operators are treated as lease incentives and amortized as a reduction of revenue over the lease term. We recognize resident fees and services, other than move in fees, monthly as services are provided. Move in fees and related costs 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.
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
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.
Investments in Unconsolidated Entities
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 our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. Where we do not have the ability to exercise influence over the company, the investment is accounted for under the cost method. These equity investments represented a minimal ownership interest in these companies. 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 were redeemable at fair value at December 31, 2011 and 2010. Accordingly, we record the carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or 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. Expenditures for repairs and maintenance are expensed as incurred. Property acquisitions are accounted for as business combinations where we measure the assets acquired, liabilities (including assumed debt and contingencies) and any noncontrolling interests at their fair values on the acquisition date. The cost of real property acquired, which represents substantially all of the purchase price, 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 5 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 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 seniors housing and
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 $13,164,000, $20,792,000, and $41,170,000 during 2011, 2010 and 2009, 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 purchaser 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, 2011, we had loans with outstanding balances of $6,244,000 on non-accrual status ($9,691,000 at December 31, 2010). 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. We did not have any goodwill impairments for the years ended December 31, 2011 or 2010.
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 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
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CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 April 2011, FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. It provided additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. The adoption of this ASU did not have a material impact on our consolidated financial position or results of operations.
In September 2011, FASB issued ASU No. 2011-08, Testing for Goodwill Impairment. It allows companies the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Companies would then only proceed to the existing two step impairment test if, after assessing the totality of the events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. The ASU is effective for annual and interim goodwill tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. We have early adopted this ASU and applied it to our annual goodwill assessment performed on October 1, 2011.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Statement of Comprehensive Income” (“ASU 2011-05”), which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 will only impact the company’s financial presentation as the company currently presents items of other comprehensive income in the statement of changes in equity. ASU 2011-05 will be effective for our fiscal year beginning January 1, 2012.
Reclassifications
Certain amounts in prior years have been reclassified to conform to current year presentation.
3. Real Property Acquisitions and Development
Genesis Acquisition
On April 1, 2011, we completed the acquisition of substantially all of the real estate assets (147 properties) of privately-owned Genesis HealthCare Corporation. The total purchase price of approximately $2,483,398,000 is comprised of $2,400,000,000 of cash consideration, the fair value of capital lease obligations assumed totaling approximately $75,144,000 and approximately $8,254,000 relating to uncertain tax positions that were assumed in the transaction (see Note 18 for further discussion on such tax positions and the related indemnification received). The total purchase price has been allocated on a preliminary basis in the amounts of $144,091,000 to land and land improvements, $2,331,053,000 to buildings and improvements and $8,254,000 to receivables and other assets. We funded the cash consideration and other associated costs of the acquisition primarily through the proceeds of the offerings of common stock, preferred stock and senior unsecured notes completed in March 2011. Effective April 1, 2011, we began leasing the acquired facilities to Genesis pursuant to a master lease. In addition to rent, the triple-net master lease requires Genesis to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under the ground leases. All obligations under the master lease have been guaranteed by FC-GEN Operations Investment, LLC, which was spun-off by Genesis prior to closing the acquisition. The initial term is fifteen years. Genesis has one option to renew for an additional term of fifteen years. The master lease provides that the base rent for the first year is $198,000,000 and will increase at least 1.75% but no more than 3.50% (subject to CPI changes) for each of the years two through six during the initial term and at least 1.50% but no more than 3.00% per year thereafter (subject to CPI changes). We are recognizing rental income based on the minimum rent escalators during the initial term. These properties are reported in our seniors housing triple-net segment.
The following unaudited pro forma consolidated results of operations have been prepared as if the Genesis acquisition had occurred as of January 1, 2010 based on the preliminary purchase price allocations discussed above. Amounts are in thousands, except per share data:
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
Revenues
$
1,476,769
$
879,726
Income from continuing operations attributable to common stockholders
$
121,317
$
93,193
Income from continuing operations attributable to common stockholders per share:
Basic
$
0.66
$
0.60
Diluted
$
0.66
$
0.59
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 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 for 2011 and 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 $29,439,000 as an estimate of additional purchase consideration based on the probability amounts will be paid by the expiration date of the commitments. Of the amount recognized, $12,500,000 is required to be settled in the Company’s common stock upon the achievement of certain performance thresholds. 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 estimated fair value of the future development pipeline expected to be generated. 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. 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 final 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
170,886
Acquired lease intangibles
41,519
Investment in unconsolidated entity
21,321
Goodwill
68,321
Other acquired intangibles
36,439
Cash and cash equivalents
3,873
Restricted cash
Receivables and other assets
5,390
Total assets acquired
358,096
Secured debt
61,664
Below market lease intangibles
4,188
Accrued expenses and other liabilities
36,835
Total liabilities assumed
102,687
Redeemable noncontrolling interests
10,848
Preferred stock
16,667
Capital in excess of par
2,721
Net assets acquired
$
225,173
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seniors Housing Operating Partnerships
Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, we may lease “qualified health care properties” on an arm’s-length basis to our taxable REIT subsidiary (“TRS”) if the property is operated on behalf of such subsidiary by a person who qualifies as an eligible independent contractor (“EIK”). 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. The “qualified health care properties” are operated by an EIK under a management agreement. The lease agreement required under RIDEA between us and our TRS is eliminated for accounting purposes in consolidation.
During 2010, we entered into two partnerships that were structured under RIDEA, and during 2011, we entered into three additional partnerships that were structured under RIDEA and added certain properties to existing RIDEA structured investments. 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 our TRS. The results of all such partnerships and acquisitions have been included in our consolidated results of operations from the acquisition date and are a component of our senior housing operating segment. Consolidation of all such partnerships is based on a combination of ownership interest and control of operational decision-making authority. The weighted average useful life of the acquired intangibles was 2.4 years at December 31, 2011.
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 seniors 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 communities previously owned by Merrill Gardens.
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. During December 2011, the partnership acquired nine new communities previously owned by Merrill Gardens. In conjunction with the transaction, we contributed $163,064,000 of cash in exchange for our 80% interest and Merrill Gardens contributed the nine communities and the secured debt relating to these properties in exchange for their 20% interest. The total purchase price for the communities acquired has been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values in accordance with our accounting policies.
Benchmark Partnership
During March 2011, we completed the formation of our partnership with Benchmark Senior Living to own and operate a portfolio of 34 seniors housing communities located in New England. We own a 95% partnership interest and Benchmark owns the remaining 5% interest and continues to manage the communities. The 34 communities included in the partnership were previously owned by The GPT Group and Benchmark. In conjunction with the formation of the partnership, we contributed $383,356,000 of cash. Benchmark contributed its interests in the 34 properties to the partnership and the secured debt relating to these properties in exchange for its 5% interest in the partnership. The total purchase price for the communities acquired has been allocated to the tangible and identifiable intangible assets and liabilities as well as the noncontrolling interests based upon their respective fair values in accordance with our accounting policies.
Other Partnerships
During 2010 and 2011, in addition to the investments above, we invested through similar partnerships structured under RIDEA in nine and 21 properties, respectively. Our ownership position in these partnerships ranges from 90% to 95% and all are consolidated by us in the financial statements.
The following table presents the aggregated final purchase price allocations of the assets acquired and liabilities assumed for all seniors housing operating partnership transactions for the periods presented (in thousands):
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
Land and land improvements
$
112,350
$
75,620
Buildings and improvements
1,512,764
686,911
Acquired lease intangibles
122,371
63,757
Investment in unconsolidated entities
14,960
-
Cash and cash equivalents
38,952
8,532
Restricted cash
20,699
5,899
Receivables and other assets
14,399
Total assets acquired
1,822,997
855,118
Secured debt
796,273
305,167
Accrued expenses and other liabilities
44,483
8,270
Total liabilities assumed
840,756
313,437
Capital in excess of par
6,017
43,641
Noncontrolling interests
69,984
107,774
Net assets acquired
$
906,240
$
390,266
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, 2011
December 31, 2010
December 31, 2009
Real property acquisitions:
Seniors housing triple-net
$
3,320,664
$
1,028,529
$
11,650
Seniors housing operating
1,747,485
816,000
-
Medical facilities(1)
610,843
626,414
56,023
Land parcels
19,084
4,300
-
Total acquisitions
5,698,076
2,475,243
67,673
Less: Assumed debt
(961,928)
(559,508)
-
Assumed other items, net
(210,411)
(208,314)
-
Cash disbursed for acquisitions
4,525,737
1,707,421
67,673
Construction in progress additions:
Seniors housing triple-net
182,626
85,993
333,572
Medical facilities
165,593
252,594
221,760
Total construction in progress additions
348,219
338,587
555,332
Less: Capitalized interest
(13,164)
(20,320)
(40,969)
Accruals(2)
(33,451)
(11,435)
(21,466)
Cash disbursed for construction in progress
301,604
306,832
492,897
Capital improvements to existing properties
77,781
59,923
38,389
Total cash invested in real property
$
4,905,122
$
2,074,176
$
598,959
(1)
Includes $318,608,000 relating to acquisitions of 12 medical facilities that closed in the fourth quarter of 2011. The allocation of the purchase price consideration is preliminary and subject to change.
(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:
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended
December 31, 2011
December 31, 2010
December 31, 2009
Development projects:
Seniors housing triple-net
$
114,161
$
273,034
$
550,504
Medical facilities
355,935
162,376
183,127
Total development projects
470,096
435,410
733,631
Expansion projects
45,414
3,216
4,288
Total construction in progress conversions
$
515,510
$
438,626
$
737,919
Transaction costs for the year ended December 31, 2011 primarily represent costs incurred with the Genesis acquisition and seniors housing operating partnerships and medical facilities purchases (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.
At December 31, 2011, future minimum lease payments receivable under operating leases (excluding properties in our seniors housing operating partnerships and excluding any operating expense reimbursements) are as follows (in thousands):
$
931,680
923,885
876,401
846,878
836,858
Thereafter
6,163,444
Totals
$
10,579,146
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, 2011
December 31, 2010
Assets:
In place lease intangibles
$
332,645
$
182,030
Above market tenant leases
35,973
24,089
Below market ground leases
51,316
46,992
Lease commissions
8,265
4,968
Gross historical cost
428,199
258,079
Accumulated amortization
(148,380)
(49,145)
Net book value
$
279,819
$
208,934
Weighted-average amortization period in years
17.0
18.2
Liabilities:
Below market tenant leases
$
67,284
$
57,261
Above market ground leases
5,020
5,020
Gross historical cost
72,304
62,281
Accumulated amortization
(21,387)
(15,992)
Net book value
$
50,917
$
46,289
Weighted-average amortization period in years
12.3
14.0
The following is a summary of real estate intangible amortization for the periods presented (in thousands):
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
Rental income related to above/below market tenant leases, net
$
3,340
$
3,829
$
2,670
Property operating expenses related to above/below market ground leases, net
(1,161)
(1,049)
(1,052)
Depreciation and amortization related to in place lease intangibles and lease commissions
(98,856)
(18,298)
(9,722)
The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):
Assets
Liabilities
$
85,656
$
6,108
34,209
5,549
17,136
5,169
14,897
4,330
17,801
4,129
Thereafter
110,120
25,632
Totals
$
279,819
$
50,917
5. Dispositions, Assets Held for Sale and Discontinued Operations
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 seniors 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. During the year ended December 31, 2011, we sold 42 properties for net gains of $61,160,000. At December 31, 2011, we had five medical facilities and one seniors housing triple-net facility 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, 2011, we recorded an impairment charge of $12,194,000 related to certain held for sale properties 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, 2011
December 31, 2010
December 31, 2009
Real property dispositions:
Seniors housing triple-net
$
150,755
$
170,290
$
101,155
Medical facilities
35,295
14,092
85,558
Total dispositions
186,050
184,382
186,713
Add: Gain (loss) on sales of real property
61,160
36,115
43,394
Seller financing on sales of real property
-
(1,470)
(6,100)
Proceeds from real property sales
$
247,210
$
219,027
$
224,007
We have reclassified the income and expenses attributable to all properties sold prior to or held for sale at December 31, 2011 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):
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
Revenues:
Rental income
$
16,134
$
45,219
$
65,296
Other income
-
-
8,059
Expenses:
Interest expense
3,604
9,664
12,916
Property operating expenses
4,394
7,172
6,464
Provision for depreciation
5,199
15,580
24,231
Income (loss) from discontinued operations, net
$
2,937
$
12,803
$
29,744
6. Real Estate Loans Receivable
The following is a summary of our real estate loans receivable (in thousands):
December 31,
Mortgage loans
$
63,934
$
109,283
Other real estate loans
228,573
327,297
Totals
$
292,507
$
436,580
The following is a summary of our real estate loan activity for the periods presented (in thousands):
Year Ended
December 31, 2011
December 31, 2010
December 31, 2009
Seniors
Seniors
Seniors
Housing
Medical
Housing
Medical
Housing
Medical
Triple-net
Facilities
Totals
Triple-net
Facilities
Totals
Triple-net
Facilities
Totals
Advances on real estate loans receivable:
Investments in new loans
$
18,541
$
-
$
18,541
$
9,742
$
41,644
$
51,386
$
20,036
$
-
$
20,036
Draws on existing loans
29,752
3,184
32,936
46,113
1,236
47,349
52,910
1,471
54,381
Sub-total
48,293
3,184
51,477
55,855
42,880
98,735
72,946
1,471
74,417
Less: Seller financing on property sales
-
-
-
-
(1,470)
(1,470)
-
-
-
Net cash advances on real estate loans
48,293
3,184
51,477
55,855
41,410
97,265
72,946
1,471
74,417
Receipts on real estate loans receivable:
Loan payoffs
162,705
2,943
165,648
5,619
6,233
11,852
61,659
32,197
93,856
Principal payments on loans
17,856
5,307
23,163
24,203
7,440
31,643
15,890
2,033
17,923
Total receipts on real estate loans
180,561
8,250
188,811
29,822
13,673
43,495
77,549
34,230
111,779
Net advances (receipts) on real estate loans
$
(132,268)
$
(5,066)
$
(137,334)
$
26,033
$
27,737
$
53,770
$
(4,603)
$
(32,759)
$
(37,362)
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the allowance for losses on loans receivable for the periods presented (in thousands):
Year Ended December 31,
Balance at beginning of year
$
1,276
$
5,183
$
7,500
Provision for loan losses
2,010
29,684
23,261
Charge-offs
(3,286)
(33,591)
(25,578)
Balance at end of year
$
-
$
1,276
$
5,183
As a result of our quarterly evaluations, we recorded $2,010,000 of provision for loan losses during the year ended December 31, 2011. This amount includes the write-off of a loan in the amount of $3,286,000 related to a hospital in Texas. This was offset by a net reduction of the allowance balance by $1,276,000, resulting in an allowance for loan losses of $0 relating to real estate loans with outstanding balances of $6,244,000, all of which were on non-accrual status at December 31, 2011.
The following is a summary of our loan impairments (in thousands):
Year Ended December 31,
Balance of impaired loans at end of year
$
6,244
$
9,691
$
67,126
Allowance for loan losses
-
1,276
5,183
Balance of impaired loans not reserved
$
6,244
$
8,415
$
61,943
Average impaired loans for the year
$
7,968
$
38,409
$
69,948
Interest recognized on impaired loans(1)
-
(1) Represents interest recognized prior to placement on non-accrual status.
7. Investments in Unconsolidated Entities
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. On February 22, 2010, six buildings were purchased and the seventh was purchased 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 investment in unconsolidated entities 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 entities. The aggregate remaining unamortized basis difference of our investment in this joint venture of $6,379,000 at December 31, 2011 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 entities. In addition, at December 31, 2011, we had other investments in unconsolidated entities with our ownership ranging from 10% to 50%.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Customer Concentration
The following table summarizes certain information about our customer concentration as of December 31, 2011 (dollars in thousands):
Number of
Total
Percent of
Concentration by investment:(1)
Properties
Investment(2)
Investment(3)
Genesis HealthCare, LLC
$
2,466,243
18%
Merrill Gardens, LLC
1,132,399
8%
Benchmark Senior Living, LLC
883,681
6%
Brandywine Senior Living, LLC
719,509
5%
Senior Living Communities, LLC
604,079
4%
Remaining portfolio
8,136,439
59%
Totals
$
13,942,350
100%
_____________________
(1) Merrill Gardens and Benchmark are in our seniors housing operating segment whereas the other top five customers are in our seniors housing triple-net segment.
(2) Excludes our share of investments in unconsolidated entities. Please see Note 7 for additional information.
(3) Investments with our top five customers comprised 32% of total investments at December 31, 2010.
9. Borrowings Under Line of Credit Arrangement and Related Items
At December 31, 2011, we had a $2,000,000,000 unsecured line of credit arrangement with a consortium of 31 banks with an option to upsize the facility by up to an additional $500,000,000 through an accordion feature, allowing for an aggregate commitment of up to $2,500,000,000. The revolving credit facility is scheduled to expire July 27, 2015. 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 (1.65% at December 31, 2011). The applicable margin is based on certain of our debt ratings and was 1.35% at December 31, 2011. 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 0.25% at December 31, 2011. Principal is due upon expiration of the agreement. In addition, at December 31, 2011, we had a $5,000,000 unsecured revolving demand note outstanding and bearing interest at 1.34%.
The following information relates to aggregate borrowings under the unsecured line of credit arrangements for the periods presented (dollars in thousands):
Year Ended December 31,
Balance outstanding at year end
$
610,000
$
300,000
$
140,000
Maximum amount outstanding at any month end
$
710,000
$
560,000
$
559,000
Average amount outstanding (total of daily
principal balances divided by days in period)
$
240,104
$
268,762
$
241,463
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding)
1.51%
1.48%
1.92%
10. Senior Unsecured Notes and Secured Debt
We have $4,434,107,000 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 $4,464,927,000 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 $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
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$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. During the three months ended December 31, 2011, we purchased $3,000 of these notes from holders. As of December 31, 2011, we had $125,585,000 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 $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 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, 2011, 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 $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. During the three months ended March 31, 2011, we issued $400,000,000 of 3.625% senior unsecured notes due 2016, $600,000,000 of 5.25% senior unsecured notes due 2022 and $400,000,000 of 6.50% senior unsecured notes due 2041, generating net proceeds of $1,381,086,000.
We have secured debt totaling $2,112,649,000, collateralized by owned properties, with annual interest rates ranging from 1.22% to 10.00%. The carrying amounts of the secured debt represent the par value of $2,108,384,000 adjusted for any unamortized fair value adjustments. The carrying values of the properties securing the debt totaled $4,048,469,000 at December 31, 2011. 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, 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, 2011, we issued $114,903,000 of first mortgage loans principal with a rate of 5.78% secured by nine properties. During the year ended December 31, 2011, we assumed $940,855,000 of first mortgage loans principal with an average rate of 4.85% secured by 55 properties. During the year ended December 31, 2011, we extinguished $55,317,000 of first mortgage loans principal with an average rate of 5.95% and recognized a gain of $979,000.
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
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2011, we were in compliance with all of the covenants under our debt agreements.
At December 31, 2011, the annual principal payments due on these debt obligations are as follows (in thousands):
Senior
Secured
Unsecured Notes(1)
Debt (1)
Totals
$
76,853
$
122,359
$
199,212
300,000
292,735
592,735
-
203,767
203,767
250,000
184,378
434,378
700,000
190,255
890,255
Thereafter
3,138,074
1,114,890
4,252,964
Totals
$
4,464,927
$
2,108,384
$
6,573,311
(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.
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 $2,016,000 of losses, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.
The following is a summary of the fair value of our derivative instruments (dollars in thousands):
Balance Sheet
Fair Value
Location
December 31, 2011
December 31, 2010
Cash flow hedge interest rate swaps
Other liabilities
$
$ 2,854
$
$ 482
The following presents the impact of derivative instruments on the statement of operations and OCI for the periods presented (dollars in thousands):
Year Ended
Location
December 31, 2011
December 31, 2010
December 31, 2009
Gain (loss) on interest rate swap recognized in
OCI (effective portion)
n/a
$
3,189
$
(10,307)
$
(3,513)
Gain (loss) reclassified from AOCI into
income (effective portion)
Interest expense
1,781
(2,244)
(971)
Gain (loss) recognized in income (ineffective portion
and amount excluded from effectiveness testing)
Realized loss
-
-
-
As of December 31, 2011, we had eight interest rate swaps for a total aggregate notional amount of $135,445,000. The swaps hedge interest payments associated with long-term LIBOR based borrowings and mature between December 31, 2012 and December 31, 2013.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingencies
At December 31, 2011, we had five outstanding letter of credit obligations totaling $5,515,000 and expiring between 2012 and 2014.
At December 31, 2011, we had outstanding construction in process of $189,502,000 for leased properties and were committed to providing additional funds of approximately $282,899,000 to complete construction. At December 31, 2011, we had contingent purchase obligations totaling $57,470,000. 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. Certain leases contain bargain purchase options and have been classified as capital leases. At December 31, 2011, we had operating lease obligations of $356,464,000 relating to certain ground leases and company office space. We incurred rental expense relating to company office space of $1,901,000, $1,280,000 and $1,138,000 for the years ended December 31, 2011, 2010 and 2009, 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, 2011, aggregate future minimum rentals to be received under these noncancelable subleases totaled $29,558,000.
At December 31, 2011, future minimum lease payments due under operating and capital leases are as follows (in thousands):
Operating Leases
Capital Leases(1)
$
6,166
$
7,622
6,442
73,003
6,502
6,016
8,425
6,002
-
Thereafter
325,336
-
Totals
$
356,464
$
89,710
(1) Amounts above represent principal and interest obligations under capital lease arrangements. Related assets with a gross value of $345,815,000 and accumulated depreciation of $7,024,000 recorded in real property.
13. Stockholders’ Equity
The following is a summary of our stockholder’s equity capital accounts as of the dates indicated:
December 31, 2011
December 31, 2010
Preferred Stock, $1.00 par value:
Authorized shares
50,000,000
50,000,000
Issued shares
25,724,854
11,349,854
Outstanding shares
25,724,854
11,349,854
Common Stock, $1.00 par value:
Authorized shares
400,000,000
225,000,000
Issued shares
192,604,918
147,381,191
Outstanding shares
192,275,248
147,097,381
Preferred Stock. During the year ended 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 shares outstanding at December 31, 2011.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, are redeemable by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, effective 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, are redeemable by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, effective 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.
During the three months ended March 31, 2011, we issued 14,375,000 of 6.50% Series I Cumulative Convertible Perpetual Preferred Stock. These shares have a liquidation value of $50.00 per share. Dividends are payable quarterly in arrears. The preferred stock is not redeemable by us. The preferred shares are convertible, at the holder’s option, into 0.8460 shares of common stock (equal to an initial conversion price of approximately $59.10).
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
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
March 2011 public issuance
28,750,000
$
49.25
$
1,415,938
$
1,358,543
November 2011 public issuance
12,650,000
50.00
632,500
606,595
2011 Dividend reinvestment plan issuances
2,534,707
48.44
122,794
121,846
2011 Equity shelf program issuances
848,620
50.53
42,888
41,982
2011 Option exercises
232,081
37.17
8,628
8,628
2011 Totals
45,015,408
$
2,222,748
$
2,137,594
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends. The following is a summary of our dividend payments (dollars in thousands, except per share amounts):
Year Ended
December 31, 2011
December 31, 2010
December 31, 2009
Per Share
Amount
Per Share
Amount
Per Share
Amount
Common Stock
$
2.83500
$
483,746
$
2.74000
$
348,578
$
2.72000
$
311,760
Series D Preferred Stock
1.96875
7,875
1.96875
7,875
1.96875
7,875
Series E Preferred Stock
-
-
1.12500
1.50000
Series F Preferred Stock
1.90625
13,344
1.90625
13,344
1.90625
13,344
Series G Preferred Stock
-
-
1.40640
1.87500
Series H Preferred Stock
2.85840
1,000
-
-
-
-
Series I Preferred Stock
1.33159
38,283
-
-
-
-
Totals
$
544,248
$
370,223
$
333,839
Comprehensive Income
The following is a summary of accumulated other comprehensive income/(loss) as of the dates indicated (in thousands):
December 31, 2011
December 31, 2010
Unrecognized gains (losses) on cash flow hedges
$
(8,561)
$
(9,969)
Unrecognized gains (losses) on equity investments
(619)
(497)
Unrecognized actuarial gains (losses)
(2,748)
(633)
Totals
$
(11,928)
$
(11,099)
The following is a summary of comprehensive income/(loss) for the periods indicated (in thousands):
Year Ended
December 31,
Unrecognized gains (losses) on cash flow hedges
$
1,408
$
(8,063)
$
(2,542)
Unrecognized gains (losses) on equity investments
(122)
Unrecognized actuarial gains (losses)
(2,115)
(199)
Total other comprehensive income (loss)
(829)
(8,208)
(1,778)
Net income attributable to controlling interests
217,610
128,527
193,269
Comprehensive income attributable to controlling interests
216,781
120,319
191,491
Net and comprehensive income (loss) attributable to noncontrolling interests(1)
(4,894)
(342)
Total comprehensive income
$
211,887
$
120,676
$
191,149
(1) Includes amounts attributable to redeemable noncontrolling interests.
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 $1,917,000, $1,634,000 and $1,629,000 for the years ended December 31, 2011, 2010 and 2009, 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 vested 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
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
non-employee directors to five years for officers and key employees. Options expire ten years from the date of grant.
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, 2011
December 31, 2010
December 31, 2009
Dividend yield
5.74%
6.28%
7.35%
Expected volatility
34.80%
34.08%
29.40%
Risk-free interest rate
2.87%
3.23%
2.33%
Expected life (in years)
7.0
7.0
7.0
Weighted-average fair value
$9.60
$7.82
$4.38
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, 2011:
Year Ended
December 31, 2011
December 31, 2010
December 31, 2009
Number of
Weighted
Number of
Weighted
Number of
Weighted
Shares
Average
Shares
Average
Shares
Average
Stock Options
(000's)
Exercise Price
(000's)
Exercise Price
(000's)
Exercise Price
Options at beginning of year
1,207
$
39.45
1,062
$
37.71
$
38.29
Options granted
49.17
43.29
37.00
Options exercised
(232)
36.92
(129)
33.58
(96)
38.22
Options terminated
(12)
43.09
(6)
37.82
(25)
44.50
Options at end of period
1,252
$
42.12
1,207
$
39.45
1,062
$
37.71
Options exercisable at end of period
$
39.45
$
37.76
$
35.85
Weighted average fair value of
options granted during the period
$
9.60
$
7.82
$
4.38
The following table summarizes information about stock options outstanding at December 31, 2011:
Options Outstanding
Options Exercisable
Number
Weighted
Weighted Average
Number
Weighted
Weighted Average
Outstanding
Average
Remaining
Exercisable
Average
Remaining
Range of Per Share Exercise Prices
(thousands)
Exercise Price
Contract Life
(thousands)
Exercise Price
Contract Life
$20-$30
$
25.82
1.0
$
25.82
1.0
$30-$40
36.75
5.9
36.46
4.5
$40+
44.99
7.5
42.96
6.1
Totals
1,252
$
42.12
6.9
$
39.45
5.2
Aggregate intrinsic value
$
15,528,000
$
6,439,000
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, 2011. During the years ended December 31, 2011, 2010 and 2009, the aggregate intrinsic value of options exercised under our stock incentive plans was $3,390,000, $1,798,000 and $737,000,
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respectively (determined as of the date of option exercise). Cash received from option exercises under our stock incentive plans was $8,628,000, $4,022,000 and $3,676,000 for the years ended December 31, 2011, 2010 and 2009, respectively.
As of December 31, 2011, there was approximately $4,419,000 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 4 years. As of December 31, 2011, there was approximately $14,410,000 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 3 years.
The following table summarizes information about non-vested stock incentive awards as of December 31, 2011 and changes for the twelve months ended December 31, 2011:
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, 2010
$
6.19
$
41.09
Vested
(219)
6.12
(148)
41.90
Granted
9.60
49.20
Terminated
(13)
6.40
(9)
32.86
Non-vested at December 31, 2011
$
7.40
$
44.91
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 $10,786,000, $11,823,000 and $9,633,000 for the years ended December 31, 2011, 2010 and 2009, respectively.
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,
Numerator for basic and diluted earnings
per share - net income attributable to
common stockholders
$
157,108
$
106,882
$
171,190
Denominator for basic earnings per
share - weighted average shares
173,741
127,656
114,207
Effect of dilutive securities:
Employee stock options
-
Non-vested restricted shares
Convertible senior unsecured notes
-
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average shares
174,401
128,208
114,612
Basic earnings per share
$
0.90
$
0.84
$
1.50
Diluted earnings per share
$
0.90
$
0.83
$
1.49
The diluted earnings per share calculations exclude the dilutive effect of 0, 280,000 and 351,000 stock options for the years ended December 31, 2011, 2010 and 2009, 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 was excluded from the calculations for 2010 and 2011 as the effect of the conversions was anti-dilutive. The Series I
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cumulative Convertible Perpetual Preferred Stock issued in 2011 was excluded from the calculations for 2011 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.
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, 2011
December 31, 2010
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
Financial Assets:
Mortgage loans receivable
$
63,934
$
64,194
$
109,283
$
111,255
Other real estate loans receivable
228,573
231,308
327,297
333,003
Available-for-sale equity investments
1,103
1,103
Cash and cash equivalents
163,482
163,482
131,570
131,570
Financial Liabilities:
Borrowings under unsecured lines of credit arrangements
$
610,000
$
610,000
$
300,000
$
300,000
Senior unsecured notes
4,434,107
4,709,736
3,034,949
3,267,638
Secured debt
2,112,649
2,297,278
1,125,906
1,178,081
Interest rate swap agreements
2,854
2,854
U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets and liabilities. 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.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2011
Total
Level 1
Level 2
Level 3
Available-for-sale equity investments(1)
$
$
$
-
$
-
Assets held for sale(2)
36,115
-
36,115
-
Interest rate swap agreements(3)
(2,854)
-
(2,854)
-
Totals
$
34,241
$
$
33,261
$
-
(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 and related intangibles using the income approach and 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. We estimate the fair value of secured debt assumed in business combinations using current interest rates at which similar borrowings could be obtained on the transaction date.
17. Segment Reporting
During the year ended December 31, 2011, we changed the name of our seniors housing and care segment to seniors housing triple-net. Additionally, we added a new seniors housing operating segment. There was no activity related to this segment prior to September 1, 2010. We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three business segments: seniors housing triple-net, seniors housing operating and medical facilities. Our seniors housing triple-net properties include skilled nursing/post-acute facilities, assisted living facilities, independent living/continuing care retirement communities and combinations thereof. Under the seniors housing triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our seniors housing operating properties include assisted living facilities and independent living/continuing care retirement communities that are owned and/or operated through RIDEA partnership structures. 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
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investments are structured similar to our seniors housing triple-net investments. Our life science investments represent investments in an unconsolidated entity (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 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, 2011, 2010 and 2009 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, 2011
Seniors housing triple-net
$
622,330
$
-
$
34,068
$
6,620
$
663,018
$
-
$
663,018
$
178,321
$
15,306
$
7,823,953
Seniors housing operating
-
456,085
-
-
456,085
314,142
141,943
138,192
46,342
3,041,238
Medical facilities(2)
306,516
-
7,002
3,985
317,503
69,728
247,775
107,092
31,467
3,795,940
Non-segment/Corporate
-
-
-
-
-
228,884
263,475
$
928,846
$
456,085
$
41,070
$
11,295
$
1,437,296
$
383,870
$
1,053,426
$
423,605
$
321,999
$
14,924,606
Year Ended December 31, 2010
Seniors housing triple-net
$
382,904
$
-
$
36,176
$
3,386
$
422,466
$
-
$
422,466
$
111,213
$
15,111
$
4,756,896
Seniors housing operating
-
51,006
-
-
51,006
32,621
18,385
15,504
7,794
1,080,416
Medical facilities(2)
220,506
-
4,679
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
Seniors housing triple-net
$
358,109
$
-
$
35,945
$
5,309
$
399,363
$
-
$
399,363
$
101,300
$
12,622
Medical facilities
181,802
-
4,940
9,368
196,110
48,965
147,145
63,623
20,584
Non-segment/Corporate
-
-
-
1,170
1,170
-
1,170
-
76,567
$
539,911
$
-
$
40,885
$
15,847
$
596,643
$
48,965
$
547,678
$
164,923
$
109,773
______________________________________________
(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 properties held in unconsolidated entities. 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. We distributed at least 100% of taxable income for the years ended December 31, 2011, 2010 and 2009. 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, basis differences in acquisitions, 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.
Cash distributions paid to common stockholders, for federal income tax purposes, are as follows:
Year Ended December 31,
Per Share:
Ordinary income
$
1.1472
$
0.7774
$
1.9865
Return of capital
1.4227
1.7408
0.4864
Long-term capital gains
0.1059
0.0190
-
1250 gains
0.1592
0.2028
0.2471
Totals
$
2.8350
$
2.7400
$
2.7200
At December 31, 2011, we had U.S. federal tax losses from our taxable REIT subsidiaries (“TRS”) of $7,400,000, as well as apportioned state tax losses of $14,240,000 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. During the year ended December 31,
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2011, the federal tax valuation allowance declined by $10,306,000 due to current year utilization of net operating losses. The U.S. federal and state tax loss carryforwards expire from 2012 through 2031.
Tax expense reflected in the financial statements primarily represents federal, state and local income taxes as well as amounts related to uncertain tax positions as discussed below. As a result of certain acquisitions, we are subject to corporate level taxes for related asset dispositions for the period December 31, 2011 through December 31, 2021 (“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, 2011 over its adjusted tax basis as of December 31, 2011, 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 TRS 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.
Through December 31, 2011, we entered into five joint ventures 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.
We apply the rules under ASC 740-10 in our Accounting for Uncertainty in Income Taxes for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Pursuant to these rules, we will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority.
The entire balance of unrecognized tax benefits as of December 31, 2011 of $6,098,000 (exclusive of accrued interest and penalties) relates to the April 1, 2011 Genesis Acquisition discussed in further detail in Note 3 and is included in Accrued expenses and other liabilities on the consolidated balance sheet. As a part of the Genesis Acquisition, we received a full indemnification from FC-GEN Operations Investment, LLC covering income taxes or other taxes as well as interest and penalties relating to tax positions taken by FC-GEN Operations Investment, LLC prior to the acquisition. Accordingly, an offsetting indemnification asset is recorded in receivables and other assets on the Consolidated Balance Sheet. Such indemnification asset is reviewed for collectability periodically.
There were $149,000 of uncertain tax positions as of December 31, 2011 for which it is reasonably possible that the amount of unrecognized tax benefits would decrease during 2012. Interest and penalties totaled $582,000 in expense for the year ended December 31, 2011 and were recorded as income tax expense in the consolidated statements of income with an offsetting amount recorded in other income relating to the increase in the indemnification asset. As of December 31, 2011, $2,738,000 of interest and penalties were accrued related to income taxes.
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 $1,558,000, $1,341,000 and $1,201,000 in 2011, 2010 and 2009, 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 the participant 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. Benefit payments are expected to total $2,375,000 during the next five fiscal years and $3,560,000 thereafter. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $5,623,000 at December 31, 2011 ($4,066,000 at December 31, 2010).
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables provide a reconciliation of the changes in the SERP’s benefit obligations for the periods indicated (in thousands):
Year Ended December 31,
Reconciliation of benefit obligation:
Obligation at January 1
$
4,066
$
3,287
Service cost
Interest cost
Actuarial (gain) loss
2,303
Settlements
(1,347)
-
Obligation at December 31
$
5,623
$
4,066
We contributed $1,347,000 to the plan in connection with a settlement during the year ended December 31, 2011. The following table shows the components of net periodic benefit costs for the periods indicated (in thousands):
Year Ended December 31,
Service cost
$
$
Interest cost
Net actuarial (gain) loss
Net periodic benefit cost
$
$
The following table provides information for the SERP, which has an accumulated benefit in excess of plan assets (in thousands):
December 31,
Projected benefit obligation
$
5,623
$
4,066
Accumulated benefit obligation
3,307
2,938
Fair value of assets
n/a
n/a
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,
Discount rate
2.75%
3.50%
3.50%
3.50%
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
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Quarterly Results of Operations (Unaudited)
The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2011 and 2010 (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, 2011
1st Quarter
2nd Quarter
3rd Quarter(2)
4th Quarter(3)
Revenues - as reported
$
255,477
$
381,059
$
384,786
$
407,391
Discontinued operations
(4,157)
(1,675)
(1,723)
-
Revenues - as adjusted(1)
$
251,320
$
379,384
$
383,063
$
407,391
Net income (loss) attributable to common stockholders
$
23,372
$
69,847
$
36,607
$
27,282
Net income (loss) attributable to common stockholders per share:
Basic
$
0.15
$
0.40
$
0.21
$
0.15
Diluted
0.15
0.39
0.21
0.15
Year Ended December 31, 2010
1st Quarter
2nd Quarter
3rd Quarter(4)
4th Quarter
Revenues - as reported
$
152,759
$
163,131
$
176,146
$
202,456
Discontinued operations
(11,361)
(10,992)
(8,809)
(6,033)
Revenues - as adjusted(1)
$
141,398
$
152,139
$
167,337
$
196,423
Net income attributable to common stockholders
$
25,812
$
45,646
$
(4,563)
$
39,988
Net income attributable to common stockholders per share:
Basic
$
0.21
$
0.37
$
(0.04)
$
0.29
Diluted
0.21
0.37
(0.04)
0.29
(1) We have reclassified the income attributable to the properties sold prior to or held for sale at December 31, 2011 to discontinued operations. See Note 5.
(2) The decreases in net income and amounts per share are primarily attributable to gains on sales of real estate totaling $30,224,000 for the second quarter as compared to $185,000 for the third quarter.
(3) The decreases in net income and amounts per share are primarily attributable to impairment charges of $11,992,000.
(4) 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).
21. Subsequent Events
Chartwell. On February 15, 2012, the company announced it will partner with Chartwell Seniors Housing Real Estate Investment Trust to own and operate a portfolio of 42 seniors housing and care communities located in Canada. The portfolio is being acquired for $925 million. This transaction will be structured under RIDEA with 39 facilities owned 50% by us and 50% by Chartwell, and three facilities wholly owned by us. Our $503 million investment will be through a combination of cash and the pro rata assumption of secured debt. Chartwell will provide management services to the communities under an incentive-based management contract.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2011 based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in a report entitled Internal Control - Integrated Framework. 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, 2011.
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.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2011, 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.
In our opinion, Health Care REIT, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.
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, 2011 and 2010, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2011 and our report dated February 17, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
February 17, 2012
Item 9B. Other Information
None.
PART III
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, 2012.
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, 2012.
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, 2012.
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, 2012.
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, 2012.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Our Consolidated Financial Statements are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2011 and 2010
Consolidated Statements of Income - Years ended December 31, 2011, 2010 and 2009
Consolidated Statements of Equity - Years ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows - Years ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
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:
The information required by this item is set forth on the Exhibit Index that follows the Financial Statement Schedules to this Annual Report on Form 10-K.
(b) Exhibits:
The exhibits listed on the Exhibit Index 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 106 through 120.
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 17, 2012, 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., Senior Vice President and
Controller (Principal Accounting Officer)
/s/ Daniel A. Decker**
**By: /s/ George L. Chapman
Daniel A. Decker, Director
George L. Chapman, Attorney-in-Fact
Health Care REIT, Inc.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2011
(Dollars in thousands)
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Seniors housing triple-net:
Aboite Twp, IN
$
-
$
1,770
$
19,930
$
$
1,770
$
20,765
$
Agawam, MA
-
16,112
2,134
18,246
4,690
Agawam, MA
-
1,230
13,618
-
1,230
13,618
Agawam, MA
-
15,304
-
15,304
Agawam, MA
-
10,661
-
10,661
Agawam, MA
-
10,562
-
10,562
Akron, OH
-
8,219
8,710
1,559
Akron, OH
-
7,535
7,719
1,195
Alexandria, VA
-
1,330
7,820
-
1,330
7,820
Alliance, OH
4,482
7,723
7,830
1,311
Amarillo, TX
-
7,260
-
7,260
1,383
Amelia Island, FL
-
3,290
24,310
19,131
3,290
43,441
5,335
Ames, IA
-
8,871
-
8,870
Anderson, SC
-
6,290
6,709
1,675
Andover, MA
-
1,310
12,647
-
1,310
12,647
Annapolis, MD
-
1,010
24,825
-
1,010
24,825
Ansted, WV
-
14,113
-
14,113
Asheboro, NC
-
5,032
5,197
1,194
Asheville, NC
-
3,489
-
3,489
1,295
Asheville, NC
-
1,955
2,306
Aspen Hill, MD
-
-
9,008
-
-
9,008
Atlanta, GA
-
5,540
5,730
1,156
Auburndale, FL
-
5,950
6,254
1,179
Aurora, CO
-
2,600
5,906
7,915
2,600
13,821
2,341
Aurora, CO
-
2,440
28,172
-
2,440
28,172
3,263
Aurora, OH
-
1,760
14,148
-
1,760
14,148
Austin, TX
10,052
18,970
-
18,970
2,421
Avon Lake, OH
-
10,421
-
10,421
Avon, IN
-
1,830
14,470
-
1,830
14,470
Ayer, MA
-
-
22,074
-
-
22,074
Baltic, OH
3,672
8,709
8,898
1,460
Baltimore, MD
-
1,350
14,884
-
1,350
14,884
Baltimore, MD
-
5,039
-
5,039
Barnum, MN
-
-
-
-
-
-
-
Bartlesville, OK
-
1,380
-
1,380
Baytown, TX
9,428
6,150
-
6,150
1,700
Baytown, TX
-
11,110
-
11,110
Beachwood, OH
-
1,260
23,478
-
1,260
23,478
6,529
Beattyville, KY
-
6,900
-
6,900
1,274
Bedford, NH
-
2,250
28,831
-
2,250
28,831
Bellevue, WI
-
1,740
18,260
1,740
18,831
2,706
Benbrook, TX
-
1,550
13,553
-
1,550
13,553
Bethel Park, PA
-
1,700
16,007
-
1,700
16,007
1,213
Bluefield, VA
-
12,463
-
12,463
Boise, ID
-
5,401
-
5,401
2,345
Boonville, IN
-
5,510
-
5,510
1,499
Boynton Beach, FL
-
8,112
-
8,112
1,734
Bradenton, FL
-
3,298
-
3,298
1,455
Braintree, MA
-
7,157
1,290
8,447
6,421
Brandon, MS
-
1,220
10,241
-
1,220
10,241
Bremerton, WA
-
2,210
2,354
Bremerton, WA
-
10,420
10,570
Brick, NJ
-
1,290
25,247
-
1,290
25,247
Brick, NJ
-
1,170
17,372
1,176
17,427
Brick, NJ(1)
-
17,125
17,141
Bridgewater, NJ
-
1,850
3,050
-
1,850
3,050
Bridgewater, NJ
-
1,730
48,201
1,730
48,275
1,235
Bridgewater, NJ
-
1,800
31,810
-
1,800
31,810
Brighton, MA
-
3,859
2,126
5,985
1,142
Broadview Heights, OH
-
12,400
2,388
14,788
3,539
Brookline, MA
-
2,760
9,217
-
2,760
9,217
Brooklyn Park, MD
-
1,290
16,329
-
1,290
16,329
Bunnell, FL
-
7,118
-
7,118
1,610
Burleson, TX
12,752
13,985
-
13,985
Burlington, NC
-
4,297
5,004
1,133
Burlington, NC
-
5,467
-
5,467
1,274
Burlington, NJ
-
1,700
12,554
-
1,700
12,554
Burlington, NJ
-
1,170
19,205
-
1,170
19,205
Butler, AL
-
3,510
-
3,510
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Butte, MT
-
3,957
4,000
1,223
Byrdstown, TN
-
-
2,414
-
2,546
1,247
Cambridge, MD
-
15,843
-
15,843
Canton, MA
-
8,201
8,464
2,495
Canton, OH
-
2,098
-
2,098
Cape Coral, FL
-
3,281
-
3,281
Carmel, IN
-
2,370
57,175
2,370
57,596
5,271
Cary, NC
-
1,500
4,350
1,500
5,336
1,798
Catonsville, MD
-
1,330
15,003
-
1,330
15,003
Cedar Grove, NJ
-
1,830
10,939
-
1,830
10,939
Cedar Grove, NJ
-
2,850
27,737
-
2,850
27,737
Centreville, MD(1)
-
14,602
-
14,602
Chapel Hill, NC
-
2,646
3,429
Charles Town, WV
-
22,834
-
22,834
Charleston, WV
-
17,575
-
17,575
Charleston, WV
-
5,430
-
5,430
Chelmsford, MA
-
1,040
10,951
1,441
1,040
12,392
2,407
Chickasha, OK
-
1,395
-
1,395
Cincinnati, OH
-
2,060
109,388
2,060
109,738
4,195
Cinnaminson, NJ
-
6,663
-
6,663
Claremore, OK
-
1,428
-
1,428
Clark Summit, PA
-
11,179
-
11,179
Clarks Summit, PA
-
6,529
-
6,529
Clarksville, TN
-
2,292
-
2,292
Clearwater, FL
-
7,218
-
7,218
1,478
Clearwater, FL
-
1,260
2,740
1,260
3,064
Cleburne, TX
-
5,369
-
5,369
Cleveland, TN
-
5,000
5,122
1,531
Cloquet, MN
-
4,660
-
4,660
Cloquet, MN
-
-
-
-
-
-
-
Coeur d'Alene, ID
-
7,878
-
7,878
3,047
Colchester, CT
-
4,860
-
4,860
Colorado Springs, CO
-
6,290
-
6,290
1,273
Colts Neck, NJ
-
14,733
14,829
Columbia Heights, MN
-
14,175
-
14,175
Columbia, SC
-
2,120
4,860
5,709
2,120
10,569
2,086
Columbia, TN
-
2,295
-
2,295
Columbia, TN
-
3,787
-
3,787
1,161
Columbus, IN
-
3,190
-
3,190
Columbus, IN
-
6,710
-
6,710
1,677
Columbus, OH
-
5,170
8,300
1,070
12,930
2,170
Columbus, OH
4,090
1,010
5,022
-
1,010
5,022
Columbus, OH
-
1,010
4,931
13,620
1,860
17,701
2,900
Concord, NC
-
3,921
3,976
1,027
Concord, NH
-
18,423
-
18,423
Concord, NH
-
1,760
43,179
-
1,760
43,179
Concord, NH
-
3,041
-
3,041
Conroe, TX
-
7,771
-
7,771
Corpus Christi, TX
-
-
Corpus Christi, TX
-
1,916
-
1,916
Dade City, FL
-
7,150
-
7,150
1,520
Daniels, WV
-
17,320
-
17,320
Danville, VA
-
3,954
4,676
1,104
Daytona Beach, FL
-
5,930
-
5,930
1,372
Daytona Beach, FL
-
5,710
-
5,710
1,370
DeBary, FL
-
7,460
-
7,460
1,578
Dedham, MA
-
1,360
9,830
-
1,360
9,830
2,878
DeForest, WI
-
5,350
5,704
Defuniak Springs, FL
-
1,350
10,250
-
1,350
10,250
1,572
DeLand, FL
-
7,080
-
7,080
1,511
Denton, MD
-
4,010
4,216
1,183
Denton, TX
-
1,760
8,305
-
1,760
8,305
Denver, CO
-
2,530
9,514
-
2,530
9,514
1,684
Denver, CO
-
3,650
14,906
1,605
3,650
16,511
2,134
Denver, CO
-
2,076
13,594
-
2,076
13,594
Dover, DE
-
7,717
-
7,717
Dover, DE
-
22,266
-
22,266
Drescher, PA
-
2,060
40,236
2,063
40,278
1,028
Dundalk, MD(1)
-
1,770
32,047
-
1,770
32,047
Durham, NC
-
1,476
10,659
2,196
1,476
12,855
7,592
East Brunswick, NJ
-
1,380
34,229
-
1,380
34,229
East Norriston, PA
-
1,200
28,129
1,210
28,258
Easton, MD
-
24,539
-
24,539
Easton, PA
-
6,315
-
6,315
3,440
Eatontown, NJ
-
1,190
23,358
-
1,190
23,358
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Eden, NC
-
4,877
-
4,877
1,156
El Paso, TX
-
8,961
9,193
1,725
El Paso, TX
-
3,958
1,100
5,058
Elizabeth City, NC
-
2,760
2,011
4,771
1,480
Elizabethton, TN
-
4,604
4,940
1,514
Englewood, NJ
-
4,514
-
4,514
Englishtown, NJ
-
12,520
12,557
Erin, TN
-
8,060
8,194
2,347
Eugene, OR
-
5,316
-
5,316
2,207
Everett, WA
-
1,400
5,476
-
1,400
5,476
1,906
Fair Lawn, NJ
-
2,420
24,504
-
2,420
24,504
Fairfield, CA
-
1,460
14,040
-
1,460
14,040
3,911
Fairhaven, MA
-
6,230
-
6,230
1,282
Fall River, MA
-
5,829
4,856
10,685
3,699
Fall River, MA
-
34,715
-
34,715
Fanwood, NJ
-
2,850
55,175
-
2,850
55,175
Fayetteville, NY
-
3,962
4,462
1,193
Findlay, OH
-
1,800
-
1,800
Fishers, IN
-
1,500
14,500
-
1,500
14,500
Florence, NJ
-
2,978
-
2,978
Flourtown, PA
-
1,800
14,830
-
1,800
14,830
Follansbee, WV
-
27,670
-
27,670
Forest City, NC
-
4,497
-
4,497
1,076
Fork Union, VA
-
2,490
2,550
Fort Ashby, WV
-
19,566
-
19,566
Fort Pierce, FL
-
3,560
3,771
Franconia, NH
-
11,320
-
11,320
Franklin, NH
-
15,210
-
15,210
Fredericksburg, VA
-
1,000
20,000
1,119
1,000
21,119
3,579
Fredericksburg, VA
-
28,611
-
28,611
Gardner, MA
-
10,210
-
10,210
Gastonia, NC
-
6,129
-
6,129
1,419
Gastonia, NC
-
3,096
3,118
Gastonia, NC
-
5,029
5,149
1,199
Georgetown, TX
-
2,100
-
2,100
Gettysburg, PA
-
8,913
-
8,913
Glastonbury, CT
-
1,950
9,532
-
1,950
9,532
Glen Mills, PA
-
9,110
-
9,110
Glenside, PA
-
1,940
16,867
-
1,940
16,867
Goochland, VA
-
3,697
-
3,697
Goshen, IN
-
6,120
-
6,120
1,059
Graceville, FL
-
13,000
-
13,000
1,939
Grafton, WV
-
18,824
-
18,824
Granbury, TX
22,500
2,040
30,670
-
2,040
30,670
Grand Ledge, MI
8,356
1,150
16,286
-
1,150
16,286
Grand Prairie, TX
-
3,426
-
3,426
Granger, IN
-
1,670
21,280
1,127
1,670
22,407
Greeneville, TN
-
8,290
8,699
1,868
Greenfield, WI
-
6,626
6,954
Greensboro, NC
-
2,970
3,524
Greensboro, NC
-
5,507
1,013
6,520
1,565
Greenville, NC
-
4,393
4,561
1,048
Greenville, SC
-
4,750
-
4,750
1,013
Greenville, SC
-
5,400
100,523
1,007
5,400
101,530
5,372
Greenwood, IN
-
1,550
22,770
-
1,550
22,770
Groton, CT
-
2,430
19,941
-
2,430
19,941
Haddonfield, NJ
-
2,320
-
2,320
Hamburg, PA
-
10,543
-
10,543
Hamden, CT
-
1,470
4,530
-
1,470
4,530
1,475
Hamilton, NJ
-
4,469
-
4,469
1,209
Hanover, IN
-
4,430
-
4,430
Harleysville, PA
-
11,355
-
11,355
Harriman, TN
-
8,060
8,218
2,507
Hatboro, PA
-
-
28,112
-
-
28,112
Hattiesburg, MS
13,100
15,518
15,553
Haverford, PA
-
1,880
33,993
1,880
34,078
Hemet, CA
-
3,405
-
3,405
Henderson, NV
-
9,220
9,285
3,161
Henderson, NV
-
4,360
4,401
1,326
Hermitage, TN
-
1,500
9,856
-
1,500
9,856
Hickory, NC
-
1,219
High Point, NC
-
4,443
5,236
1,242
High Point, NC
-
2,185
2,595
High Point, NC
-
3,395
3,423
High Point, NC
-
4,143
-
4,143
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Highlands Ranch, CO
-
3,721
-
3,721
1,027
Hilliard, FL
-
6,990
-
6,990
2,665
Hilltop, WV
-
25,355
-
25,355
Homestead, FL
-
2,750
11,750
-
2,750
11,750
1,793
Hopedale, MA
-
8,170
-
8,170
1,502
Houston, TX
10,050
18,715
-
18,715
2,139
Houston, TX
-
5,090
9,471
-
5,090
9,471
Houston, TX
10,410
5,970
6,720
1,793
Howell, NJ
10,528
1,050
21,703
1,050
21,739
Huntington, WV
-
32,261
-
32,261
Huron, OH
-
6,088
1,452
7,540
1,176
Hurricane, WV
-
21,454
-
21,454
Hutchinson, KS
-
10,590
-
10,590
2,034
Indianapolis, IN
-
6,287
22,565
28,852
4,486
Indianapolis, IN
-
2,473
12,123
14,596
2,079
Jamestown, TN
-
-
6,707
-
-
6,707
3,465
Jefferson, OH
-
9,120
-
9,120
1,589
Kalida, OH
-
8,173
-
8,173
1,041
Kalispell, MT
-
3,282
-
3,282
1,175
Keene, NH
-
9,639
-
9,639
Kenner, LA
-
1,100
10,036
1,100
10,364
6,054
Kennett Square, PA
-
1,050
22,946
1,050
22,964
Kenosha, WI
-
1,500
9,139
-
1,500
9,139
Kent, WA
-
20,318
10,470
30,788
2,841
Kirkland, WA
-
1,880
4,315
1,880
4,529
1,006
Kissimmee, FL
-
3,854
-
3,854
LaBelle, FL
-
4,946
-
4,946
1,141
Laconia, NH
-
14,434
-
14,434
Lake Havasu City, AZ
-
4,223
-
4,223
1,452
Lake Havasu City, AZ
-
2,244
2,380
Lake Placid, FL
-
12,850
-
12,850
2,791
Lake Zurich, IL
-
1,470
9,830
-
1,470
9,830
Lancaster, NH
-
15,804
-
15,804
Lancaster, NH
-
-
Lancaster, PA
-
7,623
-
7,623
Langhorne, PA
-
1,350
24,881
-
1,350
24,881
LaPlata, MD
-
19,068
-
19,068
Lawrenceville, VA
-
4,780
-
4,780
Lebanon, NH
-
20,138
-
20,138
Lecanto, FL
-
6,900
-
6,900
1,412
Lee, MA
-
18,135
19,061
5,058
Lenoir, NC
-
3,748
4,389
1,036
Leominster, MA
-
6,201
-
6,201
Lewisburg, WV
-
3,699
-
3,699
Lexington, NC
-
3,900
1,015
4,915
1,250
Libertyville, IL
14,343
6,500
40,024
-
6,500
40,024
Lincoln, NE
5,273
13,807
-
13,807
Linwood, NJ
-
21,984
22,259
Litchfield, CT
-
1,240
17,908
1,240
17,953
Little Neck, NY
-
3,350
38,461
3,355
38,607
Littleton, MA
-
1,240
2,910
-
1,240
2,910
Loma Linda, CA
-
2,214
9,586
-
2,214
9,586
1,228
Longview, TX
-
1,707
-
1,707
Longview, TX
-
5,520
-
5,520
Longwood, FL
-
7,520
-
7,520
1,628
Longwood, FL
-
1,260
6,445
-
1,260
6,445
Louisville, KY
-
10,010
-
10,010
2,297
Louisville, KY
-
7,135
7,298
2,217
Louisville, KY
-
4,675
4,784
1,485
Lowell, MA
-
1,070
13,481
-
1,070
13,481
Lowell, MA
-
3,378
-
3,378
Lufkin, TX
-
1,184
-
1,184
Lutherville, MD
-
1,100
19,786
-
1,100
19,786
Macungie, PA
-
29,033
-
29,033
Manahawkin, NJ
-
1,020
20,361
-
1,020
20,361
Manalapan, NJ
-
22,624
-
22,624
Manassas, VA
-
7,446
7,938
1,662
Manchester, NH
-
4,360
4,619
Mansfield, TX
-
5,251
-
5,251
Marianna, FL
-
8,910
-
8,910
1,325
Marlinton, WV
-
8,430
-
8,430
Marmet, WV
-
26,483
-
26,483
Martinsburg, WV
-
17,180
-
17,180
Martinsville, VA
-
-
-
-
-
-
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Marysville, CA
-
4,172
4,216
1,294
Matawan, NJ
-
15,549
-
15,549
Matthews, NC
-
4,738
-
4,738
1,158
McConnelsville, OH
-
7,060
-
7,060
McHenry, IL
-
1,576
-
-
1,576
-
-
-
McHenry, IL
-
3,550
15,300
6,718
3,550
22,018
2,533
McKinney, TX
-
1,570
7,389
-
1,570
7,389
McMurray, PA
-
1,440
15,805
-
1,440
15,805
-
Melbourne, FL
-
7,070
48,257
11,726
7,070
59,983
3,323
Melville, NY
-
4,280
73,283
4,282
73,468
1,867
Memphis, TN
-
5,963
-
5,963
1,535
Memphis, TN
-
9,660
1,600
11,260
Mendham, NJ
-
1,240
27,169
-
1,240
27,169
Menomonee Falls, WI
-
1,020
6,984
-
1,020
6,984
Mercerville, NJ
-
9,929
-
9,929
Meriden, CT
-
1,300
1,472
-
1,300
1,472
Merrillville, IN
-
7,084
3,526
10,610
5,601
Merrillville, IN
-
1,080
3,413
-
1,080
3,413
Middleburg Heights, OH
-
7,780
-
7,780
1,525
Middleton, WI
-
4,006
4,606
1,109
Middletown, RI
-
1,480
19,703
-
1,480
19,703
Midland, MI
-
11,025
-
11,025
Midwest City, OK
-
5,673
-
5,673
3,277
Midwest City, OK
-
5,516
-
5,516
1,107
Milford, DE
-
7,816
-
7,816
Milford, DE
-
19,216
-
19,216
Millersville, MD
-
1,020
-
1,020
Millville, NJ
-
29,944
-
29,944
Missoula, MT
-
7,490
-
7,490
1,291
Monmouth Junction, NJ
-
6,209
-
6,209
Monroe Twp, NJ
-
1,160
13,193
-
1,160
13,193
Monroe, NC
-
3,681
4,329
1,048
Monroe, NC
-
4,799
5,656
1,290
Monroe, NC
-
4,021
4,135
Monteagle, TN
-
3,318
-
3,318
Monterey, TN
-
-
4,195
-
4,218
2,167
Monticello, FL
-
4,471
-
4,471
1,061
Montville, NJ
-
3,500
31,002
-
3,500
31,002
Moorestown, NJ
-
2,060
51,628
2,062
51,735
1,328
Morehead City, NC
-
3,104
1,648
4,752
1,481
Morgantown, KY
-
3,705
3,712
Morgantown, WV
-
1,830
20,541
-
1,830
20,541
Morton Grove, IL
-
1,900
19,374
-
1,900
19,374
Moss Point, MS
-
7,280
-
7,280
1,609
Mount Airy, NC
-
6,430
6,558
1,025
Mountain City, TN
-
5,896
6,556
3,263
Mt. Vernon, WA
-
2,200
2,356
Myrtle Beach, SC
-
6,890
41,526
10,640
6,890
52,166
2,887
Nacogdoches, TX
-
5,754
-
5,754
Naperville, IL
9,144
3,470
29,547
-
3,470
29,547
Naples, FL
-
5,450
-
5,450
1,193
Nashville, TN
-
4,910
29,590
-
4,910
29,590
2,775
Naugatuck, CT
-
1,200
15,826
-
1,200
15,826
Needham, MA
-
1,610
13,715
1,610
14,081
4,141
Neenah, WI
-
15,120
-
15,120
New Braunfels, TX
-
1,200
19,800
-
1,200
19,800
New Haven, CT
-
4,778
1,789
6,567
2,100
New Haven, IN
-
3,524
-
3,524
Newark, DE
-
21,220
1,181
22,401
4,007
Newburyport, MA
-
8,290
-
8,290
2,227
Newport, VT
-
3,867
-
3,867
Norman, OK
-
1,484
-
1,484
Norristown, PA
-
1,200
19,488
-
1,200
19,488
North Andover, MA
-
21,817
-
21,817
North Andover, MA
-
1,070
17,341
-
1,070
17,341
North Augusta, SC
-
2,558
-
2,558
North Cape May, NJ
-
22,266
-
22,266
North Miami, FL
-
3,918
-
3,918
1,137
North Miami, FL
-
4,830
-
4,830
1,145
Oak Hill, WV
-
24,506
-
24,506
Oak Hill, WV
-
-
Ocala, FL
-
1,340
10,564
-
1,340
10,564
Ogden, UT
-
6,700
7,327
1,334
Oklahoma City, OK
-
10,694
-
10,694
1,794
Oklahoma City, OK
-
7,513
-
7,513
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Oklahoma City, OK
-
7,017
-
7,017
Omaha, NE
-
10,230
-
10,230
Omaha, NE
4,544
8,864
-
8,864
Oneonta, NY
-
5,020
-
5,020
Ormond Beach, FL
-
-
2,739
-
2,812
1,354
Orwigsburg, PA
-
20,632
-
20,632
Oshkosh, WI
-
3,800
3,687
7,487
1,072
Oshkosh, WI
-
23,237
-
23,237
1,818
Overland Park, KS
-
1,120
8,360
-
1,120
8,360
1,511
Overland Park, KS
-
3,730
27,076
3,730
27,416
1,542
Overland Park, KS
-
4,500
29,105
6,386
4,500
35,491
Owasso, OK
-
1,380
-
1,380
Owensboro, KY
-
6,760
-
6,760
1,331
Owensboro, KY
-
13,275
-
13,275
2,523
Owenton, KY
-
2,400
-
2,400
Oxford, MI
11,892
1,430
15,791
-
1,430
15,791
Palestine, TX
-
4,320
1,300
5,620
Palm Coast, FL
-
10,957
-
10,957
Panama City Beach, FL
-
7,717
-
7,717
Panama City, FL
-
9,200
-
9,200
2,004
Paris, TX
-
5,452
-
5,452
1,877
Parkersburg, WV
-
21,288
-
21,288
Parkville, MD
-
1,350
16,071
-
1,350
16,071
Parkville, MD
-
11,186
-
11,186
Parkville, MD
-
1,100
11,768
-
1,100
11,768
Pasadena, TX
10,073
24,080
-
24,080
3,027
Paso Robles, CA
-
1,770
8,630
1,770
9,305
2,394
Pawleys Island, SC
-
2,020
32,590
5,482
2,020
38,072
5,602
Pennington, NJ
-
1,380
27,620
-
1,380
27,620
Pennsauken, NJ
-
10,780
-
10,780
Petoskey, MI
6,456
14,452
-
14,452
Philadelphia, PA
-
2,700
25,709
-
2,700
25,709
Philadelphia, PA
-
2,930
10,433
-
2,930
10,433
Philadelphia, PA
-
11,239
-
11,239
Philadelphia, PA
-
1,810
16,898
-
1,810
16,898
Phillipsburg, NJ
-
21,175
-
21,175
Phillipsburg, NJ
-
8,114
-
8,114
Pigeon Forge, TN
-
4,180
4,297
1,373
Pikesville, MD
-
10,750
-
10,750
1,423
Pinehurst, NC
-
2,690
3,174
Piqua, OH
-
1,885
-
1,885
Pittsburgh, PA
-
1,750
8,572
1,750
8,687
1,654
Plainview, NY
-
3,990
11,969
-
3,990
11,969
Plano, TX
-
1,305
9,095
1,281
1,305
10,376
1,820
Plattsmouth, NE
-
5,650
-
5,650
Plymouth, MI
12,463
1,490
19,990
-
1,490
19,990
Port St. Joe, FL
-
2,055
-
2,055
Port St. Lucie, FL
-
8,700
47,230
2,969
8,700
50,199
2,223
Post Falls, ID
-
2,700
14,217
2,181
2,700
16,398
1,383
Pottsville, PA
-
26,964
-
26,964
Princeton, NJ
-
1,730
30,888
-
1,730
30,888
Prospect, CT
-
1,441
2,541
3,982
1,482
Pueblo, CO
-
6,051
-
6,051
2,591
Quakertown, PA
-
1,040
25,389
-
1,040
25,389
Quincy, FL
-
5,333
-
5,333
1,276
Quincy, MA
-
2,690
15,410
-
2,690
15,410
2,842
Quitman, MS
-
10,340
-
10,340
2,151
Raleigh, NC
-
10,000
-
-
10,000
-
-
-
Reading, PA
-
19,906
-
19,906
Red Bank, NJ
-
1,050
21,275
-
1,050
21,275
Rehoboth Beach, DE
-
24,248
24,308
Reidsville, NC
-
3,830
4,687
1,207
Reno, NV
-
1,060
11,440
1,060
12,044
2,245
Richmond, VA
-
1,211
2,889
-
1,211
2,889
1,012
Richmond, VA
-
12,640
-
12,640
1,708
Ridgeland, MS
-
7,675
-
7,675
1,711
Ridgely, TN
-
5,700
5,797
1,703
Ridgewood, NJ
-
1,350
16,170
-
1,350
16,170
Rockledge, FL
-
4,117
-
4,117
1,533
Rockville Centre, NY
-
4,290
20,310
-
4,290
20,310
Rockville, CT
-
1,500
4,835
-
1,500
4,835
Rockwood, TN
-
7,116
7,857
2,301
Rocky Hill, CT
-
1,460
7,040
-
1,460
7,040
2,076
Rocky Hill, CT
-
1,090
6,710
1,500
1,090
8,210
1,623
Rogersville, TN
-
3,278
-
3,278
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Romeoville, IL
-
1,895
-
-
1,895
-
-
-
Royal Palm Beach, FL
-
8,320
-
8,320
1,854
Rutland, VT
-
1,190
23,655
-
1,190
23,655
Saint Simons Island, GA
-
6,440
50,060
6,440
51,056
4,510
Salem, OR
-
5,172
-
5,172
1,856
Salisbury, NC
-
5,697
5,865
1,352
San Angelo, TX
-
8,800
-
8,800
1,689
San Antonio, TX
-
6,120
28,169
-
6,120
28,169
San Antonio, TX
10,882
7,315
-
7,315
2,038
San Antonio, TX
10,030
13,360
-
13,360
1,755
Sanatoga, PA
-
30,695
-
30,695
Sarasota, FL
-
3,175
-
3,175
1,400
Sarasota, FL
-
8,474
-
8,474
2,958
Sarasota, FL
-
3,400
-
3,400
Scituate, MA
-
1,740
10,640
-
1,740
10,640
1,780
Scott Depot, WV
-
6,876
-
6,876
Seaford, DE
-
14,029
-
14,029
Selbyville, DE
-
25,912
25,943
Seven Fields, PA
-
4,663
4,722
1,703
Severna Park, MD(1)
-
2,120
31,273
-
2,120
31,273
Seville, OH
-
1,770
-
1,770
Shawnee, OK
-
1,400
-
1,400
Sheboygan, WI
-
5,320
3,774
9,094
Shelby, MS
-
5,340
-
5,340
1,146
Shelbyville, KY
-
3,870
-
3,870
Shepherdstown, WV
-
13,806
-
13,806
Sherman, TX
-
5,221
-
5,221
Shillington, PA
-
1,020
19,569
-
1,020
19,569
Shrewsbury, NJ
-
2,120
38,116
2,120
38,278
Silvis, IL
-
16,420
-
16,420
Sissonville, WV
-
23,948
-
23,948
Sisterville, WV
-
5,400
-
5,400
Smithfield, NC
-
5,680
-
5,680
1,328
Somerset, MA
-
1,010
29,577
-
1,010
29,577
South Boston, MA
-
2,002
5,218
7,220
2,642
South Pittsburg, TN
-
5,628
-
5,628
1,370
Southbury, CT
-
1,860
23,613
-
1,860
23,613
Sparks, NV
-
3,700
46,526
-
3,700
46,526
3,058
Spartanburg, SC
-
3,350
15,750
10,037
3,350
25,787
3,148
Spencer, WV
-
8,810
-
8,810
Spring City, TN
-
6,085
2,628
8,713
2,415
Spring House, PA
-
10,780
-
10,780
St. Charles, MD
-
15,555
-
15,555
St. Louis, MO
-
6,030
-
6,030
1,610
St. Louis, MO
-
1,890
12,165
-
1,890
12,165
Starke, FL
-
10,180
-
10,180
2,199
Statesville, NC
-
1,447
1,713
Statesville, NC
-
6,183
6,191
1,397
Statesville, NC
-
3,627
-
3,627
Staunton, VA
-
11,090
-
11,090
1,514
Stillwater, OK
-
1,400
-
1,400
Stuart, FL
-
8,110
-
8,110
1,737
Summit, NJ
9,413
3,080
14,152
-
3,080
14,152
Swanton, OH
-
6,370
-
6,370
1,318
Tampa, FL
-
6,370
-
6,370
1,699
Texarkana, TX
-
1,403
-
1,403
Thomasville, GA
-
13,899
-
13,899
Tomball, TX
-
1,050
13,300
-
1,050
13,300
Toms River, NJ
-
1,610
34,627
1,641
34,881
Torrington, CT
-
1,261
1,292
2,553
Towson, MD(1)
-
1,180
13,280
-
1,180
13,280
Troy, OH
-
2,000
4,254
6,254
1,000
Troy, OH
-
16,730
-
16,730
3,332
Trumbull, CT
14,164
4,440
43,384
-
4,440
43,384
Tucson, AZ
-
13,399
-
13,399
2,308
Tulsa, OK
-
1,390
7,110
-
1,390
7,110
Twin Falls, ID
-
14,740
-
14,740
4,184
Tyler, TX
-
5,268
-
5,268
Uhrichsville, OH
-
6,716
-
6,716
1,116
Uniontown, PA
-
6,817
-
6,817
Valley Falls, RI
-
1,080
7,433
-
1,080
7,433
Valparaiso, IN
-
2,558
-
2,558
Valparaiso, IN
-
2,962
-
2,962
Venice, FL
-
6,000
-
6,000
1,290
Venice, FL
-
1,150
10,674
-
1,150
10,674
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Vero Beach, FL
-
3,187
-
3,187
Vero Beach, FL
-
3,263
-
3,263
Vero Beach, FL
-
2,930
40,070
13,615
2,930
53,685
4,866
Voorhees, NJ
-
1,800
37,299
-
1,800
37,299
Voorhees, NJ(1)
-
1,900
26,040
-
1,900
26,040
W. Hartford, CT
-
2,650
5,980
-
2,650
5,980
1,316
Waconia, MN
-
14,726
-
14,726
Wake Forest, NC
-
3,003
1,742
4,745
1,529
Wall, NJ
-
1,650
25,350
-
1,650
25,350
Wallingford, CT
-
1,210
-
1,210
Wareham, MA
-
10,313
1,701
12,014
3,283
Warren, NJ
-
2,000
30,810
-
2,000
30,810
Warren, OH
-
3,810
-
3,810
Warwick, RI
-
1,530
18,564
-
1,530
18,564
Watchung, NJ
-
1,920
24,880
-
1,920
24,880
Waterbury, CT
-
2,166
1,927
4,093
1,198
Waterford, CT
-
1,360
12,540
-
1,360
12,540
3,401
Waukesha, WI
-
1,100
14,910
-
1,100
14,910
Waxahachie, TX
-
5,763
-
5,763
Weatherford, TX
-
5,261
-
5,261
Webster, TX
9,585
5,940
-
5,940
1,648
West Bend, WI
-
17,790
-
17,790
-
West Chester, PA
-
1,350
29,237
-
1,350
29,237
West Haven, CT
-
1,620
1,680
3,300
1,121
West Orange, NJ
-
2,280
10,687
-
2,280
10,687
West Worthington, OH
-
5,090
-
5,090
Westerville, OH
-
8,287
2,736
11,023
5,877
Westfield, NJ(1)
-
2,270
16,589
-
2,270
16,589
Westford, MA
-
13,829
-
13,829
Westlake, OH
-
1,330
17,926
-
1,330
17,926
5,064
Westlake, OH
-
5,411
-
5,411
2,241
Westmoreland, TN
-
1,822
2,634
4,456
1,355
White Lake, MI
10,917
2,920
20,179
-
2,920
20,179
Whitemarsh, PA
-
2,310
6,190
1,923
2,310
8,113
1,501
Wichita, KS
-
1,400
11,000
-
1,400
11,000
1,734
Wilkes-Barre, PA
-
13,842
-
13,842
Wilkes-Barre, PA
-
2,301
-
2,301
Williamsburg, VA
-
1,360
7,440
-
1,360
7,440
1,019
Williamsport, PA
-
4,946
-
4,946
Williamsport, PA
-
8,487
-
8,487
Williamstown, KY
-
6,430
-
6,430
1,234
Willow Grove, PA
-
1,300
14,736
-
1,300
14,736
Wilmington, DE
-
9,494
-
9,494
Wilmington, NC
-
2,991
-
2,991
1,066
Winchester, VA
-
1,510
-
1,510
Windsor, CT
-
2,250
8,539
-
2,250
8,539
Windsor, CT
-
1,800
-
1,800
Winston-Salem, NC
-
2,514
2,973
Winston-Salem, NC
-
5,700
13,550
11,716
5,700
25,266
3,418
Woodbridge, VA
-
4,423
4,753
1,302
Worcester, MA
-
3,500
54,099
-
3,500
54,099
2,897
Worcester, MA
-
2,300
9,060
-
2,300
9,060
Wyncote, PA
-
2,700
22,244
-
2,700
22,244
Wyncote, PA
-
1,610
21,256
-
1,610
21,256
Wyncote, PA
-
7,811
-
7,811
Zionsville, IN
-
1,610
22,400
1,358
1,610
23,758
Seniors housing triple-net total
258,600
575,231
6,992,506
293,078
576,701
7,284,115
642,910
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Seniors housing operating facilities:
Albuquerque, NM
$
5,772
$
1,270
$
20,837
$
$
1,270
$
20,917
$
1,386
Agawam, MA
6,688
10,044
-
10,044
Alhambra, CA
3,047
6,305
-
6,305
Albertville, AL
2,088
6,203
6,319
Apple Valley, CA
11,126
16,639
16,705
1,651
Atlanta, GA
7,889
2,058
14,914
2,059
15,518
8,666
Austin, TX
19,550
9,520
10,032
3,529
Avon, CT
21,463
1,550
30,571
-
1,550
30,571
1,903
Azusa, CA
-
3,141
6,000
9,141
1,295
Bellingham, WA
8,979
1,500
19,861
1,500
19,920
1,836
Belmont, CA
-
3,000
23,526
-
3,000
23,526
Brighton, MA
-
2,100
14,616
-
2,100
14,616
Brookfield, CT
20,005
2,250
30,180
-
2,250
30,180
1,946
Cardiff by the Sea, CA
-
5,880
64,711
-
5,880
64,711
North Chelmsford, MA
11,972
18,478
-
18,478
1,118
Concord, NH
13,591
21,164
-
21,164
1,169
Costa Mesa, CA
-
2,050
19,969
-
2,050
19,969
1,749
Citrus Heights, CA
15,373
2,300
31,876
2,300
32,029
2,960
Centerville, MA
17,763
1,300
27,357
-
1,300
27,357
1,588
Dallas, TX
-
1,080
9,655
-
1,080
9,655
Danvers, MA
9,621
1,120
14,557
-
1,120
14,557
1,004
Davenport, IA
-
1,403
35,893
1,805
1,403
37,699
2,149
Dublin, OH
19,181
1,680
43,423
1,680
43,619
2,225
Encinitas, CA
-
1,460
7,721
1,460
7,884
2,595
Escondido, CA
13,471
1,520
24,024
-
1,520
24,024
1,633
East Haven, CT
23,577
2,660
35,533
-
2,660
35,533
2,266
Florence, AL
7,342
13,049
13,177
1,168
Fremont, CA
20,028
3,400
25,300
1,527
3,400
26,827
4,183
Gig Harbor, WA
5,967
1,560
15,947
1,560
15,999
1,434
Gilroy, CA
-
13,880
23,860
37,740
4,044
Gardnerville, NV
12,943
1,143
10,831
1,144
11,482
6,832
Hemet, CA
13,550
1,890
28,606
1,890
28,752
2,820
Hemet, CA
-
9,630
10,014
Hamden, CT
15,710
1,460
24,093
-
1,460
24,093
1,602
Henderson, NV
15,709
29,809
-
29,809
Houston, TX
8,326
27,598
-
27,598
1,797
Irving, TX
-
1,030
6,823
1,030
7,418
Kingwood, TX
3,329
9,777
-
9,777
Kennewick, WA
9,010
1,820
27,991
1,820
28,082
2,646
Kansas City, MO
5,911
1,820
34,898
1,820
35,229
2,236
Kansas City, MO
7,250
1,930
39,997
1,930
40,075
2,688
Kirkland, WA
34,000
3,450
38,709
-
3,450
38,709
Lancaster, CA
10,378
15,295
15,378
1,621
Los Angeles, CA
-
-
11,430
-
11,787
Los Angeles, CA
-
-
114,438
-
-
114,438
1,172
Mansfield, MA
37,918
3,320
57,011
-
3,320
57,011
2,763
Mansfield, MA
-
-
-
-
-
-
-
Manteca, CA
6,358
1,300
12,125
1,361
1,300
13,486
2,138
Meriden, CT
9,903
1,500
14,874
-
1,500
14,874
1,272
Mesa, AZ
6,279
9,087
9,573
2,914
Milford, CT
12,656
3,210
17,364
-
3,210
17,364
1,171
Middletown, CT
15,756
1,430
24,242
-
1,430
24,242
1,659
Middletown, RI
16,729
2,480
24,628
-
2,480
24,628
1,612
Mill Creek, WA
30,259
10,150
60,274
10,150
60,556
5,360
Monroe, WA
14,167
2,560
34,460
2,560
34,645
3,107
Marysville, WA
4,711
4,780
5,056
1,082
Mystic, CT
12,072
1,400
18,274
-
1,400
18,274
1,274
North Andover, MA
22,890
1,960
34,976
-
1,960
34,976
2,055
Newton, MA
28,400
2,250
43,614
-
2,250
43,614
2,536
Newton, MA
10,758
2,500
30,681
-
2,500
30,681
1,829
Newton, MA
17,564
3,360
25,099
-
3,360
25,099
1,683
Niantic, CT
16,855
1,320
25,986
-
1,320
25,986
1,623
Naples, FL
-
1,716
17,306
1,588
1,716
18,894
13,706
Olympia, WA
7,197
16,689
16,853
1,533
Oceanside, CA
13,369
2,160
18,352
-
2,160
18,352
Plano, TX
4,335
8,538
-
8,538
Providence, RI
18,433
2,600
27,546
-
2,600
27,546
1,977
Puyallup, WA
11,706
1,150
20,776
1,150
20,945
2,085
Quincy, MA
8,551
1,350
12,584
-
1,350
12,584
Redondo Beach, CA
6,154
-
9,556
-
-
9,556
Rocky Hill, CT
10,531
16,351
-
16,351
1,104
Romeoville, IL
-
12,646
58,314
6,100
65,714
3,300
Renton, WA
22,855
3,080
51,824
-
3,080
51,824
Rohnert Park, CA
14,086
6,500
18,700
1,367
6,500
20,067
3,152
Roswell, GA
8,100
1,107
9,627
1,107
10,047
6,105
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Sacramento, CA
10,596
14,781
14,819
1,473
Salem, NH
20,915
32,721
-
32,721
1,827
San Ramon, CA
9,598
2,430
17,488
2,430
17,504
1,624
Scottsdale, AZ
-
2,500
3,890
2,500
4,686
San Diego, CA
15,879
4,200
30,707
-
4,200
30,707
Seattle, WA
7,838
5,190
9,350
5,190
9,449
1,573
Seattle, WA
7,795
3,420
15,555
3,420
15,582
1,777
Seattle, WA
9,398
2,630
10,257
2,630
10,282
1,255
Seattle, WA
29,205
10,670
37,291
10,670
37,369
3,683
Seattle, WA
48,540
6,790
85,369
-
6,790
85,369
Shelburne, VT
19,706
31,041
-
31,041
1,737
San Juan Capistrano, CA
-
1,390
6,942
1,390
7,017
2,051
Salt Lake City, UT
-
1,360
19,691
-
1,360
19,691
2,100
San Jose, CA
23,422
2,850
35,098
-
2,850
35,098
Sonoma, CA
15,238
1,100
18,400
1,146
1,100
19,546
3,056
Stanwood, WA
10,196
2,260
28,474
2,260
28,548
2,755
Santa Maria, CA
30,564
6,050
50,658
-
6,050
50,658
Stockton, CA
3,050
2,280
5,983
2,280
6,090
Sugar Land, TX
5,904
31,423
-
31,423
2,268
South Windsor, CT
19,888
3,000
29,295
-
3,000
29,295
1,989
Tacoma, WA
19,390
2,400
35,053
-
2,400
35,053
Toledo, OH
16,609
2,040
47,129
2,040
47,221
3,721
Trumbull, CT
25,078
2,850
37,685
-
2,850
37,685
2,321
Tustin, CA
7,090
15,299
-
15,299
Tulsa, OK
6,467
1,330
21,285
1,330
21,459
1,509
Tulsa, OK
8,452
1,500
20,861
1,500
20,915
1,514
Vacaville, CA
14,485
17,100
1,185
18,285
2,892
Vancouver, WA
12,173
1,820
19,042
1,820
19,115
1,944
Vallejo, CA
14,501
4,000
18,000
1,536
4,000
19,536
3,045
Vallejo, CA
7,628
2,330
15,407
2,330
15,431
1,776
Warwick, RI
16,567
2,400
24,635
-
2,400
24,635
1,790
Waterbury, CT
25,825
2,460
39,547
-
2,460
39,547
2,568
The Woodlands, TX
2,678
12,379
-
12,379
Whittier, CA
11,931
4,470
22,151
4,470
22,248
2,392
Wilbraham, MA
11,221
17,639
-
17,639
1,198
Woodbridge, CT
9,399
1,370
14,219
-
1,370
14,219
1,225
Worcester, MA
14,005
1,140
21,664
-
1,140
21,664
1,449
Yarmouth, ME
17,415
27,711
-
27,711
1,625
Seniors housing operating total
1,317,849
223,614
2,678,007
108,366
228,859
2,781,126
218,031
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Medical facilities:
Akron, OH
$
-
$
$
20,200
$
-
$
$
20,200
$
1,057
Alpharetta, GA
-
18,205
-
18,205
Alpharetta, GA
-
32,729
-
32,729
Alpharetta, GA
-
14,406
-
14,406
-
Alpharetta, GA
-
1,700
-
1,700
-
Alpharetta, GA
-
16,063
-
16,063
-
Amarillo, TX
-
11,928
1,400
13,328
2,139
Arcadia, CA
9,941
5,408
23,219
1,354
5,618
24,362
4,399
Atlanta, GA
-
4,931
18,720
2,123
5,293
20,480
4,509
Bartlett, TN
8,349
15,015
15,763
2,801
Bellaire, TX
-
4,551
46,105
-
4,551
46,105
6,577
Bellaire, TX
-
2,972
33,445
1,601
2,972
35,046
5,677
Bellevue, NE
-
-
15,833
-
16,352
Bellevue, NE
-
4,500
109,719
-
4,500
109,719
4,363
Bellingham, MA
-
9,270
-
-
9,270
-
-
-
Birmingham, AL
-
9,950
-
9,950
1,898
Birmingham, AL
-
12,238
-
12,238
2,206
Birmingham, AL
-
18,994
-
18,994
3,100
Boardman, OH
-
11,787
-
11,787
Boardman, OH
-
1,200
12,800
-
1,200
12,800
1,292
Boca Raton, FL
13,520
34,002
1,548
35,535
6,255
Boerne, TX
-
13,463
-
13,463
Bowling Green, KY
-
3,800
26,700
3,800
26,843
2,395
Boynton Beach, FL
4,507
2,048
7,692
2,048
7,896
1,855
Boynton Beach, FL
4,043
2,048
7,403
2,048
8,134
1,506
Boynton Beach, FL
10,187
11,235
1,009
12,236
2,053
Bridgeton, MO
-
-
30,221
-
-
30,221
-
Bridgeton, MO
11,649
21,221
21,223
1,209
Burleson, TX
-
11,619
-
11,619
Carmel, IN
-
2,280
18,820
-
2,280
18,820
Carmel, IN
-
2,152
18,591
-
2,152
18,591
Cedar Grove, WI
-
-
Claremore, OK
8,238
12,829
13,099
2,346
Clarkson Valley, MO
-
-
-
35,592
-
35,592
2,287
Coral Springs, FL
-
1,598
10,627
1,636
11,385
2,515
Corpus Christi, TX
-
3,923
-
3,923
Dade City, FL
-
1,211
5,511
-
1,211
5,511
Dallas, TX
15,212
28,690
29,282
5,268
Dayton, OH
-
6,515
-
6,515
Deerfield Beach, FL
3,873
2,408
7,482
-
2,408
7,482
Delray Beach, FL
-
1,882
34,767
4,288
1,941
38,996
7,722
Denton, TX
12,152
-
19,407
-
20,017
2,874
Durham, NC
-
5,350
9,320
-
5,350
9,320
2,867
Edina, MN
5,667
15,132
-
15,132
El Paso, TX
10,193
17,075
1,098
18,173
3,545
El Paso, TX
-
6,700
-
6,700
El Paso, TX
-
15,888
16,050
2,671
El Paso, TX
-
2,400
32,800
2,400
33,224
4,070
Everett, WA
-
4,842
26,010
-
4,842
26,010
Fayetteville, GA
3,262
7,540
8,104
1,577
Fort Wayne, IN
-
8,232
-
8,232
Fort Worth, TX
-
13,615
-
13,615
Franklin, TN
-
2,338
12,138
2,338
12,847
2,308
Franklin, WI
8,021
6,872
7,550
-
6,872
7,550
Fresno, CA
-
2,500
35,800
2,500
35,918
3,211
Frisco, TX
9,057
-
18,635
-
18,695
3,134
Frisco, TX
-
-
15,309
1,380
-
16,689
2,919
Gallatin, TN
-
19,432
-
19,432
1,416
Germantown, TN
-
3,049
12,456
3,049
13,017
2,264
Glendale, CA
8,126
18,398
18,402
3,092
Greeley, CO
-
6,707
-
6,707
1,366
Green Bay, WI
9,590
-
14,891
-
-
14,891
Green Bay, WI
-
-
20,098
-
-
20,098
1,225
Green Bay, WI
-
-
11,696
-
-
11,696
Greeneville, TN
-
10,032
-
10,032
Houston, TX
-
10,395
-
-
10,395
-
-
Jupiter, FL
7,106
2,252
11,415
2,252
11,488
2,443
Jupiter, FL
4,422
-
5,858
2,868
2,825
5,901
1,218
Kenosha, WI
9,886
-
18,058
-
-
18,058
1,098
Killeen, TX
-
22,667
-
22,667
1,000
Lafayette, LA
-
1,928
10,483
1,928
10,509
2,034
Lake St Louis, MO
-
11,937
1,947
13,884
Lakeway, TX
-
5,484
24,886
-
5,484
24,886
Lakeway, TX
-
2,801
-
-
2,801
-
-
-
Lakewood, CA
-
14,885
15,744
2,616
Las Vegas, NV
5,923
15,287
15,608
3,212
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Las Vegas, NV
-
9,618
-
9,618
1,504
Las Vegas, NV
-
1,006
10,255
-
1,006
10,255
1,644
Las Vegas, NV
-
3,182
17,200
-
3,182
17,200
2,947
Las Vegas, NV
-
1,595
17,902
-
1,595
17,902
2,854
Las Vegas, NV
-
2,319
4,612
2,319
5,218
Las Vegas, NV
3,025
-
6,921
6,987
1,282
Las Vegas, NV
-
6,127
-
-
6,127
-
-
-
Las Vegas, NV
-
23,420
-
23,420
Lawrenceville, GA
-
2,279
10,732
2,305
10,827
2,132
Lawrenceville, GA
-
1,054
4,974
1,077
5,044
1,030
Lenexa, KS
12,177
16,013
1,730
17,743
Lincoln, NE
10,962
1,420
29,692
-
1,420
29,692
1,835
Los Alamitos, CA
16,067
-
18,635
18,979
3,158
Los Gatos, CA
-
22,386
1,055
23,440
4,561
Loxahatchee, FL
-
1,637
5,048
1,652
5,819
1,007
Loxahatchee, FL
-
1,340
6,509
1,345
6,537
1,257
Loxahatchee, FL
2,651
1,553
4,694
1,567
5,234
Malabar, FL
-
5,000
12,000
-
5,000
12,000
Marinette, WI
7,949
-
13,538
-
-
13,538
Marlton, NJ
-
-
38,300
-
38,507
3,435
Mechanicsburg, PA
-
1,350
16,650
-
1,350
16,650
Melbourne, FL
-
7,000
69,000
-
7,000
69,000
1,725
Melbourne, FL
-
1,400
24,400
-
1,400
24,400
Melbourne, FL
-
9,400
-
9,400
Melbourne, FL
-
-
Merced, CA
-
-
13,772
-
14,699
Meridian, ID
-
3,600
20,802
3,600
21,053
2,676
Merriam, KS
-
7,189
-
7,189
Merriam, KS
-
3,122
-
3,122
Merriam, KS
-
13,605
-
13,605
Merriam, KS
15,637
7,393
-
7,393
Merrillville, IN
-
-
22,134
-
-
22,134
2,327
Merrillville, IN
-
11,699
11,853
1,159
Mesa, AZ
-
1,558
9,561
1,558
9,829
1,985
Middletown, NY
-
1,756
20,364
1,756
20,932
5,148
Midwest City, OK
-
3,854
-
3,854
Milwaukee, WI
4,874
8,457
-
8,457
Milwaukee, WI
6,904
1,425
11,520
-
1,425
11,520
Milwaukee, WI
1,659
2,185
-
2,185
Milwaukee, WI
24,416
-
44,535
-
-
44,535
2,650
Morrow, GA
-
8,064
8,232
1,617
Mount Juliet, TN
4,849
1,566
11,697
1,566
12,251
2,180
Murrieta, CA
-
-
46,520
-
-
46,520
1,682
Murrieta, CA
-
8,800
202,412
-
8,800
202,412
3,333
Muskego, WI
1,727
2,159
-
2,159
Nashville , TN
-
1,806
7,165
1,806
8,153
1,890
Nashville, TN
-
4,300
-
7,148
11,448
-
-
-
New Berlin, WI
6,630
3,739
8,290
-
3,739
8,290
Niagara Falls, NY
-
1,145
10,574
-
1,145
10,574
2,324
Niagara Falls, NY
-
7,870
-
7,870
1,243
Orange Village, OH
-
7,419
7,473
1,693
Oro Valley, AZ
15,586
18,339
18,885
3,070
Oshkosh, WI
-
-
18,339
-
-
18,339
1,107
Oshkosh, WI
9,834
-
15,881
-
-
15,881
Palm Springs , CA
-
12,396
1,021
13,417
2,486
Palm Springs, FL
2,717
4,066
4,119
Palm Springs, FL
-
1,182
7,765
1,182
7,846
1,699
Palmer, AK
19,478
-
29,705
30,116
4,739
Pearland, TX
-
5,517
5,570
1,136
Pearland, TX
29,700
4,556
4,661
Pewaukee, WI
-
4,700
20,669
-
4,700
20,669
3,066
Phoenix, AZ
-
1,149
48,018
9,537
1,149
57,556
9,101
Pineville, NC
-
6,974
1,604
1,069
8,470
1,467
Plano, TX
-
5,423
20,752
5,423
20,770
4,487
Plano, TX
-
14,805
15,305
2,528
Plantation, FL
9,615
8,563
10,666
2,037
8,575
12,691
3,186
Plantation, FL
8,945
8,848
9,262
8,896
9,385
4,411
Plymouth, WI
1,722
1,250
1,870
-
1,250
1,870
Portland, ME
15,963
-
25,500
-
-
25,500
Raleigh, NC
-
1,486
11,200
-
1,486
11,200
Redmond, WA
-
5,015
26,697
-
5,015
26,697
1,025
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Rolla, MO
-
1,931
48,224
-
1,931
48,224
Roswell, NM
1,921
-
5,900
-
-
5,900
-
Roswell, NM
5,358
-
16,500
-
-
16,500
-
Roswell, NM
-
-
17,880
-
-
17,880
-
Ruston, LA
-
9,790
-
9,790
Sacramento, CA
-
12,756
13,540
2,255
San Antonio, TX
-
2,050
16,251
1,473
2,050
17,724
4,636
San Antonio, TX
-
-
17,303
-
-
17,303
3,061
San Bernardino, CA
-
3,700
14,300
3,700
14,762
1,243
San Diego, CA
-
-
22,003
1,464
-
23,467
1,897
Sarasota, FL
-
3,360
19,140
-
3,360
19,140
Seattle, WA
-
4,410
35,787
-
4,410
35,787
1,439
Sewell, NJ
-
-
53,360
4,149
-
57,509
5,653
Shakopee, MN
7,090
11,360
11,368
Shakopee, MN
12,065
18,089
-
18,089
Sheboygan, WI
1,768
1,012
2,216
-
1,012
2,216
Somerville, NJ
-
3,400
22,244
3,400
22,246
1,901
St. Louis, MO
7,433
-
17,247
1,101
18,012
3,254
St. Paul, MN
26,460
2,681
39,507
-
2,681
39,507
Stafford, VA
-
-
11,260
-
11,564
Suffern, NY
-
35,220
-
35,220
Suffolk, VA
-
1,530
10,979
1,530
11,133
Summit, WI
-
2,899
87,666
-
2,899
87,666
8,277
Tallahassee, FL
-
-
14,719
-
-
14,719
Tampa, FL
-
4,319
12,234
-
4,319
12,234
Tomball, TX
-
1,404
5,071
1,404
5,709
1,443
Trussville, AL
-
1,336
2,177
1,351
2,301
Tucson, AZ
-
1,302
4,925
1,302
5,466
1,080
Tulsa, OK
-
3,003
6,025
3,003
6,045
1,631
Van Nuys, CA
-
-
36,187
-
-
36,187
2,187
Viera, FL
-
1,600
10,600
-
1,600
10,600
Virginia Beach, VA
-
18,289
-
18,289
Voorhees, NJ
-
6,404
24,251
1,248
6,404
25,499
4,038
Webster, TX
-
5,940
8,178
2,418
12,060
2,549
Wellington , FL
6,197
-
13,697
13,806
2,178
Wellington, FL
6,909
16,933
17,158
2,710
West Allis, WI
2,379
1,106
3,309
-
1,106
3,309
West Palm Beach, FL
6,819
14,740
14,861
2,774
West Palm Beach, FL
6,293
14,618
14,733
3,365
West Seneca, NY
12,357
22,435
1,296
1,447
23,201
4,013
Yorkville, IL
-
1,419
2,816
1,419
2,889
Zephyrhills, FL
-
3,875
23,907
-
3,875
23,907
Medical facilities total
519,055
296,220
3,330,098
121,590
311,196
3,436,705
333,535
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Assets held for sale:
Austell, GA
$
-
$
2,223
$
5,582
$
-
$
2,223
$
5,582
$
-
Boynton Beach, FL
10,187
5,611
-
5,611
-
Chicago, IL
-
-
1,250
-
-
1,250
-
Okatie, SC
-
8,736
-
8,736
-
Norwalk, CT
-
2,640
-
2,640
-
Tempe, AZ
-
-
9,277
-
-
9,277
-
Assets held for sale total
10,187
3,018
33,097
-
3,018
33,097
-
(1) Represents real property asset associated with a capital lease.
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Segment
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Seniors housing triple-net
$
258,600
$
575,231
$
6,992,506
$
293,078
$
576,701
$
7,284,115
$
642,910
Seniors housing operating
1,317,849
223,614
2,678,007
108,366
228,859
2,781,126
218,031
Medical facilities
519,055
296,220
3,330,098
121,590
311,196
3,436,705
333,535
Construction in progress
-
-
189,502
-
-
189,502
-
Total continuing operating properties
2,095,504
1,095,065
13,190,113
523,034
1,116,756
13,691,448
1,194,476
Assets held for sale
10,187
3,018
33,097
-
3,018
33,097
-
Total investments in real property owned
2,105,691
1,098,083
13,223,210
523,034
1,119,774
13,724,545
1,194,476
Year Ended December 31,
Reconciliation of real property:
(in thousands)
Investment in real estate:
Balance at beginning of year
$
8,992,495
$
6,336,291
$
5,979,575
Additions:
Acquisitions
4,525,737
1,707,421
67,673
Improvements
426,000
398,510
590,394
Conversions from loans receivable
-
10,070
-
Assumed other items, net
210,411
208,314
-
Assumed debt
961,928
559,508
-
Purchase price adjustments
-
-
Total additions
6,124,076
2,883,823
658,732
Deductions:
Cost of real estate sold
(250,047)
(216,300)
(260,956)
Reclassification of accumulated depreciation and amortization for assets held for sale
(10,011)
(10,372)
(15,837)
Impairment of assets
(12,194)
(947)
(25,223)
Total deductions
(272,252)
(227,619)
(302,016)
Balance at end of year(2)
$
14,844,319
$
8,992,495
$
6,336,291
Accumulated depreciation:
Balance at beginning of year
$
836,966
$
677,851
$
600,781
Additions:
Depreciation and amortization expenses
423,605
202,543
164,923
Amortization of above market leases
6,409
2,524
2,061
Total additions
430,014
205,067
166,984
Deductions:
Sale of properties
(63,997)
(31,919)
(74,244)
Reclassification of accumulated depreciation and amortization for assets held for sale
(8,507)
(14,033)
(15,670)
Total deductions
(72,504)
(45,952)
(89,914)
Balance at end of year
$
1,194,476
$
836,966
$
677,851
(2) The aggregate cost for tax purposes for real property equals $13,604,448,000, $8,802,656,000 and $6,378,056,000 at December 31, 2011, 2010 and 2009, respectively.
Health Care REIT, Inc.
Schedule IV - Mortgage Loans on Real Estate
December 31, 2011
(in thousands)
Description
Interest Rate
Final Maturity Date
Monthly Payment Terms
Prior Liens
Face Amount of Mortgages
Carrying Amount of Mortgages
Principal Amount of Loans Subject to Delinquent Principal or Interest
First mortgage relating to one hospital in California
8.42%
12/01/17
$122,722
$
-
$
17,500
$
17,500
$
-
First mortgage relating to one hospital in California
9.89%
06/01/20
$153,140
-
17,500
13,906
-
First mortgage relating to one seniors housing facility in North Carolina
7.86%
04/30/15
$51,384
-
7,000
6,637
-
First mortgage relating to one medical office building in Georgia
6.50%
10/01/14
$38,556
-
6,100
6,083
-
First mortgage relating to one hospital in California
9.63%
01/14/14
$156,038
-
8,045
1,834
-
First mortgage relating to one seniors housing facility in Arizona
3.55%
01/01/13
$12,511
-
4,500
4,151
4,151
First mortgage relating to one senior housing facility in Texas
10.00%
09/01/12
$21,957
-
2,635
2,635
-
Two first mortgages relating to one medical office building in Georgia and one senior housing facility in Massachusetts
From 8.11% to 12.00%
From 1/1/12 to 10/1/14
From $773 to $2,000
-
1,000
-
Second mortgage relating to one hospital in California
9.48%
10/31/13
$138,048
13,906
13,000
2,778
-
Second mortgage relating to one seniors housing facility in Wisconsin
15.21%
01/15/15
$41,250
7,792
3,300
3,300
-
Second mortgage relating to one senior housing facility in New Hampshire
12.17%
10/01/16
$13,945
3,235
2,701
-
Second mortgage relating to one hospital in Massachusetts
12.17%
06/30/10
$16,900
4,100
2,243
2,093
2,093
Totals
$
26,468
$
86,058
$
63,934
$
6,244
Year Ended December 31,
Reconciliation of mortgage loans:
(in thousands)
Balance at beginning of year
$
109,283
$
74,517
$
137,292
Additions:
New mortgage loans
11,286
73,439
9,456
Total additions
11,286
73,439
9,456
Deductions:
Collections of principal
(50,579)
(10,540)
(54,696)
Conversions to real property
(4,000)
(10,070)
-
Charge-offs
-
(18,063)
(17,535)
Reclass to other real estate loans
(2,056)
-
-
Total deductions
(56,635)
(38,673)
(72,231)
Balance at end of year
$
63,934
$
109,283
$
74,517
EXHIBIT INDEX
1.1(a) 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).
1.1(b) Form of Amendment No. 1, dated September 1, 2011, to the Equity Distribution Agreements 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 September 8, 2011 (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 10-Q filed May 10, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(j) Certificate of Designation of 6.50% Series I Cumulative Convertible Perpetual Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed March 7, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(k) 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 May 10, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
3.2 Fourth Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed November 1, 2011 (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).
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 13, 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).
4.3(h) Supplemental Indenture No. 5, dated as of March 14, 2011, 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 14, 2011 (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 Fifth Amended and Restated Loan Agreement, dated as of July 27, 2011, by and among the Company, the banks signatory thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, KeyBanc Capital Markets Inc., as a joint lead arranger, Deutsche Bank Securities Inc., as a joint lead arranger and documentation agent, KeyBank National Association, as administrative agent, and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as co-syndication agents (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed August 2, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
10.2 Equity Purchase Agreement, dated as of February 28, 2011, by and among the Company, FC-GEN Investment, LLC and FC-GEN Operations Investment, LLC (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed February 28, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
10.3 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).
10.4(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).*
10.4(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).*
10.4(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).*
10.4(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).*
10.4(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).*
10.5(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).*
10.5(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).*
10.5(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.6(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).*
10.7 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).*
10.8 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).*
10.9 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).*
10.10 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).*
10.11 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).*
10.12 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).*
10.13 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).*
10.14 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).*
10.15 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).*
10.16 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).*
10.17 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).*
10.18 Summary of Director Compensation (filed with the Commission as Exhibit 10.17 to the Company’s Form 10-K filed February 25, 2011 (File No. 001-08923), and incorporated herein by reference thereto).*
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).
Subsidiaries of the Company.
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 Daniel A. Decker (Director).
24.4 Power of Attorney executed by Thomas J. DeRosa (Director).
24.5 Power of Attorney executed by Jeffrey H. Donahue (Director).
24.6 Power of Attorney executed by Peter J. Grua (Director).
24.7 Power of Attorney executed by Fred S. Klipsch (Director).
24.8 Power of Attorney executed by Sharon M. Oster (Director).
24.9 Power of Attorney executed by Jeffrey R. Otten (Director).
24.10 Power of Attorney executed by R. Scott Trumbull (Director).
24.11 Power of Attorney executed by George L. Chapman (Director, Chairman of the Board, Chief Executive Officer and President and Principal Executive Officer).
24.12 Power of Attorney executed by Scott A. Estes (Executive Vice President and Chief Financial Officer and Principal Financial Officer).
24.13 Power of Attorney executed by Paul D. Nungester, Jr. (Senior 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.
101.INS XBRL Instance Document**
101.SCH XBRL Taxonomy Extension Schema Document**
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101.LAB XBRL Taxonomy Extension Label Linkbase Document**
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**
101.DEF XBRL Taxonomy Extension Definition Linkbase Document**
*
Management Contract or Compensatory Plan or Arrangement.
**
Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2011 and 2010, (ii) the Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009, (iii) the Consolidated Statements of Equity for the years ended December 31, 2011, 2010 and 2009, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009, (v) the Notes to Consolidated Financial Statements, (vi) Schedule III - Real Estate and Accumulated Depreciation and (vii) Schedule IV - Mortgage Loans on Real Estate.
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.