Form 10-K for Nationwide Health Properties, Inc.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2002

 

OR

 

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

 

For the transition period from                        to                         

 

Commission file number 1-9028

 


 

NATIONWIDE HEALTH PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

 

95-3997619

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

610 Newport Center Drive, Suite 1150

Newport Beach, California

(Address of principal executive offices)

 

92660

(Zip Code)

 

Registrant’s telephone number, including area code: (949) 718-4400

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class


    

Name of each exchange

on which registered


Common Stock, $0.10 Par Value

    

New York Stock Exchange

7.677% Series A Cumulative Preferred

    

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

NONE

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

 

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

 

The aggregate market value of the voting and non-voting stock held by non-affiliates was approximately $914,039,000 as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

49,172,216

(Number of shares of common stock outstanding as of February 28, 2003)

 

Items 10, 11, 12 and 13 of Part III are incorporated by reference from the registrant’s definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2003.

 



PART I

 

Item 1.    Business.

 

Nationwide Health Properties, Inc., a Maryland corporation incorporated on October 14, 1985, is a real estate investment trust (REIT) that invests primarily in healthcare related facilities and provides financing to healthcare providers. Whenever we refer herein to “the Company” or to “us” or use the terms “we” or “our,” we are referring to Nationwide Health Properties, Inc. and its subsidiaries. At December 31, 2002, we had investments in 387 facilities located in 38 states. As of December 31, 2002, we had direct ownership of:

 

    158 skilled nursing facilities;

 

    132 assisted and independent living facilities;

 

    11 continuing care retirement communities;

 

    one rehabilitation hospital;

 

    one long-term acute care hospital; and

 

    five buildings held for sale.

 

At December 31, 2002, we held 24 mortgage loans secured by:

 

    25 skilled nursing facilities;

 

    four assisted and independent living facilities; and

 

    one continuing care retirement community.

 

We also have a 25% interest in an unconsolidated joint venture that owns 49 assisted living facilities located in twelve states.

 

Other than the five buildings held for sale, substantially all of our owned facilities are leased under “triple-net” leases, which are accounted for as operating leases, to 58 healthcare providers.

 

Our facilities are operated by 67 different operators, including the following publicly traded companies:

 

    Alterra Healthcare Corporation (Alterra);

 

    American Retirement Corporation (ARC);

 

    ARV Assisted Living, Inc.;

 

    Beverly Enterprises, Inc. (Beverly);

 

    Harborside Healthcare Corporation;

 

    HEALTHSOUTH Corporation;

 

    Integrated Health Services, Inc.;

 

    Mariner Health Care, Inc.; and

 

    Sun Healthcare Group, Inc.

 

Of the operators of our facilities, only Alterra and ARC accounted for 10% or more of our revenues for the twelve months ended December 31, 2002 or are expected to account for more than 10% of our revenues in 2003. In addition, our joint venture has direct ownership of 49 assisted living facilities, all of which are leased to Alterra. See “Information Regarding Certain Operators” in Item 7 for a discussion of Alterra’s current bankruptcy proceedings.

 

1


 

The following table summarizes our major operators, the number of facilities each operates and the percentage of our revenues received from each operator as of the end of 2002, as adjusted for facilities acquired and disposed during 2002:

 

Operator


    

Number of Facilities Operated


    

Percentage of Revenue


 

Alterra Healthcare Corporation

    

59

    

14

%

American Retirement Corporation

    

16

    

12

%

ARV Assisted Living, Inc.

    

16

    

9

%

Beverly Enterprises, Inc.

    

30

    

9

%

Complete Care Services

    

33

    

5

%

 

We have historically provided lease or mortgage financing for healthcare facilities to qualified operators and acquired additional senior housing and long-term care facilities, including skilled nursing facilities, assisted and independent living facilities, rehabilitation hospitals and long-term acute care hospitals. Financing for these investments was provided by borrowings under our bank line of credit, private placements or public offerings of debt or equity and the assumption of secured indebtedness.

 

The leases generally have initial terms ranging from five to 21 years, and generally have two or more multiple-year renewal options. We earn fixed monthly minimum rents and may earn periodic additional rents. The additional rent payments are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rents are generally calculated and payable monthly or quarterly. While the calculations and payments of additional rents contingent upon revenue are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (SAB No. 101), which we adopted during the fourth quarter of 2000, does not allow for the recognition of this revenue until all possible contingencies have been eliminated. Most of our leases with additional rents contingent upon revenue are structured as quarterly calculations so that all contingencies for revenue recognition have been eliminated at each of our quarterly reporting dates. Also, the majority of our leases contain provisions that the total rent cannot decrease from one year to the next. Approximately 79% of our facilities are leased under master leases. In addition, the majority of our leases contain cross collateralization and cross-default provisions tied to other leases with the same tenant, as well as grouped lease renewals and, if purchase options exist, grouped purchase options. Leases covering 250 facilities are backed by security deposits consisting of irrevocable letters of credit or cash most of which cover from three to six months, of initial monthly minimum rents. Under the terms of the leases, the tenant is responsible for all maintenance, repairs, taxes and insurance on the leased properties.

 

During 2002, we acquired 34 skilled nursing facilities, eleven assisted and independent living facilities and one continuing care retirement community for an aggregate investment of approximately $165,428,000. Additionally, we funded approximately $13,870,000 in capital improvements at a number of facilities in accordance with existing lease provisions. These capital improvements generally result in an increase in the minimum rents we earn on these facilities. In addition, our unconsolidated joint venture, in which we have a 25% interest, acquired 52 assisted living facilities.

 

At December 31, 2002, we held 24 mortgage loans secured by 25 skilled nursing facilities, four assisted and independent living facilities and one continuing care retirement community. These loans had an aggregate outstanding principal balance of approximately $101,232,000 and a net book value of approximately $99,292,000 at December 31, 2002, net of an aggregate discount totaling approximately $1,940,000. The mortgage loans have individual outstanding balances ranging from approximately $66,000 to $12,983,000 and have maturities ranging from 2003 to 2031.

 

Taxation

 

We believe we have operated in such a manner as to qualify for taxation as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and we intend to continue to operate in such a manner. If we qualify for taxation as a REIT, we will generally not be subject to federal corporate income taxes on our net income that is currently distributed to stockholders. This treatment substantially eliminates the

 

2


“double taxation” (e.g. at the corporate and stockholder levels) that usually results from investment in the stock of a corporation. Please see the heading “REIT Status” under the caption “Risk Factors” for more information.

 

In January 2002, President Bush proposed changes to the tax laws that, if enacted, would exclude from an individual’s taxable income corporate dividends paid out of certain previously taxed corporate income. Many aspects of this proposal have yet to be described, but it is most likely that dividends paid to shareholders of REITs will not be eligible for the exclusion. We are unable to predict whether or in what form the proposal may be enacted or, if enacted, any effect it may have on us.

 

Properties

 

Of the 387 facilities in which we have investments, we have direct ownership of:

 

    158 skilled nursing facilities;

 

    132 assisted living facilities;

 

    11 continuing care retirement communities;

 

    one rehabilitation hospital;

 

    one long-term acute care hospital; and

 

    five buildings held for sale.

 

In addition, our unconsolidated joint venture owns 49 assisted living facilities. Other than the five buildings held for sale, substantially all of the properties are leased to other parties under terms that require the tenant, in addition to paying rent, to pay all additional charges, taxes, assessments, levies and fees incurred in the operation of the leased properties.

 

Skilled Nursing Facilities

 

Skilled nursing facilities provide rehabilitative, restorative, skilled nursing and medical treatment for patients and residents who do not require the high-technology, care-intensive, high-cost setting of an acute care or rehabilitative hospital. Treatment programs include physical, occupational, speech, respiratory and other therapeutic programs, including sub-acute clinical protocols such as wound care and intravenous drug treatment.

 

Assisted and Independent Living Facilities

 

Assisted and independent living facilities offer studio, one bedroom and two bedroom apartments on a month-to-month basis primarily to elderly individuals with various levels of assistance requirements. Assisted and independent living residents are provided meals and eat in a central dining area; assisted living residents may also be assisted with some daily living activities with programs and services that allow residents certain conveniences and make it possible for them to live independently; staff is also available when residents need assistance and for group activities. Services provided to residents who require more assistance with daily living activities, but who do not require the constant supervision skilled nursing facilities provide, include personal supervision and assistance with eating, bathing, grooming and administering medication. Charges for room, board and services are generally paid from private sources.

 

Continuing Care Retirement Communities

 

Continuing care retirement communities provide a broad continuum of care. At the most basic level, independent living residents might receive meal service, maid service or other services as part of their monthly rent. Services which aid in everyday living are provided to other residents, much like in an assisted living facility. At the far end of the spectrum, skilled nursing, rehabilitation and medical treatment are provided to residents who need those services. This type of facility consists of independent living units, dedicated assisted living units and licensed skilled nursing beds on one campus, and considered by many to be the ultimate senior housing alternative.

 

Rehabilitation Hospitals

 

Rehabilitation hospitals provide inpatient and outpatient medical care to patients requiring high intensity physical, respiratory, neurological, orthopedic and other treatment protocols and for intermediate periods in their recovery. These programs are often the most effective in treating severe skeletal or neurological injuries and traumatic diseases such as stroke and acute arthritis.

 

3


 

Long-Term Acute Care Hospitals

 

Long-term acute care hospitals serve medically complex, chronically ill patients. These hospitals have the capability to treat patients who suffer from multiple systemic failures or conditions such as neurological disorders, head injuries, brain stem and spinal cord trauma, cerebral vascular accidents, chemical brain injuries, central nervous system disorders, developmental anomalies and cardiopulmonary disorders. Chronic patients are often dependent on technology for continued life support, such as mechanical ventilators, total parenteral nutrition, respiration or cardiac monitors and dialysis machines. While these patients suffer from conditions that require a high level of monitoring and specialized care, they may not necessitate the continued services of an intensive care unit. Due to their severe medical conditions, these patients generally are not clinically appropriate for admission to a skilled nursing facility or rehabilitation hospital.

 

The following table sets forth certain information regarding our owned facilities as of December 31, 2002:

 

Facility Location


    

Number of Facilities


  

Number of Beds/Units

(1)


  

Gross Investment


  

2002 Rent

(2)


                

(Dollars in Thousands)

Assisted and Independent Living Facilities:

                

Alabama

    

2

  

166

  

$

5,953

  

$

575

Arizona

    

2

  

142

  

 

7,868

  

 

798

Arkansas

    

1

  

32

  

 

2,150

  

 

202

California

    

13

  

1,590

  

 

79,578

  

 

11,271

Colorado

    

7

  

843

  

 

76,654

  

 

6,195

Delaware

    

1

  

54

  

 

5,301

  

 

411

Florida

    

20

  

1,345

  

 

96,667

  

 

8,384

Idaho

    

1

  

158

  

 

11,826

  

 

1,299

Indiana

    

1

  

50

  

 

4,666

  

 

327

Kansas

    

4

  

231

  

 

13,557

  

 

1,242

Kentucky

    

1

  

44

  

 

2,782

  

 

301

Louisiana

    

1

  

104

  

 

7,385

  

 

616

Maryland

    

1

  

56

  

 

5,248

  

 

38

Massachusetts

    

1

  

118

  

 

11,007

  

 

1,021

Michigan

    

1

  

143

  

 

7,306

  

 

1,159

Nevada

    

2

  

154

  

 

13,616

  

 

1,292

New Jersey

    

2

  

104

  

 

7,615

  

 

422

New York

    

1

  

200

  

 

21,426

  

 

1,395

North Carolina

    

5

  

274

  

 

14,028

  

 

1,910

Ohio

    

11

  

635

  

 

39,115

  

 

3,099

Oklahoma

    

3

  

178

  

 

8,271

  

 

809

Oregon

    

6

  

559

  

 

28,874

  

 

3,108

Pennsylvania

    

4

  

286

  

 

29,965

  

 

615

Rhode Island

    

3

  

274

  

 

30,240

  

 

2,787

South Carolina

    

7

  

331

  

 

24,910

  

 

1,516

Tennessee

    

5

  

278

  

 

25,316

  

 

810

Texas

    

17

  

950

  

 

77,936

  

 

7,269

Virginia

    

2

  

153

  

 

12,974

  

 

1,262

Washington

    

4

  

341

  

 

22,834

  

 

2,443

West Virginia

    

1

  

60

  

 

6,177

  

 

44

Wisconsin

    

2

  

422

  

 

29,061

  

 

2,079

      
  
  

  

Subtotals

    

132

  

10,275

  

$

730,306

  

$

64,699

      
  
  

  

 

4


 

Facility Location


    

Number of Facilities


  

Number of Beds/Units

(1)


  

Gross Investment


  

2002 Rent

(2)


                

(Dollars in Thousands)

Skilled Nursing Facilities:

                         

Arizona

    

1

  

130

  

$

3,540

  

$

639

Arkansas

    

8

  

833

  

 

34,912

  

 

3,321

California

    

6

  

599

  

 

19,125

  

 

3,678

Connecticut

    

3

  

351

  

 

12,080

  

 

1,669

Florida

    

6

  

825

  

 

20,317

  

 

2,259

Georgia

    

1

  

100

  

 

4,342

  

 

325

Idaho

    

1

  

64

  

 

792

  

 

84

Illinois

    

2

  

210

  

 

5,549

  

 

600

Indiana

    

7

  

886

  

 

27,335

  

 

2,873

Kansas

    

9

  

680

  

 

13,928

  

 

1,524

Maryland

    

5

  

911

  

 

30,074

  

 

2,748

Massachusetts

    

14

  

1,511

  

 

76,372

  

 

6,403

Minnesota

    

3

  

568

  

 

19,809

  

 

1,773

Mississippi

    

1

  

120

  

 

4,467

  

 

462

Missouri

    

1

  

108

  

 

2,740

  

 

517

Nevada

    

1

  

140

  

 

4,034

  

 

616

North Carolina

    

1

  

150

  

 

2,360

  

 

333

Ohio

    

5

  

733

  

 

27,606

  

 

2,743

Oklahoma

    

3

  

253

  

 

3,939

  

 

436

Tennessee

    

5

  

508

  

 

18,509

  

 

2,015

Texas

    

59

  

6,770

  

 

135,967

  

 

12,733

Virginia

    

4

  

604

  

 

18,568

  

 

2,910

Washington

    

5

  

525

  

 

25,408

  

 

2,854

Wisconsin

    

7

  

568

  

 

12,874

  

 

2,406

      
  
  

  

Subtotals

    

158

  

18,147

  

$

524,647

  

$

55,921

      
  
  

  

Continuing Care Retirement Communities:

                         

Arizona

    

1

  

182

  

$

10,331

  

$

477

California

    

1

  

279

  

 

12,427

  

 

1,659

Colorado

    

1

  

119

  

 

3,115

  

 

378

Florida

    

1

  

405

  

 

18,617

  

 

333

Georgia

    

1

  

190

  

 

11,492

  

 

984

Kansas

    

1

  

200

  

 

13,204

  

 

1,396

Massachusetts

    

1

  

178

  

 

14,292

  

 

1,379

Tennessee

    

1

  

80

  

 

3,178

  

 

364

Texas

    

1

  

352

  

 

30,870

  

 

3,042

Wisconsin

    

2

  

942

  

 

64,638

  

 

6,077

      
  
  

  

Subtotals

    

11

  

2,927

  

$

182,164

  

$

16,089

      
  
  

  

 

 

5


Facility Location


    

Number of Facilities


  

Number of Beds/ Units(1)


  

Gross Investment


  

2002 Rent(2)


                

(Dollars in Thousands)

Rehabilitation Hospitals:

                         

Arizona

    

1

  

60

  

$

10,710

  

$

1,513

      
  
  

  

Long-Term Acute Care Hospitals:

                         

Arizona

    

1

  

56

  

 

6,361

  

 

851

      
  
  

  

Total All Owned Facilities

    

303

  

31,465

  

$

1,454,188

  

$

139,073

      
  
  

  


(1)   Assisted and independent living facilities are measured in units, continuing care retirement communities are measured in beds and units and all other facilities are measured by bed count.
(2)   Rental income for 2002 for each of the properties we owned at December 31, 2002, excluding assets held for sale.

 

Competition

 

We generally compete with other REITs, including Health Care Property Investors, Inc., Senior Housing Properties Trust, Healthcare Realty Trust Incorporated and Health Care REIT, Inc., real estate partnerships, healthcare providers and other investors, including, but not limited to, banks, insurance companies and opportunity funds, in the acquisition, leasing and financing of healthcare facilities. The operators of the healthcare facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for patients based on quality of care, reputation, physical appearance of facilities, price, services offered, family preferences, physicians and staff.

 

Regulation

 

Payments for healthcare services provided by the operators of our facilities are received principally from four sources: Medicaid, a medical assistance program for the indigent, operated by individual states with the financial participation of the federal government; Medicare, a federal health insurance program for the aged and certain chronically disabled individuals; private funds; and health and other insurance plans. Government revenue sources, particularly Medicaid programs, are subject to statutory and regulatory changes, administrative rulings, and government funding restrictions, all of which may materially increase or decrease the rates of payment to skilled nursing facilities which in turn might affect the amount of additional rents payable to us under our leases. Effective for years beginning after July 1, 1998, the payment methodology for skilled nursing facilities under the Medicare program was changed. Under the revised methodology, Medicare reimburses skilled nursing facility operators for nursing care, ancillary services and capital costs at a flat per diem rate. Prior to July 1, 1998, a cost-based system of reimbursement was used. This changed reimbursement methodology was phased in over four years. Payments under the new methodology are generally lower than the payments the facilities had historically received, however there was some relief during 2000 and 2001 as a portion of the reduction in payments was reversed. On October 1, 2002, some of the relief implemented in 2000 and 2001 expired, which resulted in a reduction in Medicare payments during 2002 and will result in a reduction in 2003. Payments under reimbursement programs allocable to patients may not remain at levels comparable to the present levels or be sufficient to cover all the operating and fixed costs allocable to patients. Decreases in reimbursement levels could have an adverse impact on the revenues of the operators of our facilities, which could in turn adversely impact their ability to make their monthly lease or debt payments to us.

 

There exist various federal and state regulations prohibiting fraud and abuse of healthcare providers, including those governing reimbursements under Medicaid and Medicare as well as referrals and financial relationships. Federal and state governments are devoting increasing attention to anti-fraud initiatives. Our operators may not be able to comply with these current or future regulations, which could affect their ability to operate or to continue to make lease or mortgage payments.

 

6


 

Healthcare facilities in which we invest are also generally subject to federal, state and local licensure statutes and regulations and statutes which may require regulatory approval, in the form of a certificate of need (CON), prior to the addition or construction of new beds, the addition of services or certain capital expenditures. CON requirements generally apply to skilled nursing facilities. CON requirements are not uniform throughout the United States and are subject to change. We cannot predict the impact of regulatory changes with respect to licensure and CONs on the operations of our operators.

 

Executive Officers of the Company

 

The table below sets forth the name, position and age of each executive officer of the Company. Each executive officer is appointed by the Board of Directors (the Board), serves at its pleasure and holds office until a successor is appointed, or until the earliest of death, resignation or removal. There is no “family relationship” between any of the named executive officers or with any director. All information is given as of February 28, 2003:

 

Name


    

Position


  

Age


R. Bruce Andrews

    

President and Chief Executive Officer

  

62

Donald D. Bradley

    

Senior Vice President and General Counsel

  

47

Mark L. Desmond

    

Senior Vice President and Chief Financial Officer

  

44

David M. Boitano

    

Vice President of Development

  

41

Steven J. Insoft

    

Vice President of Development

  

39

John J. Sheehan, Jr.

    

Vice President of Development

  

45

 

R. Bruce Andrews—President and Chief Executive Officer since September 1989 and a director since October 1989. Mr. Andrews had previously served as a director of American Medical International, Inc., a hospital management company, and served as its Chief Financial Officer from 1970 to 1985 and its Chief Operating Officer in 1985 and 1986. From 1986 through 1989, Mr. Andrews was engaged in various private investments.

 

Donald D. Bradley—Senior Vice President and General Counsel since March 2001. From January 2000 to February 2001, Mr. Bradley was engaged in various personal interests. Mr. Bradley was formerly the General Counsel of Furon Company, a NYSE-listed international, high performance polymer manufacturer from 1990 to December 1999. Previously, Mr. Bradley served as a Special Counsel of O’Melveny & Myers LLP, an international law firm with which he had been associated since 1982. Mr. Bradley is a member of the Executive Board of the American Seniors Housing Association (ASHA).

 

Mark L. Desmond—Senior Vice President and Chief Financial Officer since January 1996. Mr. Desmond was Vice President and Treasurer from May 1990 to December 1995 and Controller, Chief Accounting Officer and Assistant Treasurer from June 1988 to April 1990. From 1986 until joining our company, Mr. Desmond held various accounting positions with Beverly Enterprises, Inc., an operator of skilled nursing facilities, pharmacies and pharmacy related outlets. Mr. Desmond is a certified public accountant.

 

David M. Boitano—Vice President of Development since February 2002. From June 2000 until November 2001, Mr. Boitano was the Chief Operating Officer for Essential Markets, Inc., an information technology company. Mr. Boitano was the Senior Vice President of Finance and Acquisitions and Treasurer of Alterra Healthcare Corporation, an operator of assisted and independent living facilities, from November 1999 until May 2000. Prior to that, Mr. Boitano was the Senior Vice President of Finance and Acquisitions from October 1998 until October 1999 and the Vice President of Finance from May 1996 until September 1998, both also of Alterra. From March 1994 until May 1996, Mr. Boitano was the Chief Financial Officer of Crossings International Corporation, an operator of assisted living facilities.

 

Steven J. Insoft—Vice President of Development since February 1998. From 1991 to 1997, Mr. Insoft served as President of CMI Senior Housing & Healthcare, Inc., an operator of skilled nursing facilities. From 1988 to 1991, Mr. Insoft was an Associate in the Capital Markets Group of Prudential Insurance Company of America.

 

7


 

John J. Sheehan, Jr.—Vice President of Development since February 1996. From April 1990 until joining our company, Mr. Sheehan was Vice President, Mortgage Finance for Life Care Centers of America, an operator and manager of skilled nursing facilities. From September 1987 through April 1990, Mr. Sheehan served as Director of Asset Management for Southmark Corporation, a real estate syndication company.

 

Employees

 

As of February 28, 2003, we had 14 employees.

 

Available Information

 

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at www.nhp-reit.com, the same day as those reports are available on the SEC’s website. In addition, our Business Code of Conduct & Ethics, Governance Principles and the charters of our Audit, Corporate Governance and Compensation Committees are available on our website.

 

8


RISK FACTORS

 

You should carefully consider the risks described below before making an investment decision in our company. The risks and uncertainties described below are not the only ones facing us and there may be additional risks that we do not presently know of or that we currently consider immaterial. All of these risks could adversely affect our business, financial condition, results of operations and cash flows.

 

Operator Obligations

 

Our income would be adversely affected if any of our operators were unable to meet their obligations to us or if we were unable to lease our facilities or make mortgage loans on economically favorable terms. If a tenant does not exercise its option to renew its lease upon the expiration of the initial term or that if a failure to renew were to occur, we may not be able to lease the facility to another operator on favorable terms.

 

Operator Governmental Regulations

 

Our operators are subject to regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on our operators’ costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any of our operators to comply with these laws, requirements and regulations could adversely affect an operator’s ability to meet its obligations to us.

 

Operator Reimbursement Rates

 

The ability of our operators to generate revenue and profit affects the underlying value of our facilities. Revenues of our operators are generally derived from payments for patient care from the federal Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers as well as the patients themselves.

 

A significant portion of our skilled nursing facility operators’ revenue is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Federal and state governments have adopted and continue to consider various health care reform proposals to control health care costs. In recent years, there have been fundamental changes in the Medicare program that have resulted in reduced levels of payment for a substantial portion of health care services. In many instances, revenues from Medicaid programs are already insufficient to cover the actual costs incurred in providing care to those patients. In addition, reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors.

 

State and federal governmental concern regarding health care costs and the impact of these costs on their budgets may result in significant reductions in payment to health care facilities, and future reimbursement rates for either governmental or private payors may not be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies that reduce reimbursement to levels that are insufficient to cover the cost of providing patient care could adversely affect revenues of our operators and thereby adversely affect their ability to meet their obligations to us.

 

Operator Financial Difficulties

 

Our financial position and our ability to make distributions may be adversely affected by financial difficulties experienced by any of our major operators, including bankruptcy, insolvency or general downturn in business of any of our major operators, or in the event any of our major operators do not renew or extend their relationship with us as their lease terms expire.

 

9


 

We are exposed to the risk that our operators may not be able to meet their obligations, which may result in their bankruptcy or insolvency. Although our leases and loans provide us the right to terminate an investment, evict an operator, demand immediate repayment and other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. An operator in bankruptcy may be able to restrict our ability to collect unpaid rent and interest during the bankruptcy proceeding.

 

If one of our lessees seeks bankruptcy protection, the lessee can either assume or reject the lease. Generally, the operator is required to make rent payments to us during their bankruptcy until they reject the lease. If the lessee assumes the lease, the court cannot change the rental amount or any other lease provision that could financially impact us. However, if the lessee rejects the lease, the facility would be returned to us. If the facility is returned to us, our financial condition could be adversely affected by delays in leasing the facility to a new operator.

 

In the event of a default by our operators under mortgage loans, we may have to foreclose on the mortgage or protect our interest by acquiring title to a property and thereafter making substantial improvements or repairs in order to maximize the facility’s investment potential. Operators may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against an enforcement and/or bring claims for lender liability in response to actions to enforce mortgage obligations. If an operator seeks bankruptcy protection, the automatic stay of the federal bankruptcy law would preclude us from enforcing foreclosure or other remedies against the operator unless relief is obtained from the court. High “loan to value” ratios or declines in the value of the facility may prevent us from realizing an amount equal to our mortgage loan upon foreclosure.

 

For a discussion of current operator financial difficulties and bankruptcy proceedings, please see the caption “Information Regarding Certain Operators” in Item 7.

 

The receipt of liquidation proceeds or the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the replacement of the operator licensed to manage the facility. In some instances, we may take possession of a property that may expose us to successor liabilities. If any of these events occur, our revenue and operating cash flow could be adversely affected.

 

Concentration of Revenues

 

Two of the operators of our facilities account for 10% or more of our revenues. As of the end of 2002, as adjusted for facilities acquired and disposed during 2002, Alterra accounted for 14% and ARC accounted for 12%. In January 2003, Alterra filed for protection under the United States bankruptcy laws. Alterra operates 59 of our facilities and all 49 of the facilities owned by our joint venture, in which we are a 25% equity partner. ARC operates 16 of our facilities. If Alterra decides to reject our leases in bankruptcy or if ARC experiences financial difficulties, our revenues and operating cash flow could be adversely affected.

 

Fraud and Abuse Regulations

 

There are various federal and state laws prohibiting fraud by healthcare providers, including criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, or failing to refund overpayments or improper payments.

 

There are also laws that govern referrals and financial relationships. A wide array of relationships and arrangements, including ownership interests in a company by persons who refer or who are in a position to refer patients, as well as personal services agreements, have under certain circumstances, been alleged or been found to violate these provisions. The federal and state laws and regulations regarding fraud and abuse are extremely complex, and little judicial or regulatory interpretation exists.

 

In addition, state and federal governments are devoting increasing attention and resources to anti-fraud initiatives against health care providers. The Health Insurance Portability and Accountability Act of 1996 and the

 

10


Balanced Budget Act of 1997 expand the penalties for health care fraud, including broader provisions for the exclusion of providers from the Medicare and Medicaid programs. Further, under Operation Restore Trust, a major anti-fraud demonstration project, the Office of Inspector General of the U.S. Department of Health and Human Services, in cooperation with other federal and state agencies, has focused on the activities of skilled nursing facilities in certain states in which we have properties.

 

These governmental fraud and abuse regulations affect us because findings of violations of these regulations may jeopardize an operator’s ability to operate a facility or to make lease and mortgage payments, thereby potentially adversely affecting us.

 

Licensing, Certification and Accreditation

 

Our operators and facilities are subject to regulatory and licensing requirements of federal, state and local authorities. In granting and renewing licenses, regulatory agencies consider, among other things, the physical buildings and equipment, the qualifications of the administrative personnel and nursing staff, the quality of care and the continuing compliance with the laws and regulations relating to the operation of the facilities. In the ordinary course of business, the operators receive notices of deficiencies for failure to comply with various regulatory requirements and take appropriate corrective and preventive actions.

 

Our facilities are also subject to state licensure statutes and regulations and statutes which may require regulatory approval, in the form of a CON, prior to the addition or construction of new beds, the addition of services or certain capital expenditures. CON requirements are not uniform throughout the United States and are subject to change. Our facilities may not be able to satisfy current and future CON requirements and this could adversely affect our operators and facilities.

 

Failure to obtain licensure or loss of licensure would prevent a facility from operating. Failure to maintain certification in the Medicare and Medicaid programs would result in a loss of funding from those programs. Although accreditation is generally voluntary, loss of accreditation could result in a facility failing to meet eligibility requirements to participate in various reimbursement programs. These events could adversely affect the facility operator’s ability to meet its obligations to us.

 

Healthcare Operations are Subject to Litigation Risks and Increasing Insurance Costs

 

In some states, advocacy groups have been created to monitor the quality of care at skilled nursing facilities, and these groups have brought litigation against operators. Also, in several instances, private litigation by skilled nursing facility patients has succeeded in winning very large damage awards for alleged abuses. The effect of this litigation and potential litigation has been to materially increase the costs of monitoring and reporting quality of care compliance incurred by our tenants. In addition, the cost of liability and medical malpractice insurance has increased and may continue to increase so long as the present litigation environment affecting the operations of skilled nursing facilities continues. Continued cost increases could adversely affect our tenants’ abilities to pay their lease or mortgage payments.

 

Competition

 

The healthcare industry is highly competitive and we expect that it may become more competitive in the future. Our operators are competing with numerous other companies providing similar health care services or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. In addition, overbuilding in the assisted and independent living market has caused a slow-down in the fill-rate of newly constructed buildings and a reduction in the monthly rate many newly built and previously existing facilities were able to obtain for their services. This resulted in lower revenues for the operators of certain of our facilities. It may also have contributed to the financial difficulties of some of our operators. While we believe that overbuilt markets should reach stabilization in the next couple of

 

11


years due to minimal new development, we cannot be certain the operators of all of our facilities will be able to achieve occupancy and rate levels that will enable them to meet all of their obligations to us. Our operators may encounter increased competition in the future that could limit their ability to attract residents or expand their businesses and therefore affect their ability to meet their obligations to us.

 

Legislative Developments

 

Each year, legislative proposals are introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system, either nationally or at the state level. Among the proposals under consideration are cost controls on state Medicaid reimbursements, a “Patient Bill of Rights” to increase the liability of insurance companies as well as the ability of patients to sue in the event of a wrongful denial of claim, a Medicare prescription drug benefit, hospital cost-containment initiatives by public and private payors, uniform electronic data transmission standards for healthcare claims and payment transactions, and higher standards to protect the security and privacy of health-related information. We cannot predict whether any proposals will be adopted or, if adopted, what effect, if any, these proposals would have on our business.

 

External Sources of Capital

 

In order to qualify as a REIT under the Internal Revenue Code, we are required, among other things, each year to distribute to our stockholders at least 90% of our REIT taxable income. Because of this distribution requirement, we may not be able to fund all future capital needs, including capital needs in connection with acquisitions, from cash retained from operations. As a result, we rely on other sources of capital, which we may not be able to obtain on favorable terms or at all. Our access to capital depends upon a number of factors, including general market conditions and the market’s perception of our growth potential and our current and potential future earnings and cash distributions and the market price of the shares of our capital stock. Additional debt financing may substantially increase our leverage.

 

Investment Level

 

With the exception of 2002, difficult capital market conditions in our industry during the past several years have limited our access to capital. As a result, in recent years other than 2002, the level of our new investments decreased. We currently expect difficult market conditions to prevail during 2003, which will limit our access to capital for the coming year and we are not currently planning any significant additional investments beyond our actual commitments. If the level of our new investments does not increase our ability to increase our revenues could be impacted.

 

Debt Obligations

 

We are subject to risks normally associated with debt financing, including the risks that our cash flow will be insufficient to make distributions to our stockholders, that we will be unable to refinance existing indebtedness and that the terms of refinancing will not be as favorable as the terms of existing indebtedness.

 

If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, our cash flow may not be sufficient in all years to pay distributions to our stockholders and to repay all maturing debt. Furthermore, if prevailing interest rates, changes in our debt ratings or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to that refinanced indebtedness would increase. This increased interest expense would adversely affect our financial condition and results of operations.

 

Leverage

 

Financing for our future investments may be provided by borrowings under our bank line of credit, private or public offerings of debt, the assumption of secured indebtedness, mortgage financing on a portion of our owned portfolio or through joint ventures. Accordingly, we could become more leveraged. The degree of leverage could have important consequences to stockholders, including affecting our ability to obtain additional

 

12


financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in business or the economy generally.

 

Stock Price

 

As with other publicly-traded equity securities, the market price of our common stock will depend upon various market conditions, which may change from time to time. Among the market conditions that may affect the market price of our stock are the following:

 

    the extent of investor interest;

 

    the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;

 

    our financial performance and that of our operators;

 

    the contents of analyst reports about us and the REIT industry; and

 

    general stock and bond market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions. An increase in the required yield from distributions may adversely affect the market price of our common stock.

 

Other factors such as governmental regulatory action and changes in REIT tax laws could also have a significant impact on the future market price of our common stock.

 

Our failure to maintain or increase our dividend could reduce the market price of our common stock. The ability to maintain or raise our dividend is dependent, to a large part, on growth of funds from operations. This growth in turn depends upon increased revenues from additional investments and rental increases.

 

The market value of the equity securities of a REIT is generally based upon the market’s perception of the REIT’s growth potential and its current and potential future earnings and cash distributions. For that reason, shares of our common stock may trade at prices that are higher or lower than the net asset value per share. Our failure to meet the market’s expectation with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock. Another factor that may influence the price of our common stock will be the distribution yield on our common stock as a percentage of the price of our common stock relative to market interest rates. An increase in market interest rates might lead prospective purchasers of our common stock to expect a higher distribution yield, which would adversely affect the market price of our common stock.

 

REIT Status

 

We intend to operate in a manner to qualify as a REIT under the Internal Revenue Code. We believe that we have been organized and have operated in a manner, which would allow us to qualify as a REIT under the Internal Revenue Code. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify. Qualification as a REIT requires us to satisfy numerous requirements established under highly technical and complex Internal Revenue Code provisions. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must pay dividends to stockholders aggregating at least 90% of our annual REIT taxable income. Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of qualification as a REIT. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a REIT.

 

If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. Unless we are entitled to relief under statutory provisions, we would be

 

13


disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification. If we lose our REIT status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to stockholders.

 

Our Acquisitions May be Unsuccessful

 

Our business strategy contemplates future acquisitions. The acquisitions we make may not prove to be successful. We might encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities. Further, newly acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. We might never realize the anticipated benefits of any acquisition. In order to finance future acquisitions, we might issue equity securities or incur additional debt, or both, which may reduce our per share financial results.

 

With respect to certain acquired properties, we enter into development funding arrangements requiring us to provide the funding to enable healthcare operators to build, expand or renovate facilities on our properties. If the developer or contractor fails to complete the project under the terms of the development agreement, we could be forced to become involved in the development to ensure completion or we could lose the property.

 

Key Personnel

 

We depend on the efforts of our executive officers, particularly Mr. R. Bruce Andrews, Mr. Mark L. Desmond and Mr. Donald D. Bradley. While we believe that we could find suitable replacements for these key personnel, the loss of their services or the limitation of their availability could have an adverse impact on our operations. Although we have entered into employment and security agreements with these executive officers, these agreements may not assure their continued service.

 

Environmental Matters

 

Under various laws, owners of real estate may be required to investigate and clean up hazardous substances present at a property, and may be held liable for property damage or personal injuries that result from environmental contamination. These laws also expose us to the possibility that we become liable to reimburse the government for damages and costs it incurs in connection with the contamination. We review environmental surveys of the facilities we own prior to their purchase. Based upon those surveys 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 that could have a material adverse effect on our business or financial condition.

 

Change of Control Provisions

 

Our charter and bylaws contain provisions that may delay, defer or prevent a change in control or other transactions that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for our common stock.

 

In order to protect us against the risk of losing our REIT status for federal income tax purposes, our charter prohibits the ownership by any single person of more than 9.9% of the issued and outstanding shares of our voting stock. We can redeem shares acquired or held in excess of the ownership limit. In addition, any acquisition of our common stock or preferred stock that would result in our disqualification as a REIT is null and void. The ownership limit may have the effect of delaying, deferring or preventing a change in control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with a stock transaction. The Board of Directors has increased the ownership limit applicable to our voting stock to 20% with respect to Cohen & Steers Capital Management, Inc. As of December 31, 2002, Cohen & Steers Capital Management, Inc. owned 14% of our common stock.

 

14


 

Our charter authorizes us to issue additional shares of common stock and one or more series of preferred stock and to establish the preferences, rights and other terms of any series of preferred stock that we issue. Although our Board of Directors has no intention to do so at the present time, it could establish a series of preferred stock that could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

 

Our charter also contains other provisions that may delay, defer or prevent a transaction, including a change in control, that might involve payment of a premium price for our common stock or otherwise be in the best interests of our stockholders. Those provisions include the following:

 

    in certain circumstances, a proposed consolidation, merger, share exchange or transfer must be approved by two-thirds of the votes of our preferred stockholders entitled to be cast on the matter;

 

    the requirement that any business combination be approved by 90% of the outstanding shares unless the transaction receives a unanimous vote or a consent of the Board of Directors or is a combination solely with a wholly-owned subsidiary; and

 

    the Board of Directors is classified into three groups whereby each group of Directors is elected for successive terms ending at the annual meeting of stockholders the third year after election.

 

These provisions may impede various actions by stockholders without approval of our Board of Directors, which in turn may delay, defer or prevent a transaction involving a change of control.

 

Item 2.    Properties.

 

See Item 1 for details.

 

Item 3.    Legal Proceedings.

 

There are various legal proceedings pending to which we are a party or to which some of our properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these proceedings will have a material adverse effect on our consolidated financial position or results of operations.

 

Item 4.    Submission of Matters to a Vote of Security Holders.

 

None.

 

15


PART II

 

Item 5.    Market for the Company’s Common Equity and Related Stockholder Matters.

 

Our common stock is listed on the New York Stock Exchange. It has been our policy to declare quarterly dividends to holders of our common stock in order to comply with applicable sections of the Internal Revenue Code governing real estate investment trusts. Set forth below are the high and low sales prices of our common stock from January 1, 2001 to December 31, 2002 as reported by the New York Stock Exchange and the cash dividends per share paid with respect to such periods. Future dividends will be declared and paid at the discretion of our Board and will depend upon cash generated by operating activities, our financial condition, relevant financing instruments, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as our Board deems relevant, however, we currently expect to pay comparable cash dividends in the future.

 

    

High


  

Low


  

Dividend


2002

                    

First quarter

  

$

20.38

  

$

18.40

  

$

0.46

Second quarter

  

 

22.80

  

 

17.10

  

 

0.46

Third quarter

  

 

19.15

  

 

14.90

  

 

0.46

Fourth quarter

  

 

17.85

  

 

14.64

  

 

0.46

2001

                    

First quarter

  

$

16.80

  

$

12.81

  

$

0.46

Second quarter

  

 

20.20

  

 

16.08

  

 

0.46

Third quarter

  

 

20.29

  

 

16.33

  

 

0.46

Fourth quarter

  

 

20.95

  

 

18.36

  

 

0.46

 

As of February 28, 2003 there were approximately 900 holders of record of our common stock.

 

Equity compensation plan information is incorporated herein by reference to the information under the caption “Equity Compensation Plan Information” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2003, filed or to be filed pursuant to Regulation 14A.

 

16


Item 6.    Selected Financial Data.

 

The following table presents our selected financial data. Certain of this financial data has been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with those financial statements and accompanying notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    

Years ended December 31,


 
    

2002


    

2001


    

2000


    

1999


    

1998


 
    

(In thousands, except per share data)

 

Operating Data:

                                            

Revenues

  

$

156,461

 

  

$

163,249

 

  

$

167,637

 

  

$

157,845

 

  

$

136,441

 

Income from continuing operations

  

 

44,357

 

  

 

60,630

 

  

 

68,601

 

  

 

67,715

 

  

 

62,883

 

Gain (loss) on sale of facilities

  

 

—  

 

  

 

11,245

 

  

 

1,149

 

  

 

(335

)

  

 

2,321

 

Discontinued operations

  

 

(7,803

)

  

 

(3,537

)

  

 

1,412

 

  

 

3,433

 

  

 

4,544

 

Net income

  

 

36,554

 

  

 

68,338

 

  

 

71,162

 

  

 

70,813

 

  

 

69,748

 

Preferred stock dividends

  

 

(7,677

)

  

 

(7,677

)

  

 

(7,677

)

  

 

(7,677

)

  

 

(7,677

)

Income available to common stockholders

  

 

28,877

 

  

 

60,661

 

  

 

63,485

 

  

 

63,136

 

  

 

62,071

 

Dividends paid on common stock

  

 

90,585

 

  

 

87,093

 

  

 

85,889

 

  

 

83,480

 

  

 

75,128

 

Per Share Data:

                                            

Basic/diluted income from continuing operations available to common stockholders

  

 

0.75

 

  

 

1.13

 

  

 

1.32

 

  

 

1.30

 

  

 

1.24

 

Basic/diluted income available to common stockholders

  

 

0.59

 

  

 

1.30

 

  

 

1.37

 

  

 

1.37

 

  

 

1.39

 

Dividends paid on common stock

  

 

1.84

 

  

 

1.84

 

  

 

1.84

 

  

 

1.80

 

  

 

1.68

 

Balance Sheet Data:

                                            

Investments in real estate, net

  

$

1,345,195

 

  

$

1,228,987

 

  

$

1,333,026

 

  

$

1,372,064

 

  

$

1,316,685

 

Total assets

  

 

1,409,933

 

  

 

1,289,838

 

  

 

1,381,007

 

  

 

1,430,056

 

  

 

1,357,303

 

Borrowings under unsecured revolving credit facility

  

 

107,000

 

  

 

35,000

 

  

 

79,000

 

  

 

75,300

 

  

 

42,000

 

Senior notes due 2003-2038

  

 

614,750

 

  

 

564,750

 

  

 

627,900

 

  

 

657,900

 

  

 

545,150

 

Convertible debentures

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

57,431

 

Notes and bonds payable

  

 

111,303

 

  

 

91,590

 

  

 

62,857

 

  

 

64,048

 

  

 

64,623

 

Stockholders’ equity

  

 

529,140

 

  

 

555,312

 

  

 

563,472

 

  

 

585,590

 

  

 

605,558

 

Other Data:

                                            

Net cash provided by operating activities

  

$

85,664

 

  

$

83,187

 

  

$

99,940

 

  

$

94,659

 

  

$

106,067

 

Net cash provided by (used in) investing activities

  

 

(147,626

)

  

 

75,721

 

  

 

11,258

 

  

 

(89,753

)

  

 

(282,968

)

Net cash provided by (used in) financing activities

  

 

61,287

 

  

 

(155,995

)

  

 

(121,188

)

  

 

(4,949

)

  

 

182,891

 

Diluted weighted average shares outstanding

  

 

48,869

 

  

 

46,836

 

  

 

46,228

 

  

 

46,216

 

  

 

44,645

 

Reconciliation of Funds from Operations (1):

                                            

Income available to common stockholders

  

$

28,877

 

  

$

60,661

 

  

$

63,485

 

  

$

63,136

 

  

$

62,071

 

Depreciation and amortization

  

 

36,859

 

  

 

33,157

 

  

 

35,077

 

  

 

33,555

 

  

 

26,377

 

Depreciation and amortization in discontinued operations

  

 

963

 

  

 

2,713

 

  

 

2,219

 

  

 

2,576

 

  

 

1,599

 

Depreciation and amortization in income from unconsolidated joint venture

  

 

486

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

Depreciation and amortization in joint venture discontinued
operations

  

 

7

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

Impairment of assets

  

 

12,472

 

  

 

7,223

 

  

 

—  

 

  

 

—  

 

  

 

5,000

 

Impairment of assets in discontinued operations

  

 

10,828

 

  

 

3,972

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

(Gain) loss on sale of facilities

  

 

—  

 

  

 

(11,245

)

  

 

(1,149

)

  

 

335

 

  

 

(2,321

)

Gain on sale of facilities in discontinued operations

  

 

(2,603

)

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

    


  


  


  


  


Funds from operations available to common stockholders

  

$

87,889

 

  

$

96,481

 

  

$

99,632

 

  

$

99,602

 

  

$

92,726

 

    


  


  


  


  



(1)   We believe that funds from operations is an important supplemental measure of operating performance. We therefore disclose funds from operations, although it is a measurement that is not defined by accounting principles generally accepted in the United States. We generally use the National Association of Real Estate Investment Trusts (NAREIT) measure of funds from operations. We define funds from operations as income before extraordinary items adjusted for certain non-cash items, primarily real estate depreciation, less gains/losses on sales of facilities. Our measure may not be comparable to similarly titled measures used by other REITs. Consequently, our funds from operations may not provide a meaningful measure of our performance as compared to that of other REITs. Funds from operations does not represent cash generated from operating activities as defined by accounting principles generally accepted in the United States (funds from operations does not include changes in operating assets and liabilities) and, therefore, should not be considered as an alternative to net income as the primary indicator of operating performance or to cash flow as a measure of liquidity.

 

 

17


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

To facilitate your review and understanding of this section of our report and the financial statements that follow, we are providing this overview of what management believes are the most important considerations for understanding our company and its business – the key factors that drive our business and the principal associated risks.

 

The Company

 

We are a public equity REIT that invests in senior housing and long-term care properties. As such:

 

    Passive Investments: Our investments are passive – i.e., we do not operate the properties;

 

    Investor Flexibility & Liquidity: Investors desiring to invest in this real estate sector can do so with an investment flexibility and liquidity that is not available in most direct investments; and

 

    No Double Taxation: Our income is not taxed at the corporate level as long as we continue to distribute to our shareholders at least 90% of our taxable income and meet other REIT tax requirements.

 

Business Purpose

 

Our long-term corporate goal is clearly defined – to provide shareholders with an increasing dividend from a safe, secure asset base. Our business model for achieving this goal is equally straightforward. We invest passively in geographically diversified senior housing and long-term care properties (primarily, assisted and independent living facilities and skilled nursing facilities). In making these investments, we generally give equal weighting to facility attributes and operator quality, drawing on our extensive management expertise and experience in this real estate sector. We continue to focus on this sector because we continue to believe in its growth potential, as evidenced by the favorable demographics of a rapidly growing elderly population and the corresponding recognized need for additional and improved senior housing and long-term care alternatives.

 

Operations

 

We primarily make our investments by acquiring an ownership interest in facilities and leasing them to unaffiliated operators under “triple-net” leases that pass all facility operating costs (insurance, property taxes, utilities, maintenance, capital improvements, etc.) through to the tenant operator. In addition, but intentionally to a much lesser extent because we view the risks of this activity to be greater, we from time to time extend mortgage loans to operators. Currently, about 93% or our revenues are derived from our leases, with the remaining 7% coming from our mortgage loans.

 

Last Three Years

 

After a decade of annual increases, our annual dividend has remained at $1.84 per share since 2000. While that is not necessarily negative given the extensive financial difficulties experienced by operators of assisted and independent living facilities and skilled nursing facilities – our core holdings – during that period, which forced many of our competitors focused on the same market sectors to reduce or eliminate their dividend, it is still disappointing to us because it falls short of our long-term corporate goal.

 

Over the last two years, our “funds from operations” (FFO, which is defined and described in more detail below and, like most REITs, is the key measurement tool that management looks to in running our business) decreased almost 12% primarily due to the developments outlined below. Most of this reduction occurred in 2002 when the full impact of these developments was realized. This in turn has increased our FFO dividend payout (i.e., the percent of our FFO that the dividend represents) from 85% in 2000 to 102% for 2002 (although it had improved to 100% for the third and fourth quarter 2002 dividends per share).

 

18


 

We generally use the NAREIT measure of funds from operations. We define funds from operations as income before extraordinary items adjusted for certain non-cash items, primarily real estate depreciation, less gains/losses on sales of facilities. Our measure may not be comparable to similarly titled measures used by other REITs. Consequently, our funds from operations may not provide a meaningful measure of our performance as compared to that of other REITs. Funds from operations does not represent cash generated from operating activities as defined by accounting principles generally accepted in the United States (funds from operations does not include changes in operating assets and liabilities) and, therefore, should not be considered as an alternative to net income as the primary indicator of operating performance or to cash flow as a measure of liquidity.

 

    Operator Financial Problems.    The past three years have been very challenging for many of our tenants as they have had to work through, with varying degrees of success, financial problems largely caused by skilled nursing facility and assisted and independent living facility capital market excesses in the late 1990’s and government funding issues. Overly enamored with the sector’s long-term favorable demographics, a wide range of debt and equity investors flooded this market with large sums of readily available capital that led to excessive levels of operator debt and overbuilding in the late 1990’s.

 

    Skilled Nursing Facilities.    We saw unprecedented debt-financed merger and acquisition activity with the large, publicly traded skilled nursing facility operators at a time when the federal government was changing the structure and amount of its reimbursement program in a way that did not support the debt incurred. This led to a number of bankruptcies of these operators (including five of the seven largest publicly traded skilled nursing facility operators) that depressed this market. This in turn adversely affected us by reducing our FFO as a result of lost revenues from (i) negotiated rent reductions, (ii) lower rentals on re-leased facilities acquired through lease terminations in and out of bankruptcy and (iii) facility closures in a few circumstances, coupled with related bankruptcy and other costs, including substantially increased general and administrative (primarily legal) expenses.

 

    Assisted and Independent Living Facilities.    In our view, investors became “irrationally exuberant” with the assisted and independent living facility senior housing alternative, especially since unlike skilled nursing facilities, there generally were no requirements to obtain a Certificate of Need (CON) or other significant governmental barriers for the construction of new facilities. Consequently, the enormous growth in supply rapidly exceeded market demand. This resulted in newly constructed facilities incurring substantial losses and being unable to pay their rents as they experienced prolonged low occupancy rates. We were forced either to restructure our leases of these facilities or find new operators, in many cases with rent deferrals or reductions to reflect depressed occupancy levels and market conditions. Our FFO in turn was adversely affected because there were less rental revenues to offset the additional interest expense incurred to finance construction and increased restructuring expenses.

 

    Beverly Enterprises Portfolio Restructuring.    In connection with the expiration of the initial term of many of our leases with Beverly Enterprises, Inc. (Beverly), effective January 1, 2000, we restructured our entire leased portfolio of skilled nursing facilities operated by them (which accounted for about 10% of our revenues for 1999). These leases were entered into with Beverly in 1985 through 1987 after we were formed to invest primarily in Beverly’s facilities. The leases contained some provisions not found in our leases today, including the ability of Beverly to selectively renew the leases by “cherry picking” the portfolio. In other words, Beverly was able to enter into new leases with us covering the best performing properties and terminate the leases for about 18 under-performing properties. Given the generally poorer quality of these properties, we in turn were forced to close some of them and re-lease the others for less rent, in several cases to unproven or lower quality operators. Many of these arrangements failed, resulting in further closures and restructurings, and some continue to have problems that may lead to further restructurings (although to a much lesser extent). Our FFO has been adversely impacted by the cumulative effect of this Beverly restructuring.

 

19


 

    Capital Redeployment from Mortgage Loan Prepayments and Purchase Option Exercises.    We experienced a substantial increase in mortgage loan prepayments and purchase option exercises, especially in 2000 and 2001. The mortgage prepayments largely resulted from a program we initiated to make our asset base more safe and secure by increasing the relative mix of leased versus mortgaged properties. Unlike leases, in bankruptcy a debtor does not need to determine timely whether to assign, affirm or reject the mortgage in its entirety or to make mortgage payments timely until it makes that determination, but rather can ignore its obligations, challenge the economics of the mortgage and “cram down” terms – including principal amount, interest rate and payment terms – to those reflecting typically distressed market levels. To lower our overall exposure to this scenario, we encouraged prepayments by waiving any prepayment fees. Our FFO was adversely affected by the mortgage loan prepayments and purchase option exercises because we were unable to replace the significant lost revenues from the high yielding leases and loans. Rather, because there were not any desirable new investments available to us at that time (in fact, not until 2002), we instead were forced to re-deploy the capital to fulfill existing construction commitments for new assisted and independent living facilities that were not yet yielding revenue and otherwise pay down our lower-cost debt.

 

    Restricted Growth.    Because of the factors noted above, we have had no net internal growth in revenues from our existing portfolio over the past three years and have seen our FFO decrease. Similarly, we had virtually no external growth in revenues from acquisitions during 2000 and 2001. In 2002, a number of attractive investment opportunities became available largely as a result of industry-wide restructurings. To supplement our capital sources and take advantage of these opportunities, we formed a joint venture with an institutional investor. By the end of 2002, we had made a total of about $288 million in new investments, $165 million for our own account and $123 million by our joint venture. It was primarily the addition of revenues from these acquisitions that enabled us to cover our $0.46 per share dividend by the end of the third quarter, as noted above.

 

Focus and Outlook for 2003

 

Our focus for 2003 is on maintaining our current dividend and endeavoring to increase our FFO to provide greater dividend coverage. In that regard, we are cautiously optimistic about our internal growth prospects for 2003. We believe that the worst of the restructurings is behind us and, accordingly, that the annual rent increases built into our leases should overcome any reasonably foreseeable further restructurings. We expect this modest internal growth to be bolstered by rents received from restructured leases and loans that produced little or no revenue for all or most of 2002. Many of these involve the newly constructed assisted and independent living facilities referred to above that are beginning to see increased occupancies now that further development has substantially moderated. Because maintaining our investment grade rating is of paramount importance to us, we do not desire to increase our debt levels materially until we raise further equity capital. However, in our view equity capital currently is not available at a reasonable price, so we see little potential for external growth for our own account until that changes.

 

In management’s view, there are two principal near term risks we face in maintaining and then growing our dividend. The first is more serious operator financial problems leading to more extensive restructurings or tenant disruptions than we currently expect. This could be unique to a particular operator – such as if Alterra is unable to emerge from bankruptcy with our leases intact. On the other hand, it could be more industry wide, such as further federal or state governmental reimbursement reductions in the case of our skilled nursing facilities as governments work through their budget deficits, continuing reduced occupancies or slow lease-ups for our assisted and independent living facilities due to general economic and other factors, continuing increases in liability, workers compensation and other insurance premiums and other expenses. The second principal near term risk is a continued depressed stock price that inhibits our ability to grow externally by taking advantage of what we expect will be the availability of a number of attractive investments in the near term.

 

20


 

Critical Accounting Policies

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact our most critical accounting policies. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates. We believe the following are our most critical accounting policies.

 

Revenue Recognition

 

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

 

Additional rents are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rents are generally calculated and payable monthly or quarterly, and most of our leases contain provisions such that total rent cannot decrease from one year to the next. While the calculations and payments of additional rents contingent upon revenue are generally made on a quarterly basis, SAB No. 101 does not allow for the recognition of such revenue until all possible contingencies have been eliminated. Most of our leases with additional rents contingent upon revenue are structured as quarterly calculations so that all contingencies for revenue recognition have been eliminated at each of our quarterly reporting dates.

 

21


 

Depreciation and Useful Lives of Assets

 

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

 

Asset Impairment

 

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

 

Collectibility of Receivables

 

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

 

Impact of New Accounting Pronouncements

 

In August 2001, SFAS No. 144 was issued. This pronouncement supersedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS No. 121) and a portion of Accounting Principles Board (APB) Opinion No. 30 Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB No. 30) and became effective for us on January 1, 2002. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 as it relates to assets to be held and used and assets to be sold, but adds provisions for assets to be disposed of other than by sale. It also changes the accounting for the disposal of a segment under APB No. 30 by requiring the operations of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from income from continuing operations and reported as discontinued operations. Treating such assets as discontinued operations also requires the reclassification of the

 

22


operations of any such assets for any prior periods presented. The adoption of SFAS No. 144 has not had a material impact on our financial condition or the results of our operations and does not impact net income; however, it has resulted in a caption for discontinued operations being included on our consolidated statements of operations to report the results of operations of assets sold or classified as held for sale during the current period. The prior period statements of operations presented have been reclassified to reflect the results of operations for these same facilities as discontinued operations in the prior periods.

 

Operating Results

 

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

 

Rental income decreased $1,616,000, or 1%, in 2002 as compared to 2001. The decrease was primarily due to reserving straight-lined rent on certain facilities discussed below, the disposal of 29 facilities since January 2001 and rent reductions on certain facilities that were returned to us and leased to other operators in 2001 and 2002. The decrease was partially offset by the acquisition of 46 facilities during 2002, the conversion of eight facilities totaling $39,288,000 from mortgage loans receivable to owned real estate properties since January 1, 2001 and rent increases at existing facilities. Interest and other income decreased by $6,359,000, or 31%, in 2002 as compared to 2001. The decrease was primarily due to the payoff at par of mortgage loans receivable totaling approximately $49,712,000 securing ten facilities, the conversion of eight facilities totaling approximately $39,288,000 from mortgage loans receivable to owned real estate properties mentioned above and principal repayment of notes receivable, all since January 1, 2001. Income from unconsolidated joint venture of $1,187,000 represents our 25% share of the income generated by the joint venture and our management fee of 2.5% of the revenues of the unconsolidated joint venture. Please see the caption “Investment in Unconsolidated Joint Venture” below for more information regarding the unconsolidated joint venture.

 

Interest and amortization of deferred financing costs increased $141,000, or less than 1%, in 2002 as compared to 2001. The increase was primarily due to the issuance of $115,000,000 of fixed rate medium-term notes since January 1, 2001, increases in the balance on our bank line of credit, mortgages totaling $40,000,000 secured by existing buildings since December 2001 and the assumption of a $14,227,000 mortgage note on one facility acquired during the second quarter of 2002. The increase was partially offset by the payoff of $128,150,000 of fixed rate medium-term notes since January 2001 and a reduction in the average interest rates on our bank line of credit. Depreciation and amortization increased $3,702,000, or 11%, in 2002 as compared to 2001. The increase was attributable to increased depreciation on the acquisition of 46 facilities during 2002 and the conversion of eight facilities totaling $49,712,000 from mortgage loans receivable to owned real estate properties since January 1, 2001 offset by the disposal of 29 facilities since January 2001. General and administrative costs increased $393,000, or 5%, in 2002 as compared to 2001 primarily due to approximately $506,000 of expense related to the severance of an executive officer partially offset by a reduction in legal expenses related to the prior bankruptcies of certain operators discussed below under the caption “Information Regarding Certain Operators” and reductions in other general corporate expenses.

 

During 2002, we became aware of facts and circumstances indicating that certain assets may have become impaired. After analyzing the assets and the facts, we recorded an impairment of assets charge in continuing operations totaling $12,472,000. As a result of lower than expected operating results for the first quarter at the former Balanced Care Corporation (BCC) facilities discussed below under the caption “Information Regarding Certain Operators” and six facilities operated by another operator, we changed our estimate of the recoverability of the deferred rent related to these facilities during 2002. We determined that the most appropriate method of recognizing revenues for these facilities, given the recent operating results, is to record revenues only to the extent cash is actually received. Accordingly, we fully reserved the deferred rent balance outstanding and all related notes receivable outstanding, totaling approximately $8,305,000, as part of the impairment of assets charge in continuing operations. In addition, the impairment of assets charge reported in continuing operations also included a reserve of $4,167,000 against a loan previously made to the operator of a large continuing care retirement community in Florida. The collectibility of that loan became uncertain due to developments at the facility during 2002 that we believed might necessitate a change in operators. During 2002, we entered into an agreement with a new operator to take over the facility effective September 1, 2002.

 

23


 

During 2002, we classified ten unoccupied buildings and eight land parcels as assets held for sale. As required by SFAS No. 144, the net book values of these assets have been transferred to assets held for sale and the operations of these assets have been included in discontinued operations for the years ended December 31, 2002, 2001 and 2000. Please see the caption “Impact of New Accounting Pronouncements” above for more information regarding this treatment. The impairment of assets charge in discontinued operations totals $10,828,000 and represents the write-down of 12 of these assets to their individual estimated fair values less costs to sell.

 

Discontinued operations reflects a loss of $7,803,000 in 2002 versus a loss of $3,537,000 in 2001. The loss in 2002 is primarily due to the impairment of assets charge of $10,828,000 discussed above, partially offset by net gains on the sale of operating assets and assets held for sale during the year of $2,603,000. The income of $422,000 for 2002, excluding the impairment of assets and gains on sale of facilities in discontinued operations, reflects the revenues less the depreciation and amortization and other expenses related to the facilities sold or classified as assets held for sale in 2002. The loss in 2001 is primarily due to an impairment of assets charge of $3,972,000 related to the write down of three skilled nursing facilities to their fair values less costs to sell in 2001 that are now reflected in discontinued operations since the facilities were either sold or classified as assets held for sale during 2002. The income of $435,000 for 2001, excluding the impairment of assets in discontinued operations, reflects the revenues less the depreciation and amortization and other expenses related to the facilities sold or classified as assets held for sale in 2002. The income in discontinued operations, excluding the impairment of assets and gains on sale of facilities, is consistent between the two years as there were no significant changes from 2001 to 2002 in the revenues and expenses related to the facilities sold or classified as assets held for sale in 2002.

 

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

 

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

 

Rental income increased $238,000, or less than 1%, in 2001 as compared to 2000. The increase was primarily a result of one development completed during 2001, a full year of revenues earned by investments in additional facilities in 2000, the conversion of three facilities from mortgage loans receivable to owned real estate properties and the reclassification of rental income to discontinued operations related to facilities disposed of or classified as assets held for sale in 2002. The increase was offset by the disposal of 18 facilities during the year, eleven of which were sold in the fourth quarter and a reduction of the rent at certain facilities related to the settlement with certain operators in bankruptcy proceedings as discussed below. Interest and other income decreased by $4,626,000, or 18%, in 2001 as compared to 2000. The decrease was primarily due to the payoff at par of mortgage loans receivable totaling approximately $32,290,000 secured by five facilities, the conversion of three facilities and four land parcels totaling approximately $13,339,000 from mortgage loans receivable to ownership mentioned above and amortization of notes receivable.

 

Interest and amortization of deferred financing costs decreased $3,545,000, or 6%, in 2001 as compared to 2000. The decrease was primarily due to a reduction in overall debt levels accomplished with the funds received from the facility sales and mortgage loan receivable payoffs discussed above, and decreases in the average interest rates on our $100,000,000 bank line of credit. The decrease was partially offset by a reduction in interest

 

24


capitalized on construction projects. Depreciation and amortization decreased $1,920,000, or 5%, in 2001 as compared to 2000. The decrease was primarily attributable to the disposal of 18 facilities during the year and the reclassification of depreciation and amortization to discontinued operations related to facilities disposed of or classified as assets held for sale in 2002, partially offset by three facilities converted from mortgage loans receivable to ownership during 2001 and a full year of depreciation related to facilities acquired in 2000. General and administrative costs increased $1,825,000, or 33%, in 2001 as compared to 2000 primarily due to increases in legal fees and other costs related to five operators in bankruptcy discussed below and general cost increases.

 

During 2001, we recorded an impairment of assets charge of $7,223,000 in continuing operations. This charge included the provision of a reserve against mortgage loans receivable of $1,500,000, the write-off of $1,449,000 of deferred rent related to the facilities returned by BCC discussed below under the caption “Information Regarding Certain Operators” and $4,274,000 of receivable write-offs and reserves against other assets which we believed had become impaired.

 

We recorded a net gain of $11,245,000 in 2001 related to the disposal of 18 facilities during the year.

 

Discontinued operations reflected a loss of $3,537,000 in 2001 versus income of $1,412,000 in 2000. The loss in 2001 is primarily due to an impairment of assets charge of $3,972,000 related to the write-down of three skilled nursing facilities to their fair values less costs to sell in 2001 that are now reflected in discontinued operations because the facilities were either sold or classified as assets held for sale during 2002. The income of $435,000 for 2001, excluding the impairment of assets in discontinued operations, reflects the revenues less the depreciation and amortization and other expenses related to the facilities sold or classified as assets held for sale in 2002. The 2000 amount reflects only the revenues less the depreciation and other expenses related to the facilities sold or classified as assets held for sale in 2002. The decrease in income in discontinued operations, excluding the impairment of assets, is due to lower revenues and higher costs related to the facilities sold or classified as assets held for sale in 2002 as some of these facilities were unoccupied in 2001.

 

Information Regarding Certain Operators

 

We have now concluded our negotiations with all five of our operators that had filed for protection under the United States bankruptcy laws from 1999 to 2001. These operators included Sun Healthcare Group, Inc. (Sun), Mariner Health Care, Inc. (Mariner), Integrated Health Services, Inc. (Integrated), SV/Home Office Inc. and certain affiliates (SV) and Assisted Living Concepts, Inc. (ALC). Over-leveraging of balance sheets, increased wage and salary costs and changes in reimbursement levels during 1999 had an adverse impact on the financial performance of some of the companies that operate skilled nursing facilities we own. In addition, overbuilding in the assisted and independent living sector resulted in lower than anticipated fill rates and rental rates for some of the companies that operate assisted and independent living facilities owned by us. During 2002, Sun, Mariner and ALC emerged from bankruptcy. In March 2002, the bankruptcy court approved our final settlement with Sun that included its assumption of five leases and rejection of one lease. In April 2002, the bankruptcy court approved Mariner’s Second Amended Joint Plan of Reorganization that resulted in us obtaining ownership of the facility securing our only mortgage loan with Mariner. Also in April 2002, the bankruptcy court approved our final settlement with Integrated that resulted in the assumption by Integrated of the amended leases on five facilities and the rejection of two leases. Over the course of these proceedings, (A) Sun has returned 20 facilities and agreed to a master lease of the remaining five facilities involved in the bankruptcy; (B) Mariner has returned 15 facilities, given us a deed in lieu of foreclosure for a facility that secured a mortgage loan receivable and assumed leases on six facilities; (C) Integrated has returned two facilities and agreed to a master lease of the remaining five facilities; (D) SV has agreed to assume the lease on one facility, return one facility and extend for five years its mortgage secured by one facility and we agreed to allow it to sell a second closed facility that previously secured the mortgage; and (E) ALC assumed the leases on two facilities and transferred title to us and signed leases on two facilities that had previously secured mortgage loans receivable from ALC. As of December 31, 2002, we have leased 35 of the 38 facilities returned to us to new operators, as well as the facility for which we received a deed in lieu of foreclosure, sold three facilities and expect to sell the remaining facility. Subsequent to our final settlement, Sun, in February 2003, announced that it had begun a restructuring of its lease portfolio. Sun has approached many of its landlords, including us, in hopes of obtaining rent

 

25


moratoriums, rent concessions or lease terminations for certain of its leased facilities. While we cannot predict the final outcome of Sun’s restructuring process, it is possible there may be rent concessions, or, some or all of the five remaining facilities we lease to Sun may be returned to us. We believe we have identified parties interested in leasing any of these facilities that might be returned to us, however, the return of the facilities or rent concessions could result in lower rental rates.

 

In October 2002, one operator of five of our facilities which were previously leased by Beverly, Alpha Healthcare Foundation, Inc. (Alpha) filed for protection under the United States bankruptcy laws. Under bankruptcy statutes, the tenant must either assume our leases or reject them and return the properties to us. If the tenant assumes the leases, it is required to assume the leases under the existing terms; the court cannot change the rental amount or other lease provisions that could financially impact us. The tenant’s decision whether to assume leases is usually based primarily on whether the properties it operates are providing positive cash flows. To date, Alpha has rejected the lease on one facility that the state it was located in decided to close. This facility was classified as held for sale and written down to its fair value less costs to sell as part of the impairment of assets charge in discontinued operations. Three of the four remaining facilities provide adequate cash flows to cover the rent under the lease, but there is a possibility that the tenant may decide to reject the leases on any or all of these properties. While we believe we have identified parties interested in leasing these facilities, any new leases may be at lower rental rates. All rent due after the filing date has been paid.

 

In January 2003, Alterra, our largest operator, filed for protection under the United States bankruptcy laws. Alterra operates 59 of our facilities, 52 of which are under a master lease with six other individual leases and one mortgage loan receivable cross-defaulted to it, and all 49 of the facilities owned by our joint venture which are under two master leases. We understand that Alterra has been restructuring out of court for over two years with a goal of going into the final bankruptcy phase with a selected portfolio of properties that for the most part is intended to be the core of its restructured business. Based on discussions we have had with Alterra, we expect that it will continue to pay the rent on and affirm all of our leases. The two master leases in the joint venture, our master lease and six of our seven leases cross-defaulted with our master lease generate sufficient cash flows to cover the rent due under the leases. Alterra has paid all monthly rent to date on a timely basis. If Alterra decides to reject the leases, we believe we could lease the facilities covered by the leases to a new operator at rates substantially consistent with what we currently receive, however, it is possible that any such new leases may be at lower rental rates.

 

Effective April 1, 2001, we leased ten facilities that had previously been leased by BCC to a new private operator, Senior Services of America, after BCC defaulted on its leases in December 2000. The facilities were constructed and opened during 1999 and 2000 with an aggregate investment of approximately $68,712,000. The BCC leases were terminated effective as of January 1, 2001. During 2001, we recognized revenues on a straight-lined basis related to these buildings in excess of cash received of approximately $5,200,000. As a result of lower than expected operating results in 2002, we fully reserved the deferred rent receivable balance outstanding as discussed above under the caption “Operating Results” and are now recognizing revenue from this lease on a cash basis.

 

Investment in Unconsolidated Joint Venture

 

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

 

In 2002, the joint venture acquired 52 assisted living facilities in 12 states for a total cost of approximately $123,200,000 that are leased to Alterra. The joint venture also incurred deferred financing costs of approximately

 

26


$1,900,000 and is committed to fund an additional $2,000,000 of capital improvements. The acquisitions were financed with secured non-recourse debt of approximately $60,860,000, a capital contribution from our joint venture partner of approximately $49,100,000 and a capital contribution from us of approximately $16,400,000. In October 2002, the joint venture sold three facilities for $2,100,000, or approximately their book value. We do not expect to make any additional contributions to the joint venture related to the facilities it acquired during 2002.

 

Liquidity and Capital Resources

 

During 2002, we acquired 34 skilled nursing facilities, eleven assisted and independent living facilities and one continuing care retirement community in six separate transactions for an aggregate investment of approximately $165,428,000, including the assumption of approximately $14,227,000 of secured debt on one facility. Additionally, we funded approximately $13,870,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. Such capital improvements generally result in an increase in the minimum rents earned by us on these facilities. The acquisitions and capital improvements were funded by the issuance of $100,000,000 of fixed rate medium-term notes, borrowings on our bank line of credit and cash on hand.

 

During 2002, we sold eleven buildings and one land parcel in twelve separate transactions for aggregate cash proceeds of approximately $14,359,000. We also recorded receivables totaling approximately $2,000,000 related to three of these sales. We provided a mortgage loan with a net amount of $6,409,000 related to the sale of one of the skilled nursing facilities. Three buildings were written down to their estimated fair value less costs to sell during 2001 and two buildings and the land parcel were written down during 2002. The sale of these buildings resulted in an aggregate gain of $2,603,000 that is included in discontinued operations on the consolidated statement of operations. The proceeds from the sales were used to repay borrowings on our bank line of credit.

 

During 2002, one mortgage loan receivable with an aggregate net book value of approximately $3,815,000 secured by one skilled nursing facility and one continuing care retirement community was prepaid in full. In addition, portions of three mortgage loans receivable totaling $13,607,000 secured by two skilled nursing facilities, one assisted and independent living facility and one continuing care retirement community were also prepaid at par. The proceeds from the repayments were used to repay borrowings on our bank line of credit.

 

During 2002, we repaid $50,000,000 in aggregate principal amount of medium-term notes. The notes bore fixed interest at a weighted average interest rate of 7.35%. We funded the repayments with borrowings on our bank line of credit, cash on hand and the issuance of $100,000,000 in aggregate principal amount of medium-term notes that bear interest at a fixed rate of 8.25% and mature on July 1, 2012. We have $66,000,000 of medium-term notes maturing in the second and third quarters of 2003. In addition, $40,000,000 of medium-term notes with a rate of 6.59% due in 2038 may be put back to us at their face amounts at the option of the holders on July 7, 2003 and $41,500,000 of medium-term notes with a rate of 7.6% due in 2028 may be put back to us at their face amounts at the option of the holders on November 20, 2003. While we do not expect these notes will be put back to us because the holders’ next put opportunity is in five years and we believe the current interest coupon on these notes exceeds the rate at which we believe we could currently issue 5-year notes, the holders may elect to do so. We anticipate repaying the medium-term notes maturing and any that are put back to us with a combination of additional medium-term notes under the shelf registration statements discussed below, borrowings on our bank line of credit, cash on hand, potential mortgage loans receivable payoffs and asset sales, the potential issuance of common stock or cash from operations. Our medium-term notes have been investment grade rated since 1994. Our current ratings are Baa3 from Moody’s, BBB- from Standard & Poor’s and BBB from Fitch.

 

During 2002, we issued 1,000,000 shares of common stock to Cohen & Steers Quality Income Realty Fund, Inc. and 869,565 shares of common stock to a unit investment trust sponsored by Salomon Smith Barney. The shares were sold based on the market closing price of our stock of $19.58 on February 25, 2002 and resulted in net proceeds of approximately $34,609,000 after underwriting, legal and other fees of approximately $1,997,000. The proceeds received were used to repay borrowings on our bank line of credit.

 

27


 

During 2002, we arranged for a new $150,000,000 unsecured revolving credit facility, maturing November 7, 2005, that replaced our previous $100,000,000 bank line of credit. At December 31, 2002, we had $43,000,000 available under our $150,000,000 unsecured bank line of credit. At our option, borrowings under the bank line of credit bear interest at prime or at LIBOR plus 1.2%. We pay a facility fee of 0.3% per annum on the total commitment under the bank line of credit. Under covenants contained in the credit agreement, we are required to maintain, among other things: (i) a minimum net asset value of $500,000,000; (ii) a ratio of total indebtedness to capitalization value of not more than 60%; (iii) an interest coverage ratio of at least 2.5 to 1.0; (iv) a fixed charge coverage ratio of at least 1.75 to 1.0; (v) a secured indebtedness ratio of not more than 15%; (vi) an unsecured interest coverage ratio of at least 2.5 to 1.0; (vii) floating rate debt of no more than 25% of total debt; (viii) an unencumbered asset value ratio of no more than 60%; and (ix) a minimum rent/mortgage interest coverage ratio of at least 1.25 to 1.0. As of December 31, 2002, we were in compliance with all of the above covenants.

 

During 2002, we obtained $10,000,000 of mortgage financing for one year at a floating rate of not less than 7.25% secured by two assisted living facilities. We used the proceeds to repay borrowings on our bank line of credit.

 

At December 31, 2002, we have shelf registration statements on file with the SEC under which we may issue (a) up to $316,000,000 in aggregate principal amount of medium-term notes and (b) up to $123,640,000 of securities including debt, convertible debt, common and preferred stock.

 

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

 

As of December 31, 2002, our contractual obligations are as follows:

 

    

2003


  

2004 - 2005


  

2006 - 2007


  

Thereafter


  

Total


    

(In thousands)

Contractual Obligations:

                                  

Long Term Debt

  

$

78,167

  

$

210,105

  

$

152,722

  

$

392,059

  

$

833,053

    

  

  

  

  

Commitments:

                                  

Capital Expenditures

  

$

25,000

  

$

4,000

  

 

—  

  

 

—  

  

$

29,000

    

  

  

  

  

 

We do not anticipate making any significant acquisitions of healthcare related facilities or significant additional investments beyond our actual commitments during 2003 as access to equity capital is not currently available under favorable terms as discussed in more detail under the caption “Overview” above. The level of our new investments has been depressed during the prior four years, although we did make significant acquisitions during 2002. Financing for future investments may be provided by borrowings under our bank line of credit, private placements or public offerings of debt or equity, the assumption of secured indebtedness, obtaining mortgage financing on a portion of our owned portfolio or through joint ventures. We anticipate the potential repayment of certain mortgage loans receivable and the possible sale of certain facilities during 2003. In the event that there are mortgage loan receivable repayments or facility sales in excess of new investments, revenues may decrease. We anticipate using the proceeds from any mortgage loans receivable repayments or facility sales to reduce the outstanding balance on our bank line of credit, to repay other borrowings as they mature or to provide capital for future investments. Any such reduction in debt levels would result in reduced interest expense that we believe would partially offset any decrease in revenues. We believe we have sufficient liquidity and financing capability to finance anticipated future investments, maintain our current dividend level and repay borrowings at or prior to their maturity, for at least the next twelve months.

 

28


 

Statement Regarding Forward Looking Disclosure

 

Certain information contained in this report includes forward-looking statements. Forward looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. These statements may be identified, without limitation, by the use of forward looking terminology such as “may”, “will”, “anticipates”, “expects”, “believes”, “intends”, “should” or comparable terms or the negative thereof. All forward-looking statements included in this report are based on information available to us on the date hereof. Such statements speak only as of the date hereof and we assume no obligation to update such forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include (without limitation) the following:

 

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

 

    the general distress of the healthcare industry;

 

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

 

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

 

    our ability to attract new operators for certain facilities;

 

    occupancy levels at certain facilities;

 

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

 

    our ability to sell certain facilities for their book value;

 

    the amount and yield of any additional investments;

 

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

 

    access to the capital markets and the cost of capital;

 

    changes in the ratings of our debt securities;

 

    and the risk factors set forth under the caption “Risk Factors” in Item 1.

 

Item 7a.    Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risks related to fluctuations in interest rates on our mortgage loans receivable and debt. We do not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. The purpose of the following analyses is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of December 31, 2002. Readers are cautioned that many of the statements contained in these paragraphs are forward looking and should be read in conjunction with our disclosures under the heading “Statement Regarding Forward Looking Disclosure” set forth above.

 

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

 

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

 

29


 

A portion of our secured debt is variable rate debt in the form of housing revenue bonds that were assumed in connection with the acquisition of certain healthcare facilities. Pursuant to the associated lease arrangements, increases or decreases in the interest rates on the housing revenue bonds would be substantially offset by increases or decreases in the rent received by us on the properties securing this debt. Therefore, there is substantially no market risk associated with this variable rate secured debt.

 

We have $10,000,000 of secured debt at a floating rate with a floor of 7.25% that has been at the floor since it was issued in 2002. We do not believe there is any significant market risk related to this debt as it matures in 2003.

 

For fixed rate debt, changes in interest rates generally affect the fair market value, but do not impact earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair market value, but do affect the future earnings and cash flows. We generally cannot prepay fixed rate debt prior to maturity. Therefore, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until we would be required to refinance such debt. Holding the variable rate debt balance constant, and including the bank borrowings as variable rate debt due to its nature, each one percentage point increase in interest rates would result in an increase in interest expense for the coming year of approximately $1,290,000.

 

The table below details the principal amounts and the average interest rates for the mortgage loans receivable and debt for each category based on the final maturity dates. Certain of the mortgage loans receivable and certain items in the various categories of debt require periodic principal payments prior to the final maturity date. The fair value estimates for the mortgage loans receivable are based on the estimates of management and on rates currently prevailing for comparable loans. The fair market value estimates for debt securities are based on discounting future cash flows utilizing current rates offered to us for debt of a similar type and remaining maturity.

 

    

Maturity Date


    

2003


    

2004


    

2005


    

2006


    

2007


    

Thereafter


    

Total


    

Fair Value


    

(Dollars in thousands)

Assets

                                                                     

Mortgage loans receivable

  

$

2,658

 

  

 

—  

 

  

$

4,882

 

  

$

14,206

 

  

$

17,909

 

  

$

59,637

 

  

$

99,292

 

  

$

99,146

Average interest rate

  

 

10.88

%

  

 

—  

 

  

 

11.91

%

  

 

10.56

%

  

 

10.73

%

  

 

10.02

%

  

 

10.36

%

      

Liabilities

                                                                     

Debt

                                                                     

Fixed rate

  

$

66,000

 

  

$

67,750

 

  

$

32,019

 

  

$

63,500

 

  

$

85,000

 

  

$

389,816

 

  

$

704,085

 

  

$

700,135

Average interest rate

  

 

7.49

%

  

 

9.08

%

  

 

8.20

%

  

 

7.42

%

  

 

7.40

%

  

 

7.62

%

  

 

7.73

%

      

Variable rate

  

$

10,000

 

  

 

—  

 

  

 

—  

 

  

 

—  

 

           

$

11,968

 

  

$

21,968

 

  

$

21,968

Average interest rate

  

 

7.25

%

  

 

—  

 

  

 

—  

 

  

 

—  

 

           

 

1.77

%

  

 

4.26

%

      

Bank borrowings

  

 

—  

 

  

 

—  

 

  

$

107,000

 

  

 

—  

 

           

 

—  

 

  

$

107,000

 

  

$

107,000

Average interest rate

  

 

—  

 

  

 

—  

 

  

 

2.89

%

  

 

—  

 

           

 

—  

 

  

 

2.89

%

      

 

Decreases in interest rates during 2002 resulted in a decrease in interest expense related to our bank line of credit. These interest rate decreases have made it less expensive for us to borrow on our bank line of credit. Any future interest rate increases will increase the cost of borrowings on our bank line of credit and any borrowings to refinance long-term debt as it matures or finance future acquisitions.

 

30


Item 8.    Financial Statements and Supplementary Data.

 

Report of Independent Auditors

  

32

Consolidated Balance Sheets

  

33

Consolidated Statements of Operations

  

34

Consolidated Statements of Stockholders’ Equity

  

35

Consolidated Statements of Cash Flows

  

36

Notes to Consolidated Financial Statements

  

37

 

 

31


REPORT OF INDEPENDENT AUDITORS

 

To the Board of Directors and Stockholders of

    Nationwide Health Properties, Inc.:

 

We have audited the accompanying consolidated balance sheets of Nationwide Health Properties, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule beginning on page 56. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nationwide Health Properties, Inc. as of December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

/s/    ERNST & YOUNG LLP

 

Irvine, California

January 24, 2003

 

32


NATIONWIDE HEALTH PROPERTIES, INC.

 

CONSOLIDATED BALANCE SHEETS

 

    

December 31,


 
    

2002


    

2001


 
    

(In thousands)

 

A S S E T S


             

Investments in real estate

                 

Real estate properties:

                 

Land

  

$

154,563

 

  

$

144,869

 

Buildings and improvements

  

 

1,299,625

 

  

 

1,150,780

 

    


  


    

 

1,454,188

 

  

 

1,295,649

 

Less accumulated depreciation

  

 

(224,400

)

  

 

(207,136

)

    


  


    

 

1,229,788

 

  

 

1,088,513

 

Mortgage loans receivable, net

  

 

99,292

 

  

 

140,474

 

Investment in unconsolidated joint venture

  

 

16,115

 

  

 

—  

 

    


  


    

 

1,345,195

 

  

 

1,228,987

 

Cash and cash equivalents

  

 

8,387

 

  

 

9,062

 

Receivables

  

 

4,429

 

  

 

9,274

 

Assets held for sale

  

 

9,682

 

  

 

—  

 

Other assets

  

 

42,240

 

  

 

42,515

 

    


  


    

$

1,409,933

 

  

$

1,289,838

 

    


  


L I A B I L I T I E S  A N D  S T O C K H O L D E R S ’  E Q U I T Y


             

Borrowings under unsecured revolving credit facility

  

$

107,000

 

  

$

35,000

 

Senior notes due 2003-2038

  

 

614,750

 

  

 

564,750

 

Notes and bonds payable

  

 

111,303

 

  

 

91,590

 

Accounts payable and accrued liabilities

  

 

47,740

 

  

 

43,186

 

Commitments and contingencies

                 

Stockholders’ equity:

                 

Preferred stock $1.00 par value; 5,000,000 shares authorized; issued and outstanding: 1,000,000 as of December 31, 2002 and 2001; stated at liquidation preference of $100 per share

  

 

100,000

 

  

 

100,000

 

Common stock $0.10 par value; 100,000,000 shares authorized; issued and outstanding: 49,160,216 and 47,240,651 as of December 31, 2002 and 2001, respectively

  

 

4,916

 

  

 

4,724

 

Capital in excess of par value

  

 

610,173

 

  

 

574,829

 

Cumulative net income

  

 

680,511

 

  

 

643,957

 

Cumulative dividends

  

 

(866,460

)

  

 

(768,198

)

    


  


Total stockholders’ equity

  

 

529,140

 

  

 

555,312

 

    


  


    

$

1,409,933

 

  

$

1,289,838

 

    


  


 

 

See accompanying notes.

 

33


NATIONWIDE HEALTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

    

Years ended December 31,


 
    

2002


    

2001


    

2000


 

Revenues:

                          

Rental income

  

$

141,020

 

  

$

142,636

 

  

$

142,398

 

Interest and other income

  

 

14,254

 

  

 

20,613

 

  

 

25,239

 

Income from unconsolidated joint venture

  

 

1,187

 

  

 

—  

 

  

 

—  

 

    


  


  


    

 

156,461

 

  

 

163,249

 

  

 

167,637

 

    


  


  


Expenses:

                          

Interest and amortization of deferred financing costs

  

 

54,987

 

  

 

54,846

 

  

 

58,391

 

Depreciation and amortization

  

 

36,859

 

  

 

33,157

 

  

 

35,077

 

General and administrative

  

 

7,786

 

  

 

7,393

 

  

 

5,568

 

Impairment of assets

  

 

12,472

 

  

 

7,223

 

  

 

—  

 

    


  


  


    

 

112,104

 

  

 

102,619

 

  

 

99,036

 

    


  


  


Income from continuing operations

  

 

44,357

 

  

 

60,630

 

  

 

68,601

 

Gain on sale of facilities

  

 

—  

 

  

 

11,245

 

  

 

1,149

 

Discontinued operations

  

 

(7,803

)

  

 

(3,537

)

  

 

1,412

 

    


  


  


Net income

  

 

36,554

 

  

 

68,338

 

  

 

71,162

 

Preferred stock dividends

  

 

(7,677

)

  

 

(7,677

)

  

 

(7,677

)

    


  


  


Income available to common stockholders

  

$

28,877

 

  

$

60,661

 

  

$

63,485

 

    


  


  


Per share amounts:

                          

Basic/diluted income from continuing operations available to common stockholders

  

$

0.75

 

  

$

1.13

 

  

$

1.32

 

Basic/diluted income available to common stockholders

  

$

0.59

 

  

$

1.30

 

  

$

1.37

 

    


  


  


Diluted weighted average shares outstanding

  

 

48,869

 

  

 

46,836

 

  

 

46,228

 

    


  


  


 

 

 

See accompanying notes.

 

34


NATIONWIDE HEALTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

   

Preferred Stock


 

Common stock


 

Capital in

excess of

par value


 

Cumulative

net income


 

Cumulative

dividends


    

Total

stockholders’

equity


 
   

Shares


 

Amount


 

Shares


 

Amount


        

Balances at December 31, 1999

 

1,000

 

$

100,000

 

46,216

 

$

4,622

 

$

556,373

 

$

504,457

 

$

(579,862

)

  

$

585,590

 

Issuance of common stock

 

—  

 

 

—  

 

10

 

 

1

 

 

225

 

 

—  

 

 

—  

 

  

 

226

 

Stock option amortization

 

—  

 

 

—  

 

—  

 

 

—  

 

 

60

 

 

—  

 

 

—  

 

  

 

60

 

Net income

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

71,162

 

 

—  

 

  

 

71,162

 

Preferred dividends

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(7,677

)

  

 

(7,677

)

Common dividends

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(85,889

)

  

 

(85,889

)

   
 

 
 

 

 

 


  


Balances at December 31, 2000

 

1,000

 

 

100,000

 

46,226

 

 

4,623

 

 

556,658

 

 

575,619

 

 

(673,428

)

  

 

563,472

 

Issuance of common stock

 

—  

 

 

—  

 

1,015

 

 

101

 

 

18,083

 

 

—  

 

 

—  

 

  

 

18,184

 

Stock option amortization

 

—  

 

 

—  

 

—  

 

 

—  

 

 

88

 

 

—  

 

 

—  

 

  

 

88

 

Net income

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

68,338

 

 

—  

 

  

 

68,338

 

Preferred dividends

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(7,677

)

  

 

(7,677

)

Common dividends

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(87,093

)

  

 

(87,093

)

   
 

 
 

 

 

 


  


Balances at December 31, 2001

 

1,000

 

 

100,000

 

47,241

 

 

4,724

 

 

574,829

 

 

643,957

 

 

(768,198

)

  

 

555,312

 

Issuance of common stock

 

—  

 

 

—  

 

1,919

 

 

192

 

 

35,196

 

 

—  

 

 

—  

 

  

 

35,388

 

Stock option amortization

 

—  

 

 

—  

 

—  

 

 

—  

 

 

148

 

 

—  

 

 

—  

 

  

 

148

 

Net income

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

36,554

 

 

—  

 

  

 

36,554

 

Preferred dividends

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(7,677

)

  

 

(7,677

)

Common dividends

 

—  

 

 

—  

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(90,585

)

  

 

(90,585

)

   
 

 
 

 

 

 


  


Balances at December 31, 2002

 

1,000

 

$

100,000

 

49,160

 

$

4,916

 

$

610,173

 

$

680,511

 

$

(866,460

)

  

$

529,140

 

   
 

 
 

 

 

 


  


 

 

See accompanying notes.

 

35


NATIONWIDE HEALTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    

Years ended December 31,


 
    

2002


    

2001


    

2000


 

Cash flows from operating activities:

                          

Net income

  

$

36,554

 

  

$

68,338

 

  

$

71,162

 

Depreciation and amortization

  

 

36,859

 

  

 

33,157

 

  

 

35,077

 

Depreciation and amortization in discontinued operations

  

 

963

 

  

 

2,713

 

  

 

2,219

 

Gain on sale of facilities

  

 

—  

 

  

 

(11,245

)

  

 

(1,149

)

Gain on sale of facilities in discontinued operations

  

 

(2,603

)

  

 

—  

 

  

 

—  

 

Impairment of assets

  

 

12,472

 

  

 

7,223

 

  

 

—  

 

Impairment of assets in discontinued operations

  

 

10,828

 

  

 

3,972

 

  

 

—  

 

Amortization of deferred financing costs

  

 

1,031

 

  

 

952

 

  

 

1,011

 

Net change in other assets and liabilities

  

 

(10,440

)

  

 

(21,923

)

  

 

(8,380

)

    


  


  


Net cash provided by operating activities

  

 

85,664

 

  

 

83,187

 

  

 

99,940

 

    


  


  


Cash flows from investing activities:

                          

Investment in real estate facilities

  

 

(165,071

)

  

 

(7,412

)

  

 

(20,843

)

Disposition of real estate facilities

  

 

14,359

 

  

 

50,831

 

  

 

21,004

 

Investment in unconsolidated joint venture

  

 

(16,375

)

  

 

—  

 

  

 

—  

 

Investment in mortgage loans receivable

  

 

—  

 

  

 

(2,261

)

  

 

(2,929

)

Principal payments on mortgage loans receivable

  

 

19,461

 

  

 

34,563

 

  

 

14,026

 

    


  


  


Net cash provided by (used in) investing activities

  

 

(147,626

)

  

 

75,721

 

  

 

11,258

 

    


  


  


Cash flows from financing activities:

                          

Borrowings under unsecured revolving credit facility

  

 

300,500

 

  

 

209,300

 

  

 

180,800

 

Repayment of borrowings under unsecured revolving credit facility

  

 

(228,500

)

  

 

(253,300

)

  

 

(177,100

)

Issuance of senior unsecured debt

  

 

100,000

 

  

 

15,000

 

  

 

—  

 

Repayments of senior unsecured debt

  

 

(50,000

)

  

 

(78,150

)

  

 

(30,000

 

Issuance of notes and bonds payable

  

 

10,000

 

  

 

30,000

 

  

 

—  

 

Principal payments on notes and bonds payable

  

 

(4,704

)

  

 

(1,262

)

  

 

(1,082

)

Issuance of common stock, net

  

 

35,194

 

  

 

18,034

 

  

 

—  

 

Dividends paid

  

 

(98,262

)

  

 

(94,770

)

  

 

(93,566

)

Other, net

  

 

(2,941

)

  

 

(847

)

  

 

(240

)

    


  


  


Net cash provided by (used in) financing activities

  

 

61,287

 

  

 

(155,995

)

  

 

(121,188

)

    


  


  


Increase (decrease) in cash and cash equivalents

  

 

(675

)

  

 

2,913

 

  

 

(9,990

)

Cash and cash equivalents, beginning of period

  

 

9,062

 

  

 

6,149

 

  

 

16,139

 

    


  


  


Cash and cash equivalents, end of period

  

$

8,387

 

  

$

9,062

 

  

$

6,149

 

    


  


  


Supplemental schedule of cash flow information:

                          

Cash interest paid

  

$

50,235

 

  

$

55,149

 

  

$

57,995

 

    


  


  


 

See accompanying notes.

 

36


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2002, 2001 and 2000

 

1.    Organization

 

Nationwide Health Properties, Inc. was incorporated on October 14, 1985 in the State of Maryland. Whenever we refer herein to “the Company” or to “us” or use the terms “we” or “our,” we are referring to Nationwide Health Properties, Inc. We operate as a real estate investment trust specializing in investments in health care related senior housing and long-term care properties and, as of December 31, 2002, had investments in 387 health care facilities. At December 31, 2002, we owned 158 skilled nursing facilities, 132 assisted and independent living facilities, 11 continuing care retirement communities, one rehabilitation hospital, one long-term acute care hospital and five buildings held for sale. We also held 24 mortgage loans secured by 25 skilled nursing facilities, four assisted and independent living facilities and one continuing care retirement community. We have a 25% interest in a joint venture that owns 49 assisted living facilities. We have no foreign facilities or operations.

 

2.    Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its investment in its majority owned and controlled joint ventures. All material intercompany accounts and transactions have been eliminated. Certain items in prior period financial statements have been reclassified to conform to current year presentation, including those required by Statement of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).

 

Land, Buildings and Improvements

 

We record properties at cost and use the straight-line method of depreciation for buildings and improvements over their estimated remaining useful lives of up to 40 years, generally 30 to 40 years. We review and adjust facility useful lives periodically. We evaluate our properties for potential impairment in accordance with SFAS No. 144 by comparing our net book values to the expected future cash flows from the properties.

 

Cash and Cash Equivalents

 

Cash in excess of daily requirements is invested in money market mutual funds, commercial paper and repurchase agreements with original maturities of three months or less. Such investments are deemed to be cash equivalents for purposes of presentation in the financial statements.

 

Federal Income Taxes

 

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

 

Revenue Recognition

 

Rental income from operating leases is accrued as earned over the life of the lease agreements in accordance with accounting principles generally accepted in the United States. The majority of our leases do not contain step

 

37


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

rent provisions. Interest income on real estate mortgages is recognized using the effective interest method based upon the expected payments over the lives of the mortgages. Additional rent and additional interest, included in the captions “Rental income” and “Interest and other income,” respectively, are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rent and interest are generally calculated and payable monthly or quarterly, and the majority of our leases contain provisions such that total rent cannot decrease from one year to the next. While the calculations and payments are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (SAB No. 101) does not allow for the recognition of such revenue until all possible contingencies have been eliminated. Most of our leases with additional rents contingent upon revenue are structured as quarterly calculations so that all contingencies for revenue recognition have been eliminated at each of our quarterly reporting dates.

 

We have historically deferred the payment of rent for the first few months on leases for certain buildings we have constructed. These deferred amounts are repaid over the remainder of the lease term. During 2001, we began, in certain instances, to provide similar terms for leases on buildings that we have taken or received back from certain operators. Although the payment of cash rent is deferred, rental income is recorded on a straight-line basis over the life of the lease. We evaluate the collectibility of the deferred rent balances on an ongoing basis and provide reserves against receivables that may not be fully recoverable. We currently have reserves against 50% of our deferred rent balance. We recognized approximately $2,400,000, $7,200,000, and $700,000 of revenues in excess of cash rent received during 2002, 2001 and 2000, respectively and there is approximately $8,979,000 and $12,700,000 of deferred rent, net of reserves, recorded under the caption “Other assets” on the balance sheet at December 31, 2002 and 2001, respectively. The ultimate amount of deferred rent we realize could be less than amounts recorded. For more detail regarding deferred rent impairments and reserves, see Note 15 below.

 

Accounting for Stock-Based Compensation

 

In 1999, we adopted the accounting provisions of SFAS No. 123 Accounting for Stock-Based Compensation (SFAS No. 123). SFAS No. 123 established a fair value based method of accounting for stock-based compensation. Accounting for stock-based compensation under SFAS No. 123 causes the fair value of stock options granted to be amortized into expense over the vesting period of the stock and causes any dividend equivalents earned to be treated as dividends for financial reporting purposes.

 

Capitalization of Interest

 

We capitalize interest on facilities under construction. The capitalization rates used are based on rates for our senior unsecured notes and bank line of credit, as applicable. Capitalized interest in 2002, 2001 and 2000 was $554,000, $613,000, and $1,245,000 respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

38


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

Fair Value of Financial Instruments

 

The carrying amount of cash and cash equivalents approximates fair value because of the short maturities of these instruments. The fair values of mortgage loans receivable are based upon the estimates of management and on rates currently prevailing for comparable loans, and approximates the carrying amount. The fair value of long-term debt is estimated based on discounting future cash flows utilizing current rates offered to us for debt of a similar type and remaining maturity, and approximates the carrying amount.

 

Impact of New Accounting Pronouncements

 

In August 2001, SFAS No. 144 was issued. This pronouncement supersedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS No. 121) and a portion of Accounting Principles Board (APB) Opinion No. 30 Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB No. 30) and became effective for us on January 1, 2002. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 as it relates to assets to be held and used and assets to be sold, but adds provisions for assets to be disposed of other than by sale. It also changes the accounting for the disposal of a segment under APB No. 30 by requiring the operations, including any depreciation in the period, of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from income from continuing operations and reported as discontinued operations. Treating such assets as discontinued operations also requires the reclassification of the operations, including any depreciation, of any such assets for any prior periods presented. The adoption of SFAS No. 144 has not had a material impact on our financial condition or the results of our operations and does not impact net income; however, it has resulted in a caption for discontinued operations being included on our consolidated statements of operations to report the results of operations of assets sold or classified as held for sale during the current period. The prior period statements of operations presented have been reclassified to reflect the results of operations for these same facilities as discontinued operations.

 

3.    Earnings Per Share (EPS)

 

Basic EPS is computed by dividing income from continuing operations available to common stockholders by the weighted average common shares outstanding. Income from continuing operations available to common stockholders is calculated by deducting dividends declared on preferred stock from income from continuing operations. Diluted EPS includes the effect of any potential shares outstanding, which for us is only comprised of dilutive stock options. The calculation below excludes 307,000, 361,500 and 404,000 of stock options with option prices that would not be dilutive in 2002, 2001 and 2000, respectively. The table below details the components of the basic and diluted EPS from continuing operations available to common stockholders calculations:

 

    

Years Ended December 31,


    

2002


  

2001


  

2000


    

Income


    

Shares


  

Income


    

Shares


  

Income


    

Shares


    

(Amounts in thousands)

Income from continuing operations

  

$

44,357

 

       

$

60,630

 

       

$

68,601

 

    

Less: preferred stock dividends

  

 

(7,677

)

       

 

(7,677

)

       

 

(7,677

)

    
    


       


       


    

Amounts used to calculate Basic EPS

  

 

36,680

 

  

48,829

  

 

52,953

 

  

46,793

  

 

60,924

 

  

46,226

Effect of dilutive securities:

                                         

Stock options

  

 

—  

 

  

40

  

 

—  

 

  

43

  

 

—  

 

  

2

    


  
  


  
  


  

Amounts used to calculate Diluted EPS

  

$

36,680

 

  

48,869

  

$

52,953

 

  

46,836

  

$

60,924

 

  

46,228

    


  
  


  
  


  

 

39


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

4.    Real Estate Properties

 

Substantially all of our owned facilities are leased under “triple-net” leases which are accounted for as operating leases. The leases generally have initial terms ranging from five to 21 years, and generally have two or more multiple-year renewal options. Approximately 79% of our facilities are leased under master leases. In addition, the majority of our leases contain cross-collateralization and cross-default provisions tied to other leases with the same tenant, as well as grouped lease renewals and grouped purchase options. Leases covering 250 facilities are backed by security deposits consisting of irrevocable letters of credit or cash, most of which cover from three to six months, of initial monthly minimum rents. Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties.

 

Future minimum rentals on non-cancelable leases as of December 31, 2002 are as follows:

 

Year


  

Rentals


           

Year


  

Rentals


    

(In thousands)

                

(In thousands)

2003

  

$155,134

           

2009

  

$122,162

2004

  

154,579

           

2010

  

113,311

2005

  

143,112

           

2011

  

103,895

2006

  

135,410

           

2012

  

87,965

2007

  

129,074

           

Thereafter

  

406,979

2008

  

123,268

                  

 

During 2002, we acquired 34 skilled nursing facilities, eleven assisted and independent living facilities and one continuing care retirement community for an aggregate investment of approximately $165,428,000, including the assumption of approximately $14,227,000 of secured debt on one facility. We also funded approximately $13,870,000 in capital improvements at a number of facilities in accordance with existing lease provisions. Such capital improvements generally result in an increase in the minimum rents earned by us on these facilities. At December 31, 2002, we have committed to fund additional capital improvements of approximately $29,000,000.

 

During 2001, we completed the construction of one assisted and independent living facility in which our aggregate investment was approximately $10,438,000. Upon completion of construction, the facility was leased under terms generally similar to our existing leases. During this period, we also funded approximately $6,270,000 in capital improvements at a number of facilities in accordance with existing lease provisions. Such capital improvements generally result in an increase in the minimum rents we earn on these facilities.

 

During 2002, we sold six buildings in six separate transactions for aggregate cash proceeds of approximately $10,061,000. One of these buildings was written down to its fair value less costs to sell during 2001. We also recorded receivables totaling approximately $1,650,000 related to two of these sales for which no gain was recorded. We provided a mortgage loan with a net amount of $6,409,000 related to the sale of one skilled nursing facility for which no gain was recorded. The sale of these buildings resulted in an aggregate gain of approximately $3,050,000 that is included in discontinued operations on the consolidated statement of operations. In addition, we acquired title to two skilled nursing facilities, two assisted and independent living facilities and one continuing care retirement community for which we previously had provided mortgage loans receivable having an aggregate mortgage balance of $29,146,000.

 

During 2001, we sold 15 skilled nursing facilities, our final two residential care facilities for the elderly and one assisted and independent living facility in 12 separate transactions for aggregate cash proceeds of approximately $50,831,000. We recognized an aggregate gain of $11,245,000 related to the disposal of these

 

40


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

facilities. We provided the mortgage financing for one of the skilled nursing facilities we sold in the amount of $642,000. In addition, we acquired title to three skilled nursing facilities and four land parcels for which we previously had provided mortgage loans receivable having an aggregate mortgage balance of $13,339,000.

 

The following table lists our real estate properties as of December 31, 2002:

 

Facility Location


    

Number of Facilities


  

Land


  

Buildings and Improvements


  

Total Investment


  

Accumulated Depreciation


  

Notes and Bonds Payable


      

(Dollar amounts in thousands)

Assisted and Independent Living Facilities:

                                         

Alabama

    

2

  

$

1,681

  

$

4,272

  

$

5,953

  

$

713

  

$

—  

Arizona

    

2

  

 

1,024

  

 

6,844

  

 

7,868

  

 

1,183

  

 

—  

Arkansas

    

1

  

 

182

  

 

1,968

  

 

2,150

  

 

258

  

 

—  

California

    

13

  

 

15,105

  

 

64,473

  

 

79,578

  

 

13,792

  

 

39,624

Colorado

    

7

  

 

5,815

  

 

70,839

  

 

76,654

  

 

6,224

  

 

—  

Delaware

    

1

  

 

345

  

 

4,956

  

 

5,301

  

 

465

  

 

—  

Florida

    

20

  

 

13,498

  

 

83,169

  

 

96,667

  

 

9,539

  

 

—  

Idaho

    

1

  

 

544

  

 

11,282

  

 

11,826

  

 

1,831

  

 

—  

Indiana

    

1

  

 

805

  

 

3,861

  

 

4,666

  

 

451

  

 

—  

Kansas

    

4

  

 

1,885

  

 

11,672

  

 

13,557

  

 

1,569

  

 

—  

Kentucky

    

1

  

 

110

  

 

2,672

  

 

2,782

  

 

334

  

 

—  

Louisiana

    

1

  

 

831

  

 

6,554

  

 

7,385

  

 

519

  

 

—  

Maryland

    

1

  

 

533

  

 

4,715

  

 

5,248

  

 

389

  

 

—  

Massachusetts

    

1

  

 

1,758

  

 

9,249

  

 

11,007

  

 

1,034

  

 

—  

Michigan

    

1

  

 

300

  

 

7,006

  

 

7,306

  

 

1,562

  

 

—  

Nevada

    

2

  

 

1,219

  

 

12,397

  

 

13,616

  

 

1,641

  

 

6,330

New Jersey

    

2

  

 

1,757

  

 

5,858

  

 

7,615

  

 

369

  

 

—  

New York

    

1

  

 

6,000

  

 

15,426

  

 

21,426

  

 

254

  

 

14,019

North Carolina

    

5

  

 

2,048

  

 

11,980

  

 

14,028

  

 

503

  

 

—  

Ohio

    

11

  

 

3,623

  

 

35,492

  

 

39,115

  

 

4,401

  

 

—  

Oklahoma

    

3

  

 

745

  

 

7,526

  

 

8,271

  

 

1,695

  

 

—  

Oregon

    

6

  

 

2,077

  

 

26,797

  

 

28,874

  

 

5,294

  

 

8,548

Pennsylvania

    

4

  

 

2,260

  

 

27,705

  

 

29,965

  

 

2,451

  

 

—  

Rhode Island

    

3

  

 

2,877

  

 

27,363

  

 

30,240

  

 

2,020

  

 

—  

South Carolina

    

7

  

 

2,402

  

 

22,508

  

 

24,910

  

 

1,460

  

 

—  

Tennessee

    

5

  

 

2,664

  

 

22,652

  

 

25,316

  

 

2,307

  

 

—  

Texas

    

17

  

 

7,561

  

 

70,375

  

 

77,936

  

 

8,373

  

 

—  

Virginia

    

2

  

 

1,651

  

 

11,323

  

 

12,974

  

 

759

  

 

—  

Washington

    

4

  

 

1,840

  

 

20,994

  

 

22,834

  

 

3,078

  

 

—  

West Virginia

    

1

  

 

705

  

 

5,472

  

 

6,177

  

 

425

  

 

—  

Wisconsin

    

2

  

 

4,843

  

 

24,218

  

 

29,061

  

 

3,372

  

 

17,832

      
  

  

  

  

  

Subtotals

    

132

  

 

88,688

  

 

641,618

  

 

730,306

  

 

78,265

  

 

86,353

      
  

  

  

  

  

 

41


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

Facility Location


    

Number of Facilities


  

Land


  

Buildings and Improvements


  

Total Investment


  

Accumulated Depreciation


  

Notes and Bonds Payable


      

(Dollar amounts in thousands)

Skilled Nursing Facilities:

                                         

Arizona

    

1

  

$

650

  

$

2,890

  

$

3,540

  

$

1,099

  

$

—  

Arkansas

    

8

  

 

2,505

  

 

32,407

  

 

34,912

  

 

4,819

  

 

2,100

California

    

6

  

 

5,846

  

 

13,279

  

 

19,125

  

 

4,327

  

 

—  

Connecticut

    

3

  

 

560

  

 

11,520

  

 

12,080

  

 

1,322

  

 

—  

Florida

    

6

  

 

2,462

  

 

17,855

  

 

20,317

  

 

6,509

  

 

—  

Georgia

    

1

  

 

562

  

 

3,780

  

 

4,342

  

 

462

  

 

—  

Idaho

    

1

  

 

15

  

 

777

  

 

792

  

 

311

  

 

—  

Illinois

    

2

  

 

157

  

 

5,392

  

 

5,549

  

 

2,052

  

 

—  

Indiana

    

7

  

 

752

  

 

26,583

  

 

27,335

  

 

9,999

  

 

—  

Kansas

    

9

  

 

772

  

 

13,156

  

 

13,928

  

 

3,777

  

 

—  

Maryland

    

5

  

 

2,315

  

 

27,759

  

 

30,074

  

 

10,015

  

 

—  

Massachusetts

    

14

  

 

6,088

  

 

70,284

  

 

76,372

  

 

13,579

  

 

—  

Minnesota

    

3

  

 

1,783

  

 

18,026

  

 

19,809

  

 

6,644

  

 

—  

Mississippi

    

1

  

 

750

  

 

3,717

  

 

4,467

  

 

443

  

 

—  

Missouri

    

1

  

 

51

  

 

2,689

  

 

2,740

  

 

1,307

  

 

—  

Nevada

    

1

  

 

740

  

 

3,294

  

 

4,034

  

 

927

  

 

—  

North Carolina

    

1

  

 

116

  

 

2,244

  

 

2,360

  

 

1,090

  

 

—  

Ohio

    

5

  

 

1,233

  

 

26,373

  

 

27,606

  

 

10,279

  

 

—  

Oklahoma

    

3

  

 

98

  

 

3,841

  

 

3,939

  

 

1,942

  

 

—  

Tennessee

    

5

  

 

1,878

  

 

16,631

  

 

18,509

  

 

3,311

  

 

—  

Texas

    

59

  

 

9,679

  

 

126,288

  

 

135,967

  

 

17,838

  

 

—  

Virginia

    

4

  

 

1,036

  

 

17,532

  

 

18,568

  

 

8,518

  

 

—  

Washington

    

5

  

 

2,315

  

 

23,093

  

 

25,408

  

 

4,458

  

 

—  

Wisconsin

    

7

  

 

865

  

 

12,009

  

 

12,874

  

 

5,689

  

 

—  

      
  

  

  

  

  

Subtotals

    

158

  

 

43,228

  

 

481,419

  

 

524,647

  

 

120,717

  

 

2,100

      
  

  

  

  

  

Continuing Care Retirement Communities:

      

Arizona

    

1

  

 

1,980

  

 

8,351

  

 

10,331

  

 

101

      

California

    

1

  

 

1,600

  

 

10,827

  

 

12,427

  

 

2,237

  

 

—  

Colorado

    

1

  

 

400

  

 

2,715

  

 

3,115

  

 

792

  

 

—  

Florida

    

1

  

 

1,300

  

 

17,317

  

 

18,617

  

 

617

      

Georgia

    

1

  

 

723

  

 

10,769

  

 

11,492

  

 

1,103

  

 

—  

Kansas

    

1

  

 

687

  

 

12,517

  

 

13,204

  

 

1,878

  

 

2,300

Massachusetts

    

1

  

 

1,351

  

 

12,941

  

 

14,292

  

 

1,692

  

 

—  

Tennessee

    

1

  

 

174

  

 

3,004

  

 

3,178

  

 

175

  

 

—  

Texas

    

1

  

 

1,848

  

 

29,022

  

 

30,870

  

 

3,864

  

 

—  

Wisconsin

    

2

  

 

11,067

  

 

53,571

  

 

64,638

  

 

8,315

  

 

20,550

      
  

  

  

  

  

Subtotals

    

11

  

 

21,130

  

 

161,034

  

 

182,164

  

 

20,774

  

 

22,850

      
  

  

  

  

  

Rehabilitation Hospitals:

                                         

Arizona

    

1

  

 

1,275

  

 

9,435

  

 

10,710

  

 

2,487

  

 

—  

      
  

  

  

  

  

 

42


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

Facility Location


    

Number of Facilities


  

Land


  

Buildings and Improvements


  

Total Investment


  

Accumulated Depreciation


  

Notes and Bonds Payable


      

(Dollar amounts in thousands)

Long-Term Acute Care Hospitals:

                                         

Arizona

    

1

  

 

242

  

 

6,119

  

 

6,361

  

 

2,157

  

 

—  

      
  

  

  

  

  

Total Facilities

    

303

  

$

154,563

  

$

1,299,625

  

$

1,454,188

  

$

224,400

  

$

111,303

      
  

  

  

  

  

 

We have now concluded our negotiations with all five of our operators that had filed for protection under the United States bankruptcy laws from 1999 to 2001. These operators included Sun Healthcare Group, Inc. (Sun), Mariner Health Care, Inc. (Mariner), Integrated Health Services, Inc. (Integrated), SV/Home Office Inc. and certain affiliates (SV) and Assisted Living Concepts, Inc. (ALC). During 2002, Sun, Mariner and ALC emerged from bankruptcy. In March 2002, the bankruptcy court approved our final settlement with Sun that included its assumption of five leases and rejection of one lease. In April 2002, the bankruptcy court approved Mariner’s Second Amended Joint Plan of Reorganization that resulted in us obtaining ownership of the facility securing our only mortgage loan with Mariner. Also in April 2002, the bankruptcy court approved our final settlement with Integrated that resulted in the assumption by Integrated of the amended leases on five facilities and the rejection of two leases. Over the course of these proceedings, (A) Sun has returned 20 facilities and agreed to a master lease of the remaining five facilities involved in the bankruptcy; (B) Mariner has returned 15 facilities, given us a deed in lieu of foreclosure for a facility that secured a mortgage loan receivable and assumed leases on six facilities; (C) Integrated has returned two facilities and agreed to a master lease of the remaining five facilities; (D) SV has agreed to assume the lease on one facility, return one facility and extend for five years its mortgage secured by one facility and we agreed to allow it to sell a second closed facility that previously secured the mortgage; and (E) ALC assumed the leases on two facilities and transferred title to us and signed leases on two facilities that had previously secured mortgages loans receivable from ALC. As of December 31, 2002, we have leased 35 of the 38 facilities returned to us to new operators, as well as the facility for which we received a deed in lieu of foreclosure, sold three facilities and expect to sell the remaining facility. Subsequent to our final settlement, Sun, in February 2003, announced that it had begun a restructuring of its lease portfolio. Sun has approached many of its landlords, including us, in hopes of obtaining rent moratoriums, rent concessions or lease terminations for certain of its leased facilities. While we cannot predict the final outcome of Sun’s restructuring process, it is possible there may be rent concessions, or, some or all of the five remaining facilities we lease to Sun may be returned to us. We believe we have identified parties interested in leasing any of these facilities that might be returned to us, however, the return of the facilities or rent concessions could result in lower rental rates.

 

In October 2002, one operator of five of our facilities which were previously leased by Beverly Enterprises, Inc., Alpha Healthcare Foundation, Inc. (Alpha) filed for protection under the United States bankruptcy laws. Under bankruptcy statutes, the tenant must either assume our leases or reject them and return the properties to us. If the tenant assumes the leases, it is required to assume the leases under the existing terms; the court cannot change the rental amount or other lease provisions that could financially impact us. The tenant’s decision whether to assume leases is usually based primarily on whether the properties it operates are providing positive cash flows. To date, Alpha has rejected the lease on one facility that the state it was located in decided to close. This facility was classified as held for sale and written down to its fair value less costs to sell as part of the impairment of assets charge in discontinued operations. Three of the four remaining facilities provide adequate cash flows to cover the rent under the lease, but there is a possibility that the tenant may decide to reject the leases on any or all of these properties. While we believe we have identified parties interested in leasing these facilities, any new leases may be at lower rental rates. All rent due after the filing date has been paid.

 

43


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

In January 2003, Alterra Healthcare Corporation (Alterra), our largest operator, filed for protection under the United States bankruptcy laws. Alterra operates 59 of our facilities, 52 of which are under a master lease with six other individual leases and one mortgage loan receivable cross-defaulted to it, and all 49 of the facilities owned by our joint venture which are under two master leases. We understand that Alterra has been restructuring out of court for over two years with a goal of going into the final bankruptcy phase with a selected portfolio of properties that for the most part is intended to be the core of its restructured business. Based on discussions we have had with Alterra, we expect that it will continue to pay the rent on and affirm all of our leases. The two master leases in the joint venture, our master lease and six of our seven leases cross-defaulted with our master lease generate sufficient cash flows to cover the rent due under the leases. Alterra has paid all monthly rent to date on a timely basis. If Alterra decides to reject the leases, we believe we could lease the facilities covered by the leases to a new operator at rates substantially consistent with what we currently receive, however, it is possible that any such new leases may be at lower rental rates.

 

In 2001, we leased ten facilities that had previously been leased by Balanced Care Corporation (BCC) to a new private operator, Senior Services of America, after BCC defaulted on its leases in December 2000. The facilities were constructed and opened during 1999 and 2000 with an aggregate investment of approximately $68,712,000. During 2001, we recognized revenues on a straight-lined basis related to these buildings in excess of cash received of approximately $5,200,000. As a result of lower than expected operating results in 2002, we fully reserved this deferred rent receivable balance and are now recognizing revenue from this lease on a cash basis. For more detail regarding the reserve, please see Note 15 below.

 

5.    Mortgage Loans Receivable

 

During 2002, we financed the sale of one skilled nursing facility with a mortgage loan with a net amount of $6,409,000. Also during 2002, one mortgage loan receivable with a net book value of approximately $3,815,000 secured by one skilled nursing facility and one continuing care retirement community was prepaid in full. In addition, portions of three mortgage loans receivable totaling $13,607,000 secured by two skilled nursing facilities, one assisted and independent living facility and one continuing care retirement community were also prepaid at par. During 2002, we acquired title to two skilled nursing facilities, two assisted living facilities and one continuing care retirement community having an aggregate mortgage balance of $29,146,000.

 

At December 31, 2002, we held 24 mortgage loans receivable secured by 25 skilled nursing facilities, four assisted and independent living facilities and one continuing care retirement community. The mortgage loans receivable have an aggregate principal balance of approximately $101,232,000 and are reflected in our consolidated balance sheets net of an aggregate discount totaling approximately $1,940,000. The principal balances of mortgage loans receivable as of December 31, 2002 mature as follows:

 

Year


  

  Maturities  


  

      Year      


  

   Maturities   


2003

  

$6,476,000

  

2006  

  

$14,913,000

2004

  

  1,449,000

  

2007  

  

  19,106,000

2005

  

  4,640,000

  

Thereafter

  

  54,648,000

 

44


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

The following table lists our mortgage loans receivable at December 31, 2002:

 

Location of Facilities


    

Number of Facilities


  

Interest Rate


    

Final Maturity Date


  

Estimated Balloon Payment(1)


  

Original Face Amount of Mortgages


 

Carrying Amount of Mortgages


      

(Dollar amounts in thousands)

Assisted and Independent Living Facilities:

                                      

Florida

    

1

  

10.31

%

  

08/03

  

$

—  

  

$

7,230

 

$

124

Massachusetts

    

1

  

9.52

%

  

06/23

  

 

8,500

  

 

8,500

 

 

8,500

North Carolina

    

1

  

10.44

%

  

05/07

  

 

2,950

  

 

2,950

 

 

2,950

Washington

    

1

  

9.95

%

  

12/15

  

 

6,432

  

 

6,557

 

 

6,557

      
              

  

 

Subtotals

    

4

              

 

17,882

  

 

25,237

 

 

18,131

      
              

  

 

Skilled Nursing Facilities:

                                      

Arkansas

    

3

  

10.00

%

  

12/06

  

 

4,946

  

 

5,500

 

 

5,103

Florida

    

  

11.55

%

  

07/03

  

 

—  

  

 

4,400

 

 

141

Florida

    

1

  

11.85

%

  

07/06

  

 

4,400

  

 

4,400

 

 

4,400

Florida

    

1

  

10.00

%

  

12/06

  

 

4,850

  

 

4,850

 

 

4,704

Florida

    

1

  

10.00

%

  

12/03

  

 

1,408

  

 

1,430

 

 

1,327

Florida

    

1

  

10.65

%

  

11/07

  

 

6,913

  

 

7,051

 

 

6,409

Illinois

    

1

  

9.00

%

  

01/24

  

 

—  

  

 

9,500

 

 

8,646

Illinois

    

1

  

12.00

%

  

12/03

  

 

1,000

  

 

1,000

 

 

1,000

Indiana

    

1

  

11.55

%

  

07/03

  

 

—  

  

 

785

 

 

66

Louisiana

    

1

  

10.89

%

  

04/15

  

 

2,407

  

 

3,850

 

 

3,669

Massachusetts

    

1

  

8.75

%

  

02/24

  

 

4,474

  

 

9,000

 

 

8,252

Michigan

    

2

  

14.24

%

  

01/05

  

 

2,506

  

 

3,000

 

 

2,509

Michigan

    

1

  

9.00

%

  

01/05

  

 

1,222

  

 

1,800

 

 

1,353

Missouri

    

2

  

11.95

%

  

08/11

  

 

5,623

  

 

17,250

 

 

5,623

Oregon

    

1

  

10.00

%

  

01/05

  

 

—  

  

 

642

 

 

466

South Dakota

    

1

  

11.15

%

  

05/05

  

 

—  

  

 

4,275

 

 

341

Tennessee

    

1

  

10.89

%

  

01/07

  

 

8,550

  

 

8,550

 

 

8,550

Washington

    

4

  

11.00

%

  

10/19

  

 

—  

  

 

6,000

 

 

5,406

Wisconsin

    

1

  

11.15 

%

  

05/05

  

 

—  

  

 

1,350

 

 

213

      
              

  

 

Subtotals

    

25

              

 

48,299

  

 

94,633

 

 

68,178

      
              

  

 

Continuing Care Retirement Communities:

                                      

Oklahoma

    

1

  

9.55

%

  

03/31

  

 

2,250

  

 

14,200

 

 

12,983

      
              

  

 

Total

    

30

              

$

68,431

  

$

134,070

 

$

99,292

      
              

  

 


(1)   Most mortgage loans receivable require monthly principal and interest payments at level amounts over life to maturity. Some mortgage loans receivable have interest rates which periodically adjust, but cannot decrease, which results in varying principal and interest payments over life to maturity, in which case the balloon payments reflected are an estimate. Five of the mortgage loans receivable have decreasing principal and interest payments over the life of the loans. Most mortgage loans receivable require a prepayment penalty based on a percentage of principal outstanding or a penalty based upon a calculation maintaining the yield we would have earned if prepayment had not occurred. Six mortgage loans receivable do not allow prepayments.

 

45


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

The following table summarizes the changes in mortgage loans receivable during 2002, 2001 and 2000:

 

    

2002


    

2001


    

2000


 
    

(In thousands)

 

Balance at January 1,

  

$

140,474

 

  

$

185,623

 

  

$

203,362

 

New mortgage loans

  

 

6,409

 

  

 

2,903

 

  

 

8,746

 

Accretion of discount on loans

  

 

1,016

 

  

 

1,350

 

  

 

1,801

 

Reclassification of loans to leases

  

 

(29,146

)

  

 

(13,339

)

  

 

(14,260

)

Collection of principal

  

 

(19,461

)

  

 

(34,563

)

  

 

(14,026

)

Mortgage loan reserve

  

 

—  

 

  

 

(1,500

)

  

 

—  

 

    


  


  


Balance at December 31,

  

$

99,292

 

  

$

140,474

 

  

$

185,623

 

    


  


  


 

6.    Investment in Unconsolidated Joint Venture

 

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

 

In 2002, the joint venture acquired 52 assisted living facilities in 12 states for a total cost of approximately $123,200,000 that are leased to Alterra. The joint venture also incurred deferred financing costs of approximately $1,900,000 and is committed to fund an additional $2,000,000 of capital improvements. The acquisitions were financed with secured non-recourse debt of approximately $60,860,000, capital contributions from our joint venture partner of approximately $49,100,000 and capital contributions from us of approximately $16,400,000. In October 2002, the joint venture sold three facilities for $2,100,000, or approximately their book value. We do not expect to make any additional contributions to the joint venture related to the facilities it acquired during 2002.

 

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

 

46


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

The balance sheet and income statement for the joint venture below present its financial position as of December 31, 2002 and its results of operations for the year then ended in thousands.

 

BALANCE SHEET

 

A S S E T S


      

Real estate:

        

Land

  

$

13,410

 

Buildings and improvements

  

 

107,720

 

    


    

 

121,130

 

Less accumulated depreciation

  

 

(1,944

)

    


    

 

119,186

 

Cash and cash equivalents

  

 

8,312

 

Other assets

  

 

1,697

 

    


    

$

129,195

 

    


L I A B I L I T I E S  A N D  E Q U I T Y


      

Notes and bonds payable

  

$

60,831

 

Accounts payable and accrued liabilities

  

 

3,904

 

Equity:

        

Capital contributions

  

 

65,501

 

Distributions

  

 

(4,900

)

Cumulative net income

  

 

3,859

 

    


Total equity

  

 

64,460

 

    


    

$

129,195

 

    


 

INCOME STATEMENT

 

Rental income

  

$

8,777

Expenses:

      

Interest and amortization of deferred financing costs

  

 

2,732

Depreciation and amortization

  

 

1,944

General and administrative

  

 

350

    

    

 

5,026

    

Income from continuing operations

  

 

3,751

Discontinued operations

  

 

108

    

Net income

  

$

3,859

    

 

47


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

7.    Assets Held for Sale

 

During 2002, we classified ten unoccupied buildings and eight land parcels as assets held for sale. As required by SFAS No. 144, the net book values of these assets have been transferred to assets held for sale and the operations of these assets have been included in discontinued operations for the years ended December 31, 2002, 2001 and 2000. The impairment of assets charge in discontinued operations totals $10,828,000 and represents the write-down of 12 of these assets to their individual estimated fair values less costs to sell. During 2002, we sold five buildings and one land parcel in six separate transactions for net proceeds of approximately $4,298,000. Two of these buildings were written down to their estimated fair value less costs to sell during 2001 and two buildings and the land parcel were written down during 2002. These sales resulted in a net loss of approximately $447,000 that is included in discontinued operations on our consolidated statement of operations.

 

8.    Borrowings Under Senior Unsecured Revolving Credit Facility

 

During 2002, we entered into a new $150,000,000 unsecured credit agreement with certain banks that matures on November 7, 2005. This facility replaced our previous $100,000,000 bank line of credit. At our option, borrowings under the agreement bear interest at prime (4.25% at December 31, 2002) or LIBOR plus 1.2% (2.64% at December 31, 2002). We pay a facility fee of 0.3% per annum on the total commitment under the agreement.

 

Under covenants contained in the credit agreement, we are required to maintain, among other things: (i) a minimum net asset value of $500,000,000; (ii) a ratio of total indebtedness to capitalization value of not more than 60%; (iii) an interest coverage ratio of at least 2.5 to 1.0; (iv) a fixed charge coverage ratio of at least 1.75 to 1.0; (v) a secured indebtedness ratio of not more than 15%; (vi) an unsecured interest coverage ratio of at least 2.5 to 1.0; (vii) floating rate debt of no more than 25% of total debt; (viii) an unencumbered asset value ratio of no more than 60%; and (ix) a minimum rent/mortgage interest coverage ratio of at least 1.25 to 1.0. As of December 31, 2002, we were in compliance with all of the above covenants.

 

9.    Notes and Bonds Payable

 

Notes and bonds payable are due through the year 2035, at interest rates ranging from 1.6% to 10.5% and are secured by real estate properties with an aggregate net book value as of December 31, 2002 of approximately $139,673,000. During 2002, we obtained $10,000,000 of mortgage financing. The mortgage is secured by two assisted living facilities and has a term of one year at a floating rate of not less than 7.25%. In addition, we assumed mortgage financing of approximately $14,227,000 upon the acquisition of one assisted living facility. The principal balances of the notes and bonds payable as of December 31, 2002 mature as follows:

 

      

Year


    

Maturities


    

Year


    

Maturities


      
      

2003

    

$

12,167,000

    

2006

    

$

  2,039,000

      
      

2004

    

 

2,201,000

    

2007

    

 

2,183,000

      
      

2005

    

 

15,154,000

    

Thereafter

    

 

77,559,000

      

 

48


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

10.    Senior Unsecured Notes Due 2003-2038

 

During 2002, we repaid $50,000,000 in aggregate principal amount of medium-term notes and issued $100,000,000 in aggregate principal amount of medium-term notes. The aggregate principal amount of Senior Notes outstanding at December 31, 2002 was $614,750,000. The weighted average interest rate on the Senior Notes was 7.78% and the weighted average maturity was 10.8 years. The principal balances of the Senior Notes as of December 31, 2002 mature as follows:

 

      

Year


    

Maturities


    

Year


    

Maturities


      
      

2003

    

$

66,000,000

    

2006

    

$

  63,500,000

      
      

2004

    

 

67,750,000

    

2007

    

 

85,000,000

      
      

2005

    

 

18,000,000

    

Thereafter

    

 

314,500,000

      

 

There are $55,000,000 of medium-term notes due in 2037 which may be put back to us at their face amount at the option of the holder on October 1st of any of the following years: 2004, 2007, 2009, 2012, 2017, or 2027. There are $41,500,000 of medium-term notes due in 2028 which may be put back to us at their face amount at the option of the holder on November 20th of any of the following years: 2003, 2008, 2013, 2018, or 2023. There are $40,000,000 of medium-term notes due in 2038 which may be put back to us at their face amount at the option of the holder on July 7th of any of the following years: 2003, 2008, 2013, 2018, 2023, or 2028.

 

11.    Preferred Stock

 

During 1997, we sold 1,000,000 shares of 7.677% Series A Cumulative Preferred Step-Up REIT securities (Preferred Stock) with a liquidation preference of $100 per share. Dividends on the Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears, commencing December 31, 1997 at the rate of 7.677% per annum of the liquidation preference per share (equivalent to $7.677 per annum per share) through September 30, 2012 and at a rate of 9.677% of the liquidation preference per annum per share (equivalent to $9.677 per annum per share) thereafter. The Preferred Stock is not redeemable prior to September 30, 2007. On or after September 30, 2007, the Preferred Stock may be redeemed for cash at our option, in whole or in part, at a redemption price of $100 per share, plus accrued and unpaid dividends, if any, thereon.

 

12.    Stock Incentive Plan

 

Under the terms of a stock incentive plan (the Plan), we have reserved for issuance 1,600,000 shares of common stock. Under the Plan, as amended, we may issue stock options, restricted stock, dividend equivalents and stock appreciation rights. We began accounting for the Plan under SFAS No. 123 during 1999 for options granted in 1999 and thereafter. Prior to 1999, we accounted for the Plan under APB Opinion No. 25 Accounting for Stock Issued to Employees. As the options vest over three years and we adopted SFAS No. 123 during 1999, the pro forma affect was fully amortized at the end of 2000. Had compensation cost for the Plan been determined consistent with SFAS No. 123 for the years prior to 1999, our income available to common stockholders and per share amounts in 2000 would have been the following on a pro forma basis:

 

    

2000


Income available to common stockholders:

    

As reported

  

$63,485,000

Pro forma

  

63,387,000

Basic/diluted income available to common stockholders per share:

    

As reported

  

$             1.37

Pro forma

  

1.37

 

49


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

A summary of the status of the Plan at December 31, 2002, 2001 and 2000 and changes during the years then ended are as follows:

 

    

2002


  

2001


  

2000


    

Shares


    

Weighted

Average

Exercise

Price


  

Shares


    

Weighted

Average

Exercise

Price


  

Shares


    

Weighted

Average

Exercise

Price


Options:

                                   

Outstanding at beginning of year

  

609,000

 

  

$19.37

  

529,000

 

  

$20.62

  

404,000

 

  

$22.53

Granted

  

140,000

 

  

19.64

  

135,000

 

  

14.98

  

125,000

 

  

14.38

Exercised

  

(40,000

)

  

14.63

  

(4,167

)

  

14.38

  

—  

 

  

—  

Forfeited

  

(84,500

)

  

21.95

  

(50,833

)

  

21.20

  

—  

 

  

—  

Expired

  

—  

 

  

—  

  

—  

 

  

—  

  

—  

 

  

—  

    

       

       

    

Outstanding at end of year

  

624,500

 

  

19.38

  

609,000

 

  

19.37

  

529,000

 

  

20.62

    

       

       

    

Exercisable at end of year

  

394,500

 

  

$20.54

  

361,500

 

  

$21.92

  

287,334

 

  

$22.72

Weighted average fair value of options granted

  

$1.70

 

       

$0.60

 

       

$0.45

 

    

Restricted Stock:

                                   

Outstanding at beginning of year

  

28,000

 

       

26,000

 

       

53,000

 

    

Awarded

  

10,000

 

       

10,000

 

       

10,000

 

    

Vested

  

(14,000

)

       

(8,000

)

       

(37,000

)

    

Forfeited

  

—  

 

       

—  

 

       

—  

 

    
    

       

       

    

Outstanding at end of year

  

24,000

 

       

28,000

 

       

26,000

 

    
    

       

       

    

Weighted average fair value of restricted stock awarded

  

$19.60

 

       

$14.88

 

       

$14.38

 

    

 

Stock options granted under the Plan become exercisable each year following the date of grant in annual increments of one-third and are exercisable at the market price of our common stock on the date of grant. Options at December 31, 2002 have a weighted average contractual life of 6 years. The exercise prices of the options range from $14.38 to $26.19.

 

The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions:

 

    

2002


    

2001


    

2000


Risk free rate of return

  

  4.9%

    

  5.15%

    

  6.79%

Dividend yield

  

  9.37%

    

12.30%

    

12.52%

Option term

  

10

    

10

    

10

Volatility

  

28.84%

    

27.21%

    

22.21%

 

Expense recorded in 2002, 2001 and 2000 related to stock options was approximately $148,000, $88,000 and $60,000, respectively.

 

50


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

The restricted stock awards are granted at no cost. Restricted stock awards vest at the third anniversary of the award date with respect to non-employee directors and at the fifth anniversary with respect to officers and employees. Subsequent to 1995, only non-employee directors receive restricted stock awards, and the remaining restricted stock issued to officers and employees fully vested in 2000. The restricted stock awards are amortized over their respective vesting periods. Expense is determined based upon the market value at the date of award of the restricted stock and is recognized over the vesting period. Expense recorded in 2002, 2001 and 2000 related to restricted stock awards was approximately $194,000, $150,000 and $226,000, respectively.

 

Awards of dividend equivalents accompany the stock option grants beginning in 1996 on a one-for-one basis. Such dividend equivalents are payable in cash until such time as the corresponding stock option is exercised, based upon a formula approved by the Compensation Committee of the Board of Directors. That formula depends on our performance measured for a minimum of a three-year period and up to a five-year period by total return to stockholders (increase in stock price and dividends paid) compared to peer companies and other select financial measures compared to peer companies, in each case as selected by the Compensation Committee. SFAS No. 123 provides that payments related to the dividend equivalents are treated as dividends.

 

No stock appreciation rights have been issued under the Plan.

 

51


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

13.    Pension Plan

 

During 1991, we adopted an unfunded benefit pension plan covering the current non-employee members of our Board of Directors upon completion of five years of service on the Board. The benefits, limited to the number of years of service on the Board, are based upon the then current annual retainer in effect.

 

The following tables set forth the amounts recognized in our financial statements:

 

    

2002


    

2001


 

Change in projected benefit obligations:

                 

Benefit obligation at beginning of year

  

$

1,084,000

 

  

$

965,000

 

Service cost

  

 

61,000

 

  

 

52,000

 

Interest cost

  

 

73,000

 

  

 

70,000

 

Actuarial loss

  

 

32,000

 

  

 

71,000

 

Benefits paid

  

 

(75,000

)

  

 

(74,000

)

    


  


Benefit obligation at end of year

  

$

 1,175,000

 

  

$

 1,084,000

 

    


  


 

    

2002


    

2001


 

Change in plan assets:

                 

Fair value of plan assets at beginning of year

  

$

—  

 

  

$

—  

 

Employer contributions

  

 

75,000

 

  

 

74,000

 

Benefits paid

  

 

(75,000

)

  

 

(74,000

)

    


  


Fair value of plan assets at end of year

  

$

—  

 

  

$

—  

 

    


  


Reconciliation of funded status:

                 

Benefit obligation at end of year

  

$

(1,175,000

)

  

$

(1,084,000

)

Fair value of plan assets at end of year

  

 

—  

 

  

 

—  

 

    


  


Funded status at end of year

  

 

(1,175,000

)

  

 

(1,084,000

)

Unrecognized net actuarial (gain) loss

  

 

16,000

 

  

 

(16,000

)

    


  


Accrued benefit cost

  

$

(1,159,000

)

  

$

(1,100,000

)

    


  


Net periodic pension cost:

                 

Service cost

  

$

61,000

 

  

$

52,000

 

Interest cost

  

 

73,000

 

  

 

70,000

 

Amortization of prior service cost

  

 

—  

 

  

 

19,000

 

    


  


Net periodic pension cost

  

$

134,000

 

  

$

141,000

 

    


  


 

Discount rates of 6.5% and 7.0% in 2002 and 2001, respectively, and a 5.0% increase in the annual retainer every other year, were used in the calculation of the amounts above.

 

14.    Transactions with Significant Lessees

 

As of December 31, 2002, 58 of our owned facilities are leased to and operated by subsidiaries of Alterra. Additionally, Alterra is the borrower on one of our mortgage loans. Revenues from Alterra were approximately $21,709,000, $19,430,000 and $19,148,000 for the years ended December 31, 2002, 2001 and 2000, respectively. In addition, all 49 of the facilities owned by our joint venture are leased to Alterra. For more detail about the joint venture, see Note 6 above.

 

52


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

As of December 31, 2002, 16 of our owned facilities are leased to and operated by American Retirement Corporations (ARC). Revenues from ARC were approximately $15,122,000, $12,594,000 and $12,530,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

 

15.    Impairment of Assets

 

During 2002, we became aware of facts and circumstances indicating that certain assets may have become impaired. After analyzing the assets and the facts, we recorded an impairment of assets charge in continuing operations totaling $12,472,000. As a result of lower than expected operating results at the former BCC facilities and six facilities operated by another operator, we changed our estimate of the recoverability of the deferred rent related to these facilities during 2002. We determined that the most appropriate method of recognizing revenues for these facilities, given the recent operating results, is to record revenues only to the extent cash is actually received. Accordingly, we fully reserved the deferred rent balance outstanding and all related notes receivable outstanding, totaling approximately $8,305,000, as part of the impairment of assets charge in continuing operations. In addition, the impairment of assets charge reported in continuing operations also included a reserve of $4,167,000 against a loan previously made to the operator of a large continuing care retirement community in Florida. The collectibility of that loan became uncertain due to developments at the facility during 2002 that we believed might necessitate a change in operators. During 2002, we entered into an agreement with a new operator to take over the facility effective September 1, 2002, the effective date of our taking title to the building.

 

During 2002, we classified ten unoccupied buildings and eight land parcels as assets held for sale. We recorded an impairment of assets charge included in discontinued operations of $10,828,000 related to the write-down of 12 of these assets to their individual estimated fair values less costs to sell. See Note 7 for additional information regarding these assets.

 

During 2001, we became aware of facts and circumstances indicating that certain assets had become impaired. After analyzing these assets, we recorded an impairment of assets charge totaling $11,195,000. Included in this amount is $3,972,000 for the write-down of three skilled nursing facilities to their fair values less costs to sell that is reported in discontinued operations because the facilities were either sold or classified as held for sale during 2002. The impairment of assets charge in continuing operations totaling $7,223,000 included the provision of a reserve against mortgage loans receivable of $1,500,000, the write-off of $1,449,000 of deferred rent balance related to facilities returned by BCC and $4,274,000 of receivable write-offs and reserves against other assets that we believed had become impaired.

 

53


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

16.    Discontinued Operations

 

SFAS No. 144 requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations. See Note 4 and Note 7 for more detail regarding the facilities sold and classified as held for sale during 2002. The following table details the amounts reclassified to discontinued operations:

 

    

Years ended December 31,


    

2002


    

2001


    

2000


    

(In thousands)

Rental income

  

$

2,057

 

  

$

3,537

 

  

$

3,759

Interest and other income

  

 

413

 

  

 

51

 

  

 

—  

    


  


  

    

 

2,470

 

  

 

3,588

 

  

 

3,759

    


  


  

Depreciation and amortization

  

 

963

 

  

 

2,713

 

  

 

2,219

General and administrative

  

 

1,085

 

  

 

440

 

  

 

128

Impairment of assets

  

 

10,828

 

  

 

3,972

 

  

 

—  

    


  


  

    

 

12,876

 

  

 

7,125

 

  

 

2,347

    


  


  

Income (loss) from operations

  

 

(10,406

)

  

 

(3,357

)

  

 

1,412

Gain on sale of facilities

  

 

2,603

 

  

 

—  

 

  

 

—  

    


  


  

Discontinued operations

  

$

(7,803

)

  

$

(3,357

)

  

$

1,412

    


  


  

 

17.    Dividends

 

Dividend payments per share to the common stockholders were characterized in the following manner for tax purposes:

 

    

2002


  

2001


  

2000


Ordinary income

  

$

0.71

  

$

1.07

  

$

1.25

Capital gain

  

 

—  

  

 

0.19

  

 

0.19

Return of capital

  

 

1.13

  

 

0.58

  

 

0.40

    

  

  

Total dividends paid

  

$

1.84

  

$

1.84

  

$

1.84

    

  

  

 

54


NATIONWIDE HEALTH PROPERTIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Years ended December 31, 2002, 2001 and 2000

 

 

18.    Quarterly Financial Data (unaudited)

 

Amounts in the tables below may not add across due to rounding differences and discontinued operations reclassifications.

 

    

Three months ended,


    

March 31,


    

June 30,


  

September 30,


  

December 31,


    

(In thousands except per share amounts)

2002:

                             

Revenues

  

$

37,688

 

  

$

37,972

  

$

41,085

  

$

41,230

Income (loss) available to common stockholders

  

 

(2,053

)

  

 

13,284

  

 

12,334

  

 

5,313

Basic/diluted income (loss) available to common stockholders per share

  

 

(0.04

)

  

 

0.27

  

 

0.25

  

 

0.11

Dividends per share

  

 

0.46

 

  

 

0.46

  

 

0.46

  

 

0.46

2001:

                             

Revenues

  

$

41,346

 

  

$

42,139

  

$

40,981

  

$

40,258

Income available to common stockholders

  

 

13,248

 

  

 

15,790

  

 

17,910

  

 

13,714

Basic/diluted income available to common stockholders per share

  

 

0.29

 

  

 

0.34

  

 

0.38

  

 

0.29

Dividends per share

  

 

0.46

 

  

 

0.46

  

 

0.46

  

 

0.46

 

 

55


 

SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


         

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


               

Land (2)


    

Buildings and Improvements


  

Total


          

Assisted Living Facilities:

                                                                

Decatur

  

AL

    

$

1,825

    

$

—  

  

$

1,484

    

$

1,825

  

$

3,309

  

$

326

    

1987

  

1996

Hanceville

  

AL

    

 

2,447

    

 

—  

  

 

197

    

 

2,447

  

 

2,644

  

 

387

    

1996

  

1996

Benton

  

AR

    

 

1,479

    

 

489

  

 

182

    

 

1,968

  

 

2,150

  

 

258

    

1990

  

1998

Chandler

  

AZ

    

 

2,753

    

 

—  

  

 

505

    

 

2,753

  

 

3,258

  

 

304

    

1998

  

1998

Mesa

  

AZ

    

 

1,391

    

 

2,700

  

 

519

    

 

4,091

  

 

4,610

  

 

879

    

1985

  

1996

Carmichael

  

CA

    

 

7,929

    

 

755

  

 

1,500

    

 

8,684

  

 

10,184

  

 

2,172

    

1984

  

1995

Chula Vista (3)

  

CA

    

 

6,281

    

 

72

  

 

950

    

 

6,353

  

 

7,303

  

 

1,295

    

1989

  

1995

Encinitas (4)

  

CA

    

 

5,017

    

 

126

  

 

1,000

    

 

5,143

  

 

6,143

  

 

1,200

    

1984

  

1995

Mission Viejo (3)

  

CA

    

 

3,544

    

 

89

  

 

900

    

 

3,633

  

 

4,533

  

 

786

    

1985

  

1995

Novato (4)

  

CA

    

 

3,658

    

 

403

  

 

2,500

    

 

4,061

  

 

6,561

  

 

957

    

1978

  

1995

Placentia

  

CA

    

 

3,801

    

 

184

  

 

1,320

    

 

3,985

  

 

5,305

  

 

988

    

1982

  

1995

Rancho Cucamonga (4)

  

CA

    

 

4,156

    

 

269

  

 

610

    

 

4,425

  

 

5,035

  

 

945

    

1987

  

1995

San Dimas

  

CA

    

 

3,577

    

 

225

  

 

1,700

    

 

3,802

  

 

5,502

  

 

888

    

1975

  

1995

San Jose

  

CA

    

 

7,252

    

 

—  

  

 

850

    

 

7,252

  

 

8,102

  

 

861

    

1998

  

1998

San Juan Capistrano (4)

  

CA

    

 

3,834

    

 

172

  

 

1,225

    

 

4,006

  

 

5,231

  

 

867

    

1985

  

1995

San Juan Capistrano

  

CA

    

 

6,344

    

 

235

  

 

700

    

 

6,579

  

 

7,279

  

 

1,310

    

1985

  

1995

Santa Maria

  

CA

    

 

2,649

    

 

118

  

 

1,500

    

 

2,767

  

 

4,267

  

 

658

    

1967

  

1995

Vista

  

CA

    

 

3,701

    

 

82

  

 

350

    

 

3,783

  

 

4,133

  

 

865

    

1980

  

1996

Aurora

  

CO

    

 

7,923

    

 

3

  

 

919

    

 

7,926

  

 

8,845

  

 

1,848

    

1983

  

1995

Aurora

  

CO

    

 

10,119

    

 

—  

  

 

715

    

 

10,119

  

 

10,834

  

 

949

    

1999

  

1999

Boulder

  

CO

    

 

4,738

    

 

—  

  

 

184

    

 

4,738

  

 

4,922

  

 

948

    

1992

  

1995

Boulder

  

CO

    

 

4,811

    

 

4

  

 

833

    

 

4,815

  

 

5,648

  

 

842

    

1985

  

1995

Brighton

  

CO

    

 

2,158

    

 

—  

  

 

210

    

 

2,158

  

 

2,368

  

 

297

    

1997

  

1997

Denver

  

CO

    

 

28,682

    

 

—  

  

 

2,350

    

 

28,682

  

 

31,032

  

 

410

    

1987

  

2002

Lakewood

  

CO

    

 

12,401

    

 

—  

  

 

604

    

 

12,401

  

 

13,005

  

 

930

    

2000

  

2000

Hockessin

  

DE

    

 

4,956

    

 

—  

  

 

345

    

 

4,956

  

 

5,301

  

 

465

    

1999

  

1999

Clearwater

  

FL

    

 

3,790

    

 

—  

  

 

1,231

    

 

3,790

  

 

5,021

  

 

47

    

1998

  

2002

Gainesville

  

FL

    

 

2,699

    

 

4

  

 

356

    

 

2,703

  

 

3,059

  

 

366

    

1997

  

1997

Gainesville

  

FL

    

 

3,313

    

 

—  

  

 

310

    

 

3,313

  

 

3,623

  

 

331

    

1998

  

1998

Hudson

  

FL

    

 

8,139

    

 

550

  

 

1,665

    

 

8,689

  

 

10,354

  

 

1,674

    

1986

  

1996

Jacksonville

  

FL

    

 

2,376

    

 

12

  

 

366

    

 

2,388

  

 

2,754

  

 

342

    

1997

  

1997

Jacksonville

  

FL

    

 

2,770

    

 

8

  

 

226

    

 

2,778

  

 

3,004

  

 

364

    

1997

  

1997

LeHigh Acres

  

FL

    

 

2,600

    

 

10

  

 

307

    

 

2,610

  

 

2,917

  

 

336

    

1997

  

1997

Naples

  

FL

    

 

4,084

    

 

—  

  

 

1,182

    

 

4,084

  

 

5,266

  

 

553

    

1997

  

1997

Naples

  

FL

    

 

10,797

    

 

—  

  

 

1,140

    

 

10,797

  

 

11,937

  

 

1,035

    

1999

  

1999

Palm Coast

  

FL

    

 

2,580

    

 

6

  

 

406

    

 

2,586

  

 

2,992

  

 

322

    

1997

  

1997

Panama City

  

FL

    

 

2,659

    

 

1

  

 

353

    

 

2,660

  

 

3,013

  

 

294

    

1998

  

1998

Pensacola

  

FL

    

 

5,626

    

 

782

  

 

408

    

 

6,408

  

 

6,816

  

 

480

    

1999

  

1999

Port Charlotte

  

FL

    

 

2,655

    

 

11

  

 

245

    

 

2,666

  

 

2,911

  

 

354

    

1997

  

1997

Punta Gorda

  

FL

    

 

2,691

    

 

18

  

 

210

    

 

2,709

  

 

2,919

  

 

365

    

1997

  

1997

Rotunda

  

FL

    

 

2,628

    

 

14

  

 

123

    

 

2,642

  

 

2,765

  

 

329

    

1997

  

1997

St Petersburg

  

FL

    

 

2,396

    

 

985

  

 

2,000

    

 

3,381

  

 

5,381

  

 

583

    

1993

  

1995

Tallahassee

  

FL

    

 

9,084

    

 

163

  

 

696

    

 

9,247

  

 

9,943

  

 

752

    

1999

  

1999

Tavares

  

FL

    

 

2,466

    

 

1

  

 

156

    

 

2,467

  

 

2,623

  

 

349

    

1997

  

1997

Titusville

  

FL

    

 

4,706

    

 

—  

  

 

1,742

    

 

4,706

  

 

6,448

  

 

336

    

1987

  

2000

Venice

  

FL

    

 

2,535

    

 

10

  

 

376

    

 

2,545

  

 

2,921

  

 

327

    

1997

  

1997

Boise

  

ID

    

 

5,586

    

 

5,696

  

 

544

    

 

11,282

  

 

11,826

  

 

1,831

    

1978

  

1995

Carmel

  

IN

    

 

3,861

    

 

—  

  

 

805

    

 

3,861

  

 

4,666

  

 

451

    

1998

  

1998

Lawrence

  

KS

    

 

3,822

    

 

—  

  

 

932

    

 

3,822

  

 

4,754

  

 

446

    

1995

  

1998

 

56


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


         

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


               

Land (2)


    

Buildings and Improvements


  

Total


          

Assisted Living Facilities: (continued)

                                         

Salina

  

KS

    

$

1,921

    

$

—  

  

$

200

    

$

1,921

  

$

2,121

  

$

276

    

1996

  

1997

Salina

  

KS

    

 

2,887

    

 

—  

  

 

329

    

 

2,887

  

 

3,216

  

 

385

    

1989

  

1998

Topeka

  

KS

    

 

2,955

    

 

87

  

 

424

    

 

3,042

  

 

3,466

  

 

462

    

1986

  

1998

Murray

  

KY

    

 

2,547

    

 

125

  

 

110

    

 

2,672

  

 

2,782

  

 

334

    

1998

  

1998

Mandeville

  

LA

    

 

6,554

    

 

—  

  

 

831

    

 

6,554

  

 

7,385

  

 

519

    

1999

  

1999

Pittsfield

  

MA

    

 

9,052

    

 

197

  

 

1,758

    

 

9,249

  

 

11,007

  

 

1,034

    

1998

  

1998

Hagerstown

  

MD

    

 

3,785

    

 

930

  

 

533

    

 

4,715

  

 

5,248

  

 

389

    

1999

  

1999

Riverview

  

MI

    

 

6,939

    

 

67

  

 

300

    

 

7,006

  

 

7,306

  

 

1,562

    

1987

  

1995

Charlotte

  

NC

    

 

1,924

    

 

—  

  

 

342

    

 

1,924

  

 

2,266

  

 

41

    

1998

  

2002

Charlotte

  

NC

    

 

2,406

    

 

—  

  

 

471

    

 

2,406

  

 

2,877

  

 

51

    

1998

  

2002

Greensboro

  

NC

    

 

1,847

    

 

—  

  

 

293

    

 

1,847

  

 

2,140

  

 

40

    

1997

  

2002

Greensboro

  

NC

    

 

3,262

    

 

—  

  

 

557

    

 

3,262

  

 

3,819

  

 

70

    

1998

  

2002

Hickory

  

NC

    

 

2,531

    

 

10

  

 

385

    

 

2,541

  

 

2,926

  

 

301

    

1997

  

1998

Brick

  

NJ

    

 

2,428

    

 

—  

  

 

1,102

    

 

2,428

  

 

3,530

  

 

5

    

1999

  

2002

Deptford

  

NJ

    

 

3,430

    

 

—  

  

 

655

    

 

3,430

  

 

4,085

  

 

364

    

1998

  

1998

Sparks (5)

  

NV

    

 

5,119

    

 

—  

  

 

505

    

 

5,119

  

 

5,624

  

 

731

    

1991

  

1997

Sparks (6)

  

NV

    

 

7,278

    

 

—  

  

 

714

    

 

7,278

  

 

7,992

  

 

910

    

1993

  

1997

Centereach (7)

  

NY

    

 

15,204

    

 

222

  

 

6,000

    

 

15,426

  

 

21,426

  

 

254

    

1973

  

2002

Dayton

  

OH

    

 

1,917

    

 

1

  

 

270

    

 

1,918

  

 

2,188

  

 

243

    

1997

  

1997

Dublin

  

OH

    

 

5,793

    

 

10

  

 

356

    

 

5,803

  

 

6,159

  

 

641

    

1998

  

1998

Fairfield

  

OH

    

 

1,917

    

 

1

  

 

270

    

 

1,918

  

 

2,188

  

 

260

    

1997

  

1997

Greenville

  

OH

    

 

2,311

    

 

—  

  

 

215

    

 

2,311

  

 

2,526

  

 

313

    

1997

  

1997

Hilliard

  

OH

    

 

7,056

    

 

1,892

  

 

652

    

 

8,948

  

 

9,600

  

 

753

    

1999

  

1999

Lancaster

  

OH

    

 

2,084

    

 

10

  

 

350

    

 

2,094

  

 

2,444

  

 

226

    

1998

  

1998

Newark

  

OH

    

 

2,047

    

 

2

  

 

225

    

 

2,049

  

 

2,274

  

 

281

    

1997

  

1997

Sharonville

  

OH

    

 

4,013

    

 

37

  

 

225

    

 

4,050

  

 

4,275

  

 

903

    

1986

  

1995

Springdale

  

OH

    

 

2,092

    

 

—  

  

 

440

    

 

2,092

  

 

2,532

  

 

275

    

1997

  

1997

Urbana

  

OH

    

 

2,118

    

 

—  

  

 

150

    

 

2,118

  

 

2,268

  

 

273

    

1997

  

1997

Youngstown

  

OH

    

 

2,191

    

 

—  

  

 

470

    

 

2,191

  

 

2,661

  

 

233

    

1998

  

1998

Broken Arrow

  

OK

    

 

1,445

    

 

1

  

 

178

    

 

1,446

  

 

1,624

  

 

217

    

1996

  

1997

Oklahoma City

  

OK

    

 

3,897

    

 

648

  

 

392

    

 

4,545

  

 

4,937

  

 

1,248

    

1982

  

1994

Oklahoma City

  

OK

    

 

1,531

    

 

4

  

 

175

    

 

1,535

  

 

1,710

  

 

230

    

1996

  

1997

Albany

  

OR

    

 

3,657

    

 

4,548

  

 

511

    

 

8,205

  

 

8,716

  

 

1,706

    

1968

  

1995

Albany (8)

  

OR

    

 

2,465

    

 

8

  

 

92

    

 

2,473

  

 

2,565

  

 

575

    

1984

  

1995

Forest Grove (9)

  

OR

    

 

3,152

    

 

—  

  

 

401

    

 

3,152

  

 

3,553

  

 

631

    

1994

  

1995

Gresham

  

OR

    

 

4,647

    

 

—  

  

 

—  

    

 

4,647

  

 

4,647

  

 

929

    

1988

  

1995

McMinnville (10)

  

OR

    

 

3,976

    

 

—  

  

 

760

    

 

3,976

  

 

4,736

  

 

696

    

1989

  

1995

Medford

  

OR

    

 

4,325

    

 

19

  

 

313

    

 

4,344

  

 

4,657

  

 

757

    

1990

  

1995

Bridgeville

  

PA

    

 

8,023

    

 

1,339

  

 

653

    

 

9,362

  

 

10,015

  

 

832

    

1999

  

1999

Center Square

  

PA

    

 

11,078

    

 

—  

  

 

1,000

    

 

11,078

  

 

12,078

  

 

1,103

    

2001

  

2001

Indiana

  

PA

    

 

2,706

    

 

—  

  

 

194

    

 

2,706

  

 

2,900

  

 

77

    

1997

  

2002

York

  

PA

    

 

3,790

    

 

769

  

 

413

    

 

4,559

  

 

4,972

  

 

439

    

1999

  

1999

E. Greenwich

  

RI

    

 

8,277

    

 

235

  

 

1,200

    

 

8,512

  

 

9,712

  

 

633

    

2000

  

2000

Lincoln

  

RI

    

 

9,612

    

 

—  

  

 

477

    

 

9,612

  

 

10,089

  

 

641

    

2000

  

2000

Portsmouth

  

RI

    

 

9,154

    

 

85

  

 

1,200

    

 

9,239

  

 

10,439

  

 

746

    

1999

  

1999

Clinton

  

SC

    

 

2,560

    

 

—  

  

 

87

    

 

2,560

  

 

2,647

  

 

326

    

1997

  

1998

Columbia

  

SC

    

 

2,664

    

 

11

  

 

210

    

 

2,675

  

 

2,885

  

 

316

    

1997

  

1998

Goose Creek

  

SC

    

 

2,336

    

 

—  

  

 

619

    

 

2,336

  

 

2,955

  

 

67

    

1998

  

2002

Greenville

  

SC

    

 

6,397

    

 

—  

  

 

613

    

 

6,397

  

 

7,010

  

 

80

    

2000

  

2002

 

57


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


  

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


          

Land (2)


  

Buildings and Improvements


  

Total


          

Assisted Living Facilities: (continued)

                                       

Greenwood

  

SC

  

$

2,648

    

$

—  

  

$

107

  

$

2,648

  

$

2,755

  

$

337

    

1997

  

1998

Greer

  

SC

  

 

2,389

    

 

13

  

 

375

  

 

2,402

  

 

2,777

  

 

259

    

1998

  

1998

Mount Pleasant

  

SC

  

 

3,490

    

 

—  

  

 

391

  

 

3,490

  

 

3,881

  

 

75

    

1998

  

2002

Brentwood

  

TN

  

 

2,302

    

 

—  

  

 

600

  

 

2,302

  

 

2,902

  

 

436

    

1995

  

1995

Bristol

  

TN

  

 

4,130

    

 

1,126

  

 

406

  

 

5,256

  

 

5,662

  

 

474

    

1999

  

1999

Germantown

  

TN

  

 

4,623

    

 

10

  

 

755

  

 

4,633

  

 

5,388

  

 

502

    

1998

  

1998

Johnson City

  

TN

  

 

4,289

    

 

959

  

 

404

  

 

5,248

  

 

5,652

  

 

435

    

1999

  

1999

Murfreesboro

  

TN

  

 

4,240

    

 

973

  

 

499

  

 

5,213

  

 

5,712

  

 

460

    

1999

  

1999

College Station

  

TX

  

 

1,726

    

 

—  

  

 

278

  

 

1,726

  

 

2,004

  

 

191

    

1994

  

1998

Corsicana

  

TX

  

 

1,494

    

 

10

  

 

117

  

 

1,504

  

 

1,621

  

 

227

    

1996

  

1996

Dallas

  

TX

  

 

3,500

    

 

809

  

 

308

  

 

4,309

  

 

4,617

  

 

1,199

    

1981

  

1994

Denton

  

TX

  

 

1,425

    

 

—  

  

 

185

  

 

1,425

  

 

1,610

  

 

217

    

1996

  

1996

Ennis

  

TX

  

 

1,409

    

 

18

  

 

119

  

 

1,427

  

 

1,546

  

 

214

    

1996

  

1996

Houston

  

TX

  

 

7,194

    

 

—  

  

 

1,235

  

 

7,194

  

 

8,429

  

 

809

    

1998

  

1998

Houston

  

TX

  

 

8,945

    

 

—  

  

 

985

  

 

8,945

  

 

9,930

  

 

839

    

1999

  

1999

Houston

  

TX

  

 

7,184

    

 

—  

  

 

1,089

  

 

7,184

  

 

8,273

  

 

659

    

1999

  

1999

Houston

  

TX

  

 

7,052

    

 

—  

  

 

1,089

  

 

7,052

  

 

8,141

  

 

661

    

1999

  

1999

Lakeway

  

TX

  

 

10,542

    

 

—  

  

 

579

  

 

10,542

  

 

11,121

  

 

1,032

    

1999

  

1999

Lewisville

  

TX

  

 

1,892

    

 

18

  

 

260

  

 

1,910

  

 

2,170

  

 

264

    

1997

  

1997

Mansfield

  

TX

  

 

1,575

    

 

52

  

 

225

  

 

1,627

  

 

1,852

  

 

236

    

1996

  

1997

Paris

  

TX

  

 

1,465

    

 

—  

  

 

166

  

 

1,465

  

 

1,631

  

 

223

    

1996

  

1996

Pearland

  

TX

  

 

7,892

    

 

—  

  

 

493

  

 

7,892

  

 

8,385

  

 

888

    

1998

  

1998

Richland Hills

  

TX

  

 

1,616

    

 

—  

  

 

223

  

 

1,616

  

 

1,839

  

 

242

    

1996

  

1997

Richland Hills

  

TX

  

 

2,211

    

 

739

  

 

65

  

 

2,950

  

 

3,015

  

 

246

    

1998

  

1998

Weatherford

  

TX

  

 

1,596

    

 

11

  

 

145

  

 

1,607

  

 

1,752

  

 

226

    

1996

  

1997

Martinsville

  

VA

  

 

3,049

    

 

5

  

 

1,001

  

 

3,054

  

 

4,055

  

 

191

    

2000

  

2000

Midlothian

  

VA

  

 

8,269

    

 

—  

  

 

650

  

 

8,269

  

 

8,919

  

 

568

    

2000

  

2000

Bellevue

  

WA

  

 

4,467

    

 

—  

  

 

766

  

 

4,467

  

 

5,233

  

 

493

    

1998

  

1998

Richland

  

WA

  

 

6,052

    

 

145

  

 

172

  

 

6,197

  

 

6,369

  

 

1,229

    

1990

  

1995

Tacoma

  

WA

  

 

5,208

    

 

—  

  

 

402

  

 

5,208

  

 

5,610

  

 

716

    

1997

  

1997

Yakima

  

WA

  

 

5,122

    

 

—  

  

 

500

  

 

5,122

  

 

5,622

  

 

640

    

1998

  

1998

Menomonee Falls (11)

  

WI

  

 

13,190

    

 

—  

  

 

4,161

  

 

13,190

  

 

17,351

  

 

1,978

    

1989

  

1997

West Allis (12)

  

WI

  

 

8,117

    

 

2,911

  

 

682

  

 

11,028

  

 

11,710

  

 

1,394

    

1996

  

1997

Hurricane

  

WV

  

 

4,475

    

 

997

  

 

705

  

 

5,472

  

 

6,177

  

 

425

    

1999

  

1999

         

    

  

  

  

  

           
         

 

607,367

    

 

34,251

  

 

88,688

  

 

641,618

  

 

730,306

  

 

78,265

           
         

    

  

  

  

  

           

Skilled Nursing Facilities:

                                       

Benton

  

AR

  

 

4,659

    

 

9

  

 

685

  

 

4,668

  

 

5,353

  

 

611

    

1992

  

1998

Bryant

  

AR

  

 

4,889

    

 

16

  

 

320

  

 

4,905

  

 

5,225

  

 

641

    

1989

  

1998

Hot Springs

  

AR

  

 

2,320

    

 

—  

  

 

54

  

 

2,320

  

 

2,374

  

 

1,088

    

1978

  

1986

Lake Village

  

AR

  

 

4,317

    

 

15

  

 

261

  

 

4,332

  

 

4,593

  

 

496

    

1998

  

1998

Monticello

  

AR

  

 

3,295

    

 

8

  

 

300

  

 

3,303

  

 

3,603

  

 

378

    

1995

  

1998

Morrilton

  

AR

  

 

3,703

    

 

7

  

 

250

  

 

3,710

  

 

3,960

  

 

486

    

1988

  

1998

Morrilton

  

AR

  

 

4,995

    

 

2

  

 

308

  

 

4,997

  

 

5,305

  

 

573

    

1996

  

1998

Wynne (13)

  

AR

  

 

4,165

    

 

7

  

 

327

  

 

4,172

  

 

4,499

  

 

546

    

1990

  

1998

Scottsdale

  

AZ

  

 

2,790

    

 

100

  

 

650

  

 

2,890

  

 

3,540

  

 

1,099

    

1963

  

1991

Chowchilla

  

CA

  

 

1,119

    

 

—  

  

 

109

  

 

1,119

  

 

1,228

  

 

427

    

1965

  

1987

Gilroy

  

CA

  

 

1,892

    

 

—  

  

 

714

  

 

1,892

  

 

2,606

  

 

709

    

1968

  

1991

Hayward

  

CA

  

 

1,222

    

 

221

  

 

795

  

 

1,443

  

 

2,238

  

 

528

    

1968

  

1991

Orange

  

CA

  

 

5,059

    

 

23

  

 

1,141

  

 

5,082

  

 

6,223

  

 

1,320

    

1987

  

1992

 

58


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


         

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


               

Land (2)


    

Buildings and Improvements


  

Total


          

Skilled Nursing Facilities: (continued)

                                         

San Jose

  

CA

    

$

1,136

    

$

571

  

$

1,595

    

$

1,707

  

$

3,302

  

$

606

    

1968

  

1991

Santa Cruz

  

CA

    

 

1,596

    

 

440

  

 

1,492

    

 

2,036

  

 

3,528

  

 

737

    

1964

  

1991

Hartford

  

CT

    

 

4,153

    

 

200

  

 

350

    

 

4,353

  

 

4,703

  

 

155

    

1969

  

2001

Torrington

  

CT

    

 

2,555

    

 

500

  

 

140

    

 

3,055

  

 

3,195

  

 

1,022

    

1969

  

1987

Winstead

  

CT

    

 

3,494

    

 

618

  

 

70

    

 

4,112

  

 

4,182

  

 

145

    

1960

  

2001

Ft. Pierce

  

FL

    

 

2,758

    

 

280

  

 

125

    

 

3,038

  

 

3,163

  

 

1,508

    

1960

  

1985

Jacksonville

  

FL

    

 

2,787

    

 

140

  

 

498

    

 

2,927

  

 

3,425

  

 

602

    

1965

  

1996

Jacksonville

  

FL

    

 

1,759

    

 

4

  

 

1,503

    

 

1,763

  

 

3,266

  

 

246

    

1997

  

1997

Live Oak

  

FL

    

 

3,217

    

 

1,750

  

 

50

    

 

4,967

  

 

5,017

  

 

1,883

    

1983

  

1986

Maitland

  

FL

    

 

3,327

    

 

—  

  

 

209

    

 

3,327

  

 

3,536

  

 

1,560

    

1982

  

1986

Pensacola

  

FL

    

 

1,833

    

 

—  

  

 

77

    

 

1,833

  

 

1,910

  

 

710

    

1962

  

1987

Flowery Branch

  

GA

    

 

3,115

    

 

665

  

 

562

    

 

3,780

  

 

4,342

  

 

462

    

1970

  

1997

Buhl

  

ID

    

 

777

    

 

—  

  

 

15

    

 

777

  

 

792

  

 

311

    

1913

  

1986

Lasalle

  

IL

    

 

2,703

    

 

—  

  

 

127

    

 

2,703

  

 

2,830

  

 

1,029

    

1975

  

1991

Litchfield

  

IL

    

 

2,689

    

 

—  

  

 

30

    

 

2,689

  

 

2,719

  

 

1,023

    

1974

  

1991

Brookville

  

IN

    

 

4,120

    

 

—  

  

 

81

    

 

4,120

  

 

4,201

  

 

1,047

    

1987

  

1992

Evansville

  

IN

    

 

5,324

    

 

—  

  

 

280

    

 

5,324

  

 

5,604

  

 

2,026

    

1968

  

1991

New Castle

  

IN

    

 

5,173

    

 

—  

  

 

43

    

 

5,173

  

 

5,216

  

 

1,969

    

1972

  

1991

Petersburg

  

IN

    

 

2,352

    

 

—  

  

 

33

    

 

2,352

  

 

2,385

  

 

1,103

    

1970

  

1986

Richmond

  

IN

    

 

2,519

    

 

—  

  

 

114

    

 

2,519

  

 

2,633

  

 

1,182

    

1975

  

1986

Rochester

  

IN

    

 

4,055

    

 

250

  

 

161

    

 

4,305

  

 

4,466

  

 

1,610

    

1969

  

1991

Wabash

  

IN

    

 

2,790

    

 

—  

  

 

40

    

 

2,790

  

 

2,830

  

 

1,062

    

1974

  

1991

Belleville

  

KS

    

 

1,887

    

 

—  

  

 

213

    

 

1,887

  

 

2,100

  

 

613

    

1977

  

1993

Colby

  

KS

    

 

599

    

 

117

  

 

50

    

 

716

  

 

766

  

 

312

    

1974

  

1986

Derby

  

KS

    

 

2,482

    

 

—  

  

 

133

    

 

2,482

  

 

2,615

  

 

889

    

1978

  

1992

Hiawatha

  

KS

    

 

788

    

 

34

  

 

150

    

 

822

  

 

972

  

 

97

    

1974

  

1998

Hutchinson

  

KS

    

 

1,855

    

 

161

  

 

75

    

 

2,016

  

 

2,091

  

 

594

    

1964

  

1994

Onaga

  

KS

    

 

652

    

 

88

  

 

6

    

 

740

  

 

746

  

 

359

    

1959

  

1986

Salina

  

KS

    

 

2,463

    

 

135

  

 

27

    

 

2,598

  

 

2,625

  

 

768

    

1981

  

1994

Topeka

  

KS

    

 

1,137

    

 

58

  

 

100

    

 

1,195

  

 

1,295

  

 

140

    

1973

  

1998

Yates Center

  

KS

    

 

700

    

 

—  

  

 

18

    

 

700

  

 

718

  

 

5

    

1967

  

2002

Amesbury

  

MA

    

 

4,241

    

 

607

  

 

229

    

 

4,848

  

 

5,077

  

 

858

    

1971

  

1997

Beverly

  

MA

    

 

6,578

    

 

975

  

 

392

    

 

7,553

  

 

7,945

  

 

414

    

1998

  

1998

Brockton

  

MA

    

 

3,591

    

 

16

  

 

525

    

 

3,607

  

 

4,132

  

 

1,102

    

1971

  

1993

Buzzards Bay

  

MA

    

 

4,815

    

 

279

  

 

415

    

 

5,094

  

 

5,509

  

 

2,433

    

1910

  

1985

Danvers

  

MA

    

 

2,891

    

 

487

  

 

305

    

 

3,378

  

 

3,683

  

 

599

    

1969

  

1997

Danvers

  

MA

    

 

3,211

    

 

1,144

  

 

327

    

 

4,355

  

 

4,682

  

 

750

    

1962

  

1997

Danvers

  

MA

    

 

7,222

    

 

1,004

  

 

392

    

 

8,226

  

 

8,618

  

 

465

    

1998

  

1998

Haverhill

  

MA

    

 

5,707

    

 

1,764

  

 

660

    

 

7,471

  

 

8,131

  

 

1,992

    

1973

  

1993

Melrose

  

MA

    

 

4,029

    

 

531

  

 

432

    

 

4,560

  

 

4,992

  

 

650

    

1967

  

1998

N. Billerica

  

MA

    

 

3,137

    

 

300

  

 

800

    

 

3,437

  

 

4,237

  

 

981

    

1970

  

1994

New Bedford

  

MA

    

 

2,357

    

 

109

  

 

93

    

 

2,466

  

 

2,559

  

 

1,179

    

1888

  

1985

Northborough

  

MA

    

 

2,509

    

 

1,538

  

 

300

    

 

4,047

  

 

4,347

  

 

430

    

1968

  

1998

Saugus

  

MA

    

 

5,262

    

 

514

  

 

374

    

 

5,776

  

 

6,150

  

 

1,030

    

1967

  

1997

Sharon

  

MA

    

 

1,097

    

 

4,369

  

 

844

    

 

5,466

  

 

6,310

  

 

696

    

1963

  

1996

Clinton

  

MD

    

 

5,017

    

 

595

  

 

400

    

 

5,612

  

 

6,012

  

 

1,985

    

1965

  

1987

Cumberland

  

MD

    

 

5,260

    

 

—  

  

 

150

    

 

5,260

  

 

5,410

  

 

2,556

    

1968

  

1985

Hagerstown

  

MD

    

 

4,140

    

 

176

  

 

215

    

 

4,316

  

 

4,531

  

 

2,117

    

1971

  

1985

Kensington

  

MD

    

 

5,737

    

 

39

  

 

1,470

    

 

5,776

  

 

7,246

  

 

56

    

1954

  

2002

 

59


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


         

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


               

Land (2)


    

Buildings and Improvements


  

Total


          

Skilled Nursing Facilities: (continued)

                                         

Westminster

  

MD

    

$

6,795

    

$

—  

  

$

80

    

$

6,795

  

$

6,875

  

$

3,301

    

1973

  

1985

Duluth

  

MN

    

 

7,047

    

 

330

  

 

1,014

    

 

7,377

  

 

8,391

  

 

1,261

    

1971

  

1997

Minneapolis

  

MN

    

 

5,752

    

 

713

  

 

333

    

 

6,465

  

 

6,798

  

 

3,197

    

1941

  

1985

Minneapolis

  

MN

    

 

4,184

    

 

—  

  

 

436

    

 

4,184

  

 

4,620

  

 

2,186

    

1961

  

1985

Maryville

  

MO

    

 

2,689

    

 

—  

  

 

51

    

 

2,689

  

 

2,740

  

 

1,307

    

1972

  

1985

Columbus

  

MS

    

 

3,520

    

 

197

  

 

750

    

 

3,717

  

 

4,467

  

 

443

    

1976

  

1998

Hendersonville

  

NC

    

 

2,244

    

 

—  

  

 

116

    

 

2,244

  

 

2,360

  

 

1,090

    

1979

  

1985

Sparks

  

NV

    

 

3,294

    

 

—  

  

 

740

    

 

3,294

  

 

4,034

  

 

927

    

1988

  

1991

Boardman

  

OH

    

 

7,046

    

 

—  

  

 

60

    

 

7,046

  

 

7,106

  

 

2,681

    

1962

  

1991

Columbus

  

OH

    

 

4,333

    

 

—  

  

 

343

    

 

4,333

  

 

4,676

  

 

1,756

    

1984

  

1988

Galion

  

OH

    

 

3,419

    

 

—  

  

 

24

    

 

3,419

  

 

3,443

  

 

1,301

    

1967

  

1991

Warren

  

OH

    

 

7,489

    

 

—  

  

 

450

    

 

7,489

  

 

7,939

  

 

2,849

    

1967

  

1991

Wash Ct House

  

OH

    

 

4,086

    

 

—  

  

 

356

    

 

4,086

  

 

4,442

  

 

1,692

    

1984

  

1988

Maud

  

OK

    

 

803

    

 

—  

  

 

12

    

 

803

  

 

815

  

 

323

    

1960

  

1986

Sapulpa

  

OK

    

 

2,243

    

 

—  

  

 

68

    

 

2,243

  

 

2,311

  

 

897

    

1970

  

1986

Tonkawa

  

OK

    

 

795

    

 

—  

  

 

18

    

 

795

  

 

813

  

 

722

    

1962

  

1987

Celina

  

TN

    

 

853

    

 

—  

  

 

150

    

 

853

  

 

1,003

  

 

261

    

1975

  

1993

Clarksville

  

TN

    

 

3,479

    

 

—  

  

 

350

    

 

3,479

  

 

3,829

  

 

1,063

    

1967

  

1993

Decatur

  

TN

    

 

3,330

    

 

—  

  

 

193

    

 

3,330

  

 

3,523

  

 

428

    

1981

  

1998

Jonesborough

  

TN

    

 

2,551

    

 

3

  

 

65

    

 

2,554

  

 

2,619

  

 

780

    

1982

  

1993

Madison

  

TN

    

 

6,415

    

 

—  

  

 

1,120

    

 

6,415

  

 

7,535

  

 

779

    

1967

  

1998

Albany

  

TX

    

 

865

    

 

—  

  

 

6

    

 

865

  

 

871

  

 

13

    

1978

  

2002

Austin

  

TX

    

 

3,726

    

 

—  

  

 

360

    

 

3,726

  

 

4,086

  

 

56

    

1968

  

2002

Balch Springs

  

TX

    

 

2,135

    

 

—  

  

 

64

    

 

2,135

  

 

2,199

  

 

32

    

1977

  

2002

Baytown

  

TX

    

 

1,902

    

 

154

  

 

61

    

 

2,056

  

 

2,117

  

 

615

    

1970

  

1990

Baytown

  

TX

    

 

2,388

    

 

296

  

 

90

    

 

2,684

  

 

2,774

  

 

768

    

1975

  

1990

Bogota

  

TX

    

 

1,820

    

 

36

  

 

13

    

 

1,856

  

 

1,869

  

 

854

    

1963

  

1986

Bowie

  

TX

    

 

3,205

    

 

—  

  

 

127

    

 

3,205

  

 

3,332

  

 

50

    

1955

  

2002

Center

  

TX

    

 

1,424

    

 

229

  

 

22

    

 

1,653

  

 

1,675

  

 

471

    

1972

  

1990

Clarksville

  

TX

    

 

1,583

    

 

—  

  

 

4

    

 

1,583

  

 

1,587

  

 

23

    

1965

  

2002

Cleburne

  

TX

    

 

1,615

    

 

—  

  

 

128

    

 

1,615

  

 

1,743

  

 

24

    

1972

  

2002

Clyde

  

TX

    

 

874

    

 

—  

  

 

10

    

 

874

  

 

884

  

 

12

    

1963

  

2002

Crowell

  

TX

    

 

960

    

 

—  

  

 

2

    

 

960

  

 

962

  

 

14

    

1975

  

2002

Dallas

  

TX

    

 

2,644

    

 

—  

  

 

64

    

 

2,644

  

 

2,708

  

 

38

    

1976

  

2002

Eagle Lake

  

TX

    

 

1,833

    

 

150

  

 

25

    

 

1,983

  

 

2,008

  

 

593

    

1972

  

1990

El Paso

  

TX

    

 

1,888

    

 

—  

  

 

166

    

 

1,888

  

 

2,054

  

 

755

    

1980

  

1988

El Paso

  

TX

    

 

1,628

    

 

—  

  

 

206

    

 

1,628

  

 

1,834

  

 

23

    

1975

  

2002

Flowery Mound

  

TX

    

 

4,871

    

 

—  

  

 

488

    

 

4,871

  

 

5,359

  

 

12

    

1995

  

2002

Fort Worth

  

TX

    

 

1,993

    

 

—  

  

 

230

    

 

1,993

  

 

2,223

  

 

28

    

1969

  

2002

Fort Worth

  

TX

    

 

2,460

    

 

—  

  

 

201

    

 

2,460

  

 

2,661

  

 

35

    

1971

  

2002

Garland

  

TX

    

 

1,619

    

 

148

  

 

238

    

 

1,767

  

 

2,005

  

 

528

    

1970

  

1990

Gilmer

  

TX

    

 

3,033

    

 

1,870

  

 

248

    

 

4,903

  

 

5,151

  

 

507

    

1990

  

1998

Gladewater

  

TX

    

 

2,018

    

 

33

  

 

125

    

 

2,051

  

 

2,176

  

 

646

    

1971

  

1993

Greenville

  

TX

    

 

1,680

    

 

—  

  

 

95

    

 

1,680

  

 

1,775

  

 

25

    

1976

  

2002

Henderson

  

TX

    

 

1,713

    

 

—  

  

 

90

    

 

1,713

  

 

1,803

  

 

24

    

1966

  

2002

Houston

  

TX

    

 

4,155

    

 

336

  

 

408

    

 

4,491

  

 

4,899

  

 

1,378

    

1982

  

1993

Houston

  

TX

    

 

1,342

    

 

—  

  

 

101

    

 

1,342

  

 

1,443

  

 

19

    

1977

  

2002

Humble

  

TX

    

 

1,821

    

 

221

  

 

140

    

 

2,042

  

 

2,182

  

 

592

    

1972

  

1990

Huntsville

  

TX

    

 

1,930

    

 

126

  

 

135

    

 

2,056

  

 

2,191

  

 

622

    

1968

  

1990

 

60


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


  

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


          

Land (2)


  

Buildings and Improvements


  

Total


          

Skilled Nursing Facilities: (continued)

                                       

Jacksonville

  

TX

  

$

2,041

    

$

—  

  

$

54

  

$

2,041

  

$

2,095

  

$

34

    

1973

  

2002

Linden

  

TX

  

 

2,520

    

 

70

  

 

25

  

 

2,590

  

 

2,615

  

 

808

    

1968

  

1993

Lubbock

  

TX

  

 

2,064

    

 

—  

  

 

633

  

 

2,064

  

 

2,697

  

 

30

    

1977

  

2002

Marshall

  

TX

  

 

865

    

 

—  

  

 

19

  

 

865

  

 

884

  

 

488

    

1964

  

1986

McAllen

  

TX

  

 

1,115

    

 

—  

  

 

153

  

 

1,115

  

 

1,268

  

 

18

    

1966

  

2002

McAllen

  

TX

  

 

2,850

    

 

—  

  

 

171

  

 

2,850

  

 

3,021

  

 

46

    

1982

  

2002

McKinney

  

TX

  

 

1,456

    

 

39

  

 

1,318

  

 

1,495

  

 

2,813

  

 

574

    

1967

  

1987

McKinney

  

TX

  

 

4,797

    

 

—  

  

 

1,263

  

 

4,797

  

 

6,060

  

 

453

    

1967

  

2000

Mesquite

  

TX

  

 

2,658

    

 

—  

  

 

153

  

 

2,658

  

 

2,811

  

 

37

    

1974

  

2002

Mineral Wells

  

TX

  

 

1,635

    

 

—  

  

 

52

  

 

1,635

  

 

1,687

  

 

28

    

1975

  

2002

Mount Pleasant

  

TX

  

 

2,505

    

 

141

  

 

40

  

 

2,646

  

 

2,686

  

 

807

    

1970

  

1993

Munday

  

TX

  

 

498

    

 

—  

  

 

2

  

 

498

  

 

500

  

 

7

    

1967

  

2002

Nacogdoches

  

TX

  

 

1,104

    

 

138

  

 

135

  

 

1,242

  

 

1,377

  

 

369

    

1973

  

1990

New Boston

  

TX

  

 

2,366

    

 

65

  

 

44

  

 

2,431

  

 

2,475

  

 

759

    

1966

  

1993

Omaha

  

TX

  

 

1,579

    

 

73

  

 

28

  

 

1,652

  

 

1,680

  

 

507

    

1970

  

1993

Rosenberg

  

TX

  

 

2,013

    

 

—  

  

 

112

  

 

2,013

  

 

2,125

  

 

33

    

1977

  

2002

Rusk

  

TX

  

 

1,549

    

 

—  

  

 

23

  

 

1,549

  

 

1,572

  

 

26

    

1972

  

2002

San Antonio

  

TX

  

 

2,033

    

 

128

  

 

32

  

 

2,161

  

 

2,193

  

 

654

    

1965

  

1990

San Antonio

  

TX

  

 

1,636

    

 

126

  

 

221

  

 

1,762

  

 

1,983

  

 

532

    

1965

  

1990

San Antonio

  

TX

  

 

4,536

    

 

—  

  

 

—  

  

 

4,536

  

 

4,536

  

 

65

    

1988

  

2002

San Antonio

  

TX

  

 

2,224

    

 

—  

  

 

268

  

 

2,224

  

 

2,492

  

 

31

    

1975

  

2002

Sherman

  

TX

  

 

2,075

    

 

17

  

 

67

  

 

2,092

  

 

2,159

  

 

664

    

1971

  

1993

Sulphur Springs

  

TX

  

 

1,649

    

 

—  

  

 

72

  

 

1,649

  

 

1,721

  

 

24

    

1969

  

2002

Texarkana

  

TX

  

 

1,244

    

 

—  

  

 

87

  

 

1,244

  

 

1,331

  

 

583

    

1983

  

1986

Texas City

  

TX

  

 

1,389

    

 

—  

  

 

54

  

 

1,389

  

 

1,443

  

 

20

    

1973

  

2002

Vernon

  

TX

  

 

608

    

 

—  

  

 

14

  

 

608

  

 

622

  

 

12

    

1952

  

2002

Waxahachie

  

TX

  

 

3,493

    

 

27

  

 

319

  

 

3,520

  

 

3,839

  

 

1,347

    

1976

  

1987

Weatherford

  

TX

  

 

2,252

    

 

—  

  

 

346

  

 

2,252

  

 

2,598

  

 

36

    

1967

  

2002

White Settlement

  

TX

  

 

2,258

    

 

—  

  

 

66

  

 

2,258

  

 

2,324

  

 

32

    

1969

  

2002

Wichita Falls

  

TX

  

 

3,041

    

 

—  

  

 

51

  

 

3,041

  

 

3,092

  

 

47

    

1969

  

2002

Wichita Falls

  

TX

  

 

687

    

 

—  

  

 

10

  

 

687

  

 

697

  

 

10

    

1965

  

2002

Annandale

  

VA

  

 

7,752

    

 

—  

  

 

487

  

 

7,752

  

 

8,239

  

 

3,766

    

1963

  

1985

Charlottesville

  

VA

  

 

4,620

    

 

—  

  

 

362

  

 

4,620

  

 

4,982

  

 

2,245

    

1964

  

1985

Petersburg

  

VA

  

 

2,215

    

 

—  

  

 

93

  

 

2,215

  

 

2,308

  

 

1,076

    

1972

  

1985

Petersburg

  

VA

  

 

2,945

    

 

—  

  

 

94

  

 

2,945

  

 

3,039

  

 

1,431

    

1976

  

1985

Kennewick

  

WA

  

 

4,459

    

 

—  

  

 

297

  

 

4,459

  

 

4,756

  

 

793

    

1959

  

1997

Moses Lake

  

WA

  

 

4,307

    

 

1,326

  

 

304

  

 

5,633

  

 

5,937

  

 

1,240

    

1972

  

1994

Moses Lake

  

WA

  

 

2,385

    

 

—  

  

 

164

  

 

2,385

  

 

2,549

  

 

662

    

1988

  

1994

Seattle

  

WA

  

 

5,752

    

 

182

  

 

1,223

  

 

5,934

  

 

7,157

  

 

1,231

    

1993

  

1994

Shelton

  

WA

  

 

4,382

    

 

300

  

 

327

  

 

4,682

  

 

5,009

  

 

532

    

1998

  

1998

Chilton

  

WI

  

 

2,275

    

 

148

  

 

55

  

 

2,423

  

 

2,478

  

 

1,156

    

1963

  

1986

Florence

  

WI

  

 

1,529

    

 

—  

  

 

15

  

 

1,529

  

 

1,544

  

 

717

    

1970

  

1986

Green Bay

  

WI

  

 

2,255

    

 

—  

  

 

300

  

 

2,255

  

 

2,555

  

 

1,058

    

1965

  

1986

Sheboygan

  

WI

  

 

1,697

    

 

—  

  

 

219

  

 

1,697

  

 

1,916

  

 

792

    

1967

  

1986

St. Francis

  

WI

  

 

535

    

 

—  

  

 

80

  

 

535

  

 

615

  

 

250

    

1960

  

1986

Tomah

  

WI

  

 

1,745

    

 

128

  

 

115

  

 

1,873

  

 

1,988

  

 

924

    

1974

  

1985

Wisconsin Dells

  

WI

  

 

1,697

    

 

—  

  

 

81

  

 

1,697

  

 

1,778

  

 

792

    

1972

  

1986

         

    

  

  

  

  

           
         

 

452,803

    

 

28,616

  

 

43,228

  

 

481,419

  

 

524,647

  

 

120,717

           
         

    

  

  

  

  

           

 

61


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

Facility Type and Location


  

Initial Cost to Building and Improvements


    

Cost Capitalized Subsequent to Acquisition


  

Gross Amount at which Carried at

Close of Period (1)


  

Accum. Depr.


    

Original Construction Date


  

Date Acquired


          

Land (2)


  

Buildings and Improvements


  

Total


          

Continuing Care Retirement

                                                       

Communities:

                                                            

Chandler

  

AZ

  

$

7,039

    

$

1,312

  

$

1,980

  

$

8,351

  

$

10,331

  

$

101

    

1992

  

2002

Palm Desert

  

CA

  

 

9,097

    

 

1,730

  

 

1,600

  

 

10,827

  

 

12,427

  

 

2,237

    

1989

  

1994

Sterling

  

CO

  

 

2,715

    

 

—  

  

 

400

  

 

2,715

  

 

3,115

  

 

792

    

1979

  

1994

Largo

  

FL

  

 

17,027

    

 

290

  

 

1,300

  

 

17,317

  

 

18,617

  

 

617

    

1972

  

2002

Lawrenceville

  

GA

  

 

10,769

    

 

—  

  

 

723

  

 

10,769

  

 

11,492

  

 

1,103

    

1988

  

1998

Andover (14)

  

KS

  

 

12,517

    

 

—  

  

 

687

  

 

12,517

  

 

13,204

  

 

1,878

    

1987

  

1997

Norton

  

MA

  

 

8,272

    

 

4,669

  

 

1,351

  

 

12,941

  

 

14,292

  

 

1,692

    

1972

  

1997

Trenton

  

TN

  

 

3,004

    

 

—  

  

 

174

  

 

3,004

  

 

3,178

  

 

175

    

1974

  

2000

Corpus Christi

  

TX

  

 

14,929

    

 

14,093

  

 

1,848

  

 

29,022

  

 

30,870

  

 

3,864

    

1985

  

1997

Glendale (15)

  

WI

  

 

22,905

    

 

—  

  

 

3,834

  

 

22,905

  

 

26,739

  

 

3,314

    

1988

  

1997

Waukesha (16)

  

WI

  

 

28,562

    

 

2,104

  

 

7,233

  

 

30,666

  

 

37,899

  

 

5,001

    

1973

  

1997

         

    

  

  

  

  

           
         

 

136,836

    

 

24,198

  

 

21,130

  

 

161,034

  

 

182,164

  

 

20,774

           
         

    

  

  

  

  

           

Rehabilitation Hospitals:

                                                       

Tucson

  

AZ

  

 

9,435

    

 

—  

  

 

1,275

  

 

9,435

  

 

10,710

  

 

2,487

    

1992

  

1992

         

    

  

  

  

  

           

Long-Term Acute Care Facilities:

                                                       

Scottsdale

  

AZ

  

 

5,924

    

 

195

  

 

242

  

 

6,119

  

 

6,361

  

 

2,157

    

1986

  

1988

         

    

  

  

  

  

           

GRAND TOTAL

       

$

1,212,365

    

$

87,260

  

$

154,563

  

$

1,299,625

  

$

1,454,188

  

$

224,400

           
         

    

  

  

  

  

           

(1)   Also represents the approximate cost for federal income tax purposes.  
(2)   Gross amount at which land is carried at close of period also represents initial cost to the Company.  
(3)   Real estate is security for notes payable in the aggregate of $10,000,000 at December 31, 2002.  
(4)   Real estate is security for notes payable in the aggregate of $29,624,000 at December 31, 2002.  
(5)   Real estate is security for notes payable in the aggregate of $3,385,000 at December 31, 2002.  
(6)   Real estate is security for notes payable in the aggregate of $2,945,000 at December 31, 2002.  
(7)   Real estate is security for notes payable in the aggregate of $14,019,000 at December 31, 2002.  
(8)   Real estate is security for notes payable in the aggregate of $1,995,000 at December 31, 2002.  
(9)   Real estate is security for notes payable in the aggregate of $3,206,000 at December 31, 2002.  
(10)   Real estate is security for notes payable in the aggregate of $3,347,000 at December 31, 2002.  
(11)   Real estate is security for notes payable in the aggregate of $9,949,000 at December 31, 2002.  
(12)   Real estate is security for notes payable in the aggregate of $7,883,000 at December 31, 2002.  
(13)   Real estate is security for notes payable in the aggregate of $2,100,000 at December 31, 2002.  
(14)   Real estate is security for notes payable in the aggregate of $2,300,000 at December 31, 2002.  
(15)   Real estate is security for notes payable in the aggregate of $12,636,000 at December 31, 2002.  
(16)   Real estate is security for notes payable in the aggregate of $7,914,000 at December 31, 2002.  

 

62


SCHEDULE III

 

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2002

(Dollar amounts in thousands)

 

    

Real Estate

Properties


    

Accumulated

Depreciation


 
    

(in thousands)

 

Balances at December 31, 1999:

  

$

1,331,373

 

  

$

162,671

 

    


  


Acquisitions

  

 

21,547

 

  

 

33,293

 

Improvements

  

 

15,114

 

  

 

2,364

 

Reclassifications

  

 

10,851

 

  

 

—  

 

Sales

  

 

(45,276

)

  

 

(12,122

)

    


  


Balances at December 31, 2000:

  

 

1,333,609

 

  

 

186,206

 

    


  


Acquisitions

  

 

14,464

 

  

 

32,620

 

Improvements

  

 

6,270

 

  

 

2,640

 

Reclassifications

  

 

1,323

 

  

 

—  

 

Impairment of Assets

  

 

(3,536

)

  

 

—  

 

Sales

  

 

(56,481

)

  

 

(14,330

)

    


  


Balances at December 31, 2001:

  

 

1,295,649

 

  

 

207,136

 

    


  


Acquisitions

  

 

165,428

 

  

 

33,532

 

Improvements

  

 

13,870

 

  

 

3,212

 

Reclassifications

  

 

37,414

 

  

 

—  

 

Assets Held for Sale

  

 

(39,623

)

  

 

(14,344

)

Sales

  

 

(18,550

)

  

 

(5,136

)

    


  


Balances at December 31, 2002:

  

$

1,454,188

 

  

$

224,400

 

    


  


 

63


 

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Not applicable.

 

PART III

 

Item 10.    Directors and Executive Officers of the Registrant.

 

Information required regarding executive officers is included under the caption “ Executive Officers of the Company” in Item 1.

 

Incorporated herein by reference to the information under the caption “Election of Directors” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2003, filed or to be filed pursuant to Regulation 14A.

 

Item 11.    Executive Compensation.

 

Incorporated herein by reference to the information under the caption “Executive Compensation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2003, filed or to be filed pursuant to Regulation 14A.

 

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Incorporated herein by reference to the information under the caption “Stock Ownership” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2003, filed or to be filed pursuant to Regulation 14A.

 

Item 13.    Certain Relationships and Related Transactions.

 

Incorporated herein by reference to the information under the captions “Certain Relationships and Related Transactions” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on May 29, 2003, filed or to be filed pursuant to Regulation 14A.

 

Item 14.    Controls and Procedures

 

Within the 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.

 

64


 

PART IV

 

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

 

(a)(1)  Financial Statements.

 

Report of Independent Auditors

  

32

Consolidated Balance Sheets at December 31, 2002 and 2001

  

33

Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000

  

34

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000

  

35

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000

  

36

Notes to Consolidated Financial Statements

  

37

 

(2)  Financial Statement Schedules

 

Schedule III Real Estate and Accumulated Depreciation

  

56

 

(b)  Reports on Form 8-K

 

None.

 

(c)  Exhibits

 

Exhibit No.


    

Description


2.  

 

  

Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession

2.1

 

  

Agreement to Merge, dated August 19, 1997, among the Company, Laureate Investments, Inc. and Laureate Properties, Inc., filed as Exhibit 2.1 to the Company’s Form 8-K dated October 7, 1997, and incorporated herein by this reference.

3.  

 

  

Articles of Incorporation and Bylaws

3.1

(a)

  

Restated Articles of Incorporation, filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-11 (No. 33-1128), effective December 19, 1985, and incorporated herein by this reference.

3.1

(b)

  

Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 1989, and incorporated herein by this reference.

3.1

(c)

  

Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1(c) to the Company’s Registration Statement on Form S-11 (No. 33-32251), effective January 23, 1990, and incorporated herein by this reference.

3.1

(d)

  

Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1(d) to the Company’s Form 10-K for the year ended December 31, 1994, and incorporated herein by this reference.

3.1

(e)

  

Articles Supplementary to the Registrant’s Amended and Restated Articles of Incorporation, dated September 24, 1997, filed as Exhibit 3.1 to the Company’s Form 8-K dated September 24, 1997, and incorporated herein by this reference.

3.2

 

  

Amended and Restated Bylaws of the Company.

4.  

 

  

Instruments Defining Rights of Security Holders, Including Indentures

4.1

 

  

Indenture dated as of November 16, 1992, between Nationwide Health Properties, Inc., Issuer to The Chase Manhattan Bank (National Association), Trustee, filed as Exhibit 4.1 to the Company’s Form S-3 (No. 33-54870) dated November 24, 1992, and incorporated herein by this reference.

 

65


Exhibit No.


    

Description


4.2

 

  

Indenture dated as of June 30, 1993, between the Company and First Interstate Bank of California, as Trustee, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (No. 33-64798), effective July 12, 1993, and incorporated herein by this reference.

4.3  

 

  

First Supplemental Indenture dated November 15, 1993, between the Company and First Interstate Bank of California, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated November 15, 1993, and incorporated herein by this reference.

4.4  

 

  

Indenture dated as of January 12, 1996, between the Company and The Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 33-65423) dated December 27, 1995, and incorporated herein by this reference.

4.5  

 

  

Indenture dated as of January 13, 1999, between the Company and Chase Manhattan Bank and Trust Company, National Association, as Trustee, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 333-70707) dated January 15, 1999, and incorporated herein by this reference.

10.    

 

  

Material Contracts

10.1  

 

  

1989 Stock Option Plan of the Company as Amended and Restated April 20, 2001, filed as Exhibit 10.4 to the Company’s 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.

10.2  

 

  

The Company’s Retirement Plan for Directors effective July 26, 1991 filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 1991, and incorporated herein by this reference.

10.3  

 

  

Deferred Compensation Plan of the Company effective September 1, 1991 filed as Exhibit 10.14 to the Company’s Form 10-K for the year ended December 31, 1991, and incorporated herein by this reference.

10.4  

 

  

Credit Agreement dated as of November 8, 2002 among the Company and JPMorgan Chase Bank, Bank of America, N.A., Wells Fargo Bank National Association, The Bank of New York, UBS AG, Stamford Branch and KBC Bank N.V.

10.5  

 

  

First Amendment to Credit Agreement dated as of January 1, 2003 among the Company and JPMorgan Chase Bank, as administrative agent.

10.6  

 

  

Form of Indemnity Agreement for officers and directors of the Company including David R. Banks, William K. Doyle, Charles D. Miller, Robert D. Paulson, Keith P. Russell, Jack D. Samuelson, R. Bruce Andrews, David M. Boitano, Donald D. Bradley, Mark L. Desmond, Steven J. Insoft, Don M. Pearson, John J. Sheehan, Jr., and T. Andrew Stokes, filed as Exhibit 10.11 to the Company’s Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference.

10.7  

 

  

Executive Employment Security Policy as Amended and Restated April 20, 2001, filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.

10.8  

 

  

Employment agreement entered into by and between Nationwide Health Properties, Inc. and R. Bruce Andrews dated as of February 25, 1998, filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference.

10.10

 

  

Employment agreement entered into by and between Nationwide Health Properties, Inc. and Mark L. Desmond dated as of February 25, 1998, filed as Exhibit 10.15 to the Company’s Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference.

10.10

(a)

  

First Amendment of Employment Agreement of Mark L. Desmond dated as of January 19, 2001, filed as Exhibit 10.12(a) to the Company’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.

 

66


Exhibit No.


    

Description


10.10

(b)

  

Second Amendment to Employment Agreement of Mark L. Desmond dated as of April 20, 2001, filed as exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.

10.11

 

  

Limited Liability Company Agreement of JER/NHP Senior Housing, LLC entered into as of August 28, 2001 by and among Nationwide Health Properties and JER Senior Housing, LLC filed as Exhibit 10.14 to the Company’s Form 10-K for the year ended December 31, 2001, and incorporated herein by this reference.

10.12

 

  

First Amendment to Limited Liability Company Agreement of JER/NHP Senior Housing, LLC dated February 7, 2002 by and among Nationwide Health Properties and JER Senior Housing, LLC.

10.13

 

  

Second Amendment to Limited Liability Company Agreement of JER/NHP Senior Housing, LLC dated October 28, 2002 by and among Nationwide Health Properties and JER Senior Housing, LLC.

21.    

 

  

Subsidiaries of the Company

23.    

 

  

Consents of Experts and Counsel

23.1  

 

  

Consent of Ernst & Young LLP

 

 

67


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NATIONWIDE HEALTH PROPERTIES, INC.

By:

 

/s/    R. BRUCE ANDREWS         


   

R. Bruce Andrews

President and Chief Executive Officer

 

Dated: March 11, 2003

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

 

Signature


  

Title


 

Date


/s/    CHARLES D. MILLER      


Charles D. Miller

  

Chairman and Director

 

March 10, 2003

/s/    R. BRUCE ANDREWS        


R. Bruce Andrews

  

President, Chief Executive Officer and

Director (Principal Executive

Officer)

 

March 11, 2003

/s/    MARK L. DESMOND        


Mark L. Desmond

  

Senior Vice President and Chief

Financial Officer (Principal

Financial and Accounting Officer)

 

March 11, 2003


David R. Banks

  

Director

   

/s/    WILLIAM K. DOYLE      


William K. Doyle

  

Director

 

March 6, 2003

/s/    ROBERT D. PAULSON        


Robert D. Paulson

  

Director

 

March 10, 2003

/s/    KEITH P. RUSSELL        


Keith P. Russell

  

Director

 

March 6, 2003

/s/    JACK D. SAMUELSON        


Jack D. Samuelson

  

Director

 

March 10, 2003

 

 

68


 

CERTIFICATIONS

 

I, R. Bruce Andrews, certify that:

 

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

 

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

 

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

 

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)  Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

 

c)  Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

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

 

a)  All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.    The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Date: 

 

March 11, 2003


     

/S/    R. BRUCE ANDREWS


           

R. Bruce Andrews

President and Chief Executive Officer

 

69


 

I, Mark L. Desmond, certify that:

 

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

 

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

 

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

 

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)  Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

 

c)  Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

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

 

a)  All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.    The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Date: 

 

March 11, 2003


     

/S/    MARK L. DESMOND


           

Mark L. Desmond

Senior Vice President and Chief Financial Officer

 

70