-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DlkhukwLR4N1W9oQs/VpoGsLLJ07rYTeP3fSmItxIickbR+U88KWc3JIjDCYkt3W ruTlzkz99XzPsZnFWqPrAA== 0000908737-97-000124.txt : 19970401 0000908737-97-000124.hdr.sgml : 19970401 ACCESSION NUMBER: 0000908737-97-000124 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 97570478 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6173323990 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 1996 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________ to ______________ Commission File Number 1-9317 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland 04-655883 (State or other jurisdiction of incorporation) (IRS Employer Identification No.) 400 Centre Street, Newton, Massachusetts 02158 (Address of principal executive offices) (Zip Code) 617-332-3990 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on Title of each class which registered - ------------------------------------------------------------------------------------------------------------- Common Shares of Beneficial Interest New York Stock Exchange Floating Rate Senior Notes, Series B, Due 1999 New York Stock Exchange 7.25% Convertible Subordinated Debentures due 2001 New York Stock Exchange 7.5% Convertible Subordinated Debentures due 2003, Series A New York Stock Exchange
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. [ ] The aggregate market value of the voting stock of the registrant held by non-affiliates was $1,716,775,380 based on the $18.875 closing price per share for such stock on the New York Stock Exchange on March 25, 1997. For purposes of this calculation, 3,859,722 shares held by HRPT Advisors, Inc. (the "Advisor"), including a total of 2,777,766 shares held by the Advisor solely in its capacity as voting Trustee under certain voting Trust agreements, 3,862,716 shares held by Government Properties Investors, Inc. subject to certain voting agreements with the Company and an aggregate of 23,550 shares held by the trustees and executive officers of the registrant, have been included in the number of shares held by affiliates. Number of the registrant's Common Shares of Beneficial Interest, $.01 par value ("Shares"), outstanding as of March 25, 1997: 98,700,975. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K is incorporated herein by reference from the Company's definitive Proxy Statement for the annual meeting of shareholders currently scheduled to be held on May 13, 1997. The financial statements and financial statement schedules for Marriott International, Inc. ("Marriott") are incorporated herein by reference to Marriott's Annual Report on Form 10-K for the year ended January 3, 1997, Commission file No. 1-12188. CERTAIN IMPORTANT FACTORS The Company's Annual Report on Form 10-K contains statements which constitute forward looking statements within the meaning of the Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Form 10-K and include statements regarding the intent, belief or expectations of the Company, its Trustees or its officers with respect to expansion of the Company's portfolio, its ability to pay dividends, its tax status as a real estate investment trust and the Company's access to debt or equity capital markets or to other sources of funds and statements of assumptions underlying such statements as to intent, belief or expectations. Readers are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contained in the forward looking statement as a result of various factors. Such factors include the status of the economy, compliance with and changes to regulations and payment and reimbursement policies within the health care industry, competition within the health care industry, and changes to federal, state and local legislation. The accompanying information contained in this form 10-K, including under the headings "Business" and "Management's Discussion and Analysis of financial condition and Results of Operations", identifies other important factors that could cause such difference. THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. HEALTH AND RETIREMENT PROPERTIES TRUST 1996 FORM 10-K ANNUAL REPORT
Table of Contents Part I Page Item 1. Business........................................................................ 1 ................................................................................ Item 2. Properties...................................................................... 15 Item 3. Legal Proceedings............................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders............................. 17 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholders Matters....... 18 Item 6. Selected Financial Data......................................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 19 Item 8. Financial Statements and Supplementary Data..................................... 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................................................... 20 Part III Incorporated by reference from the Company's Proxy Statement for the Annual Meeting of Shareholders currently scheduled to be held on May 13, 1997, to be filed pursuant to Regulation 14A. Part IV Item 14.Exhibits, Financial Statement Schedules and Report on Form 8-K.................. 20
PART I Item 1. Business The Company. Health and Retirement Properties Trust (the "Company") was organized on October 9, 1986 as a Maryland real estate investment trust. The Company primarily invests in retirement communities, assisted living centers, long-term care facilities and other income producing health care related real estate. The facilities in which the Company has made investments by mortgage, purchase lease or merger transactions shall hereinafter be referred to individually as a "Property" and collectively as "Properties". As of December 31, 1996, the Company directly owned 123 Properties for an aggregate of $1.0 billion (at cost) and had mortgage investments in 52 Properties aggregating $150.2 million. The Company also has a 14.9% equity investment in Hospitality Properties Trust ("HPT") of approximately $103.1 million (carrying value), for total real estate investments of approximately $1.3 billion. The Properties are described in "Business Developments Since January 1, 1996" and "Properties". Number of Total Investment State Properties at December 31, 1996 - ----- ---------- -------------------- (in thousands) Arizona ................................ 6 $ 42,862 California ............................. 22 134,599 Colorado ............................... 11 37,422 Connecticut ............................ 9 94,244 District of Columbia ................... 1 25,181 Florida ................................ 7 147,886 Georgia ................................ 6 17,611 Illinois ............................... 3 101,454 Iowa ................................... 13 22,829 Kansas ................................. 9 13,136 Louisiana .............................. 1 19,358 Maryland ............................... 1 33,080 Massachusetts .......................... 9 148,978 Michigan ............................... 2 9,343 Missouri ............................... 3 5,877 Nebraska ............................... 16 16,496 New Hampshire .......................... 1 3,689 New Jersey ............................. 1 13,007 New York ............................... 3 30,599 North Carolina ......................... 9 22,710 Ohio ................................... 5 21,121 Pennsylvania ........................... 2 18,341 South Dakota ........................... 3 7,589 Texas .................................. 6 17,259 Vermont ................................ 8 29,766 Virginia ............................... 4 63,353 Washington ............................. 1 5,193 Wisconsin .............................. 9 44,063 Wyoming ................................ 4 8,898 ------ ---------- Total .................................. 175 $1,155,944 Investment in HPT ...................... 82 103,062 ------ ---------- Total Investments ...................... 257 $1,259,006 ====== ========== The Company's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. Investment Policy and Method of Operation. The Company's investment goals are current income for distribution to shareholders, capital growth resulting from appreciation in the residual value of owned Properties, and preservation and protection of shareholders' capital. The Company's income is derived primarily from minimum rent and minimum interest payments under its 1 leases and mortgages and from additional rent and additional interest payments based upon revenue increases at the leased and mortgaged Properties. The Company's day-to-day operations are conducted by HRPT Advisors, Inc., (the "Advisor") the Company's investment advisor. The Advisor originates and presents investment opportunities to the Company's Board of Trustees (the "Trustees"). In evaluating potential investments, the Company considers such factors as: the adequacy of current and anticipated cash flow from the property to meet operational needs and financing obligations and to provide a competitive market return on investment to the Company; the growth, tax and regulatory environments of the community in which the property is located; the quality, experience, and credit worthiness of the property's operator; an appraisal of the property, if available; occupancy and demand for similar health care facilities in the same or nearby communities; the mix of private and government sponsored patients; the mix of cost-based and charge-based revenues; the construction quality, condition and design of the property; and the geographic area and type of property. The Trustees have established a policy that the Company will not purchase or mortgage finance a facility for an amount which exceeds the appraised value of such properties or, in certain cases, the Company's internal appraisal. Prior to investing in properties, the Company obtains title commitments or policies of title insurance insuring that the Company holds title to or has mortgage interests in such properties, free of material liens and encumbrances. From time to time, the Trustees have made exception to, and may in the future modify or rescind, this policy when they have determined it to be in the best interests of the Company and its shareholders. The Company's investments may be structured using leases with minimum and additional rent and escalation provisions, loans with fixed or floating rates, joint ventures and partnerships with affiliated or unaffiliated parties, commitments or options to purchase interests in real estate, mergers or any combination of the foregoing that will best suit the particular investment. In connection with its revolving credit facility, the Company has agreed to obtain bank approval before exceeding investment concentrations based on certain criteria. Among these are that no more than 40% of its investments be operated by any single tenant or mortgagor, that investments in rehabilitation treatment, acute care, medical office buildings, medical clinics and investments in government office properties not exceed 40%, 15%, 30%, 25% and 40%, respectively, of total investments, and that no new psychiatric care or hotel investments be made. In addition to these restrictions, the Trustees may establish limitations as they deem appropriate from time to time. No limits, other than those in connection with the revolving credit facility, have been set on the number of properties in which the Company will seek to invest, or on the concentration of investments involving any one facility or geographical area; however, the Trustees consider concentration of investments in determining whether to make new or increase existing investments. The Company's Declaration of Trust (the "Declaration") and operating policies provide that any investment in facilities owned or operated by the Advisor, persons expressly permitted under the Declaration to own more than 8.5% of the Company's shares, or any company affiliated with any of the foregoing must, however, be approved by a majority of the Trustees not affiliated with any of the foregoing (the "Independent Trustees"). The Company has in the past and may in the future consider, from time to time, the acquisition of or merger with other companies engaged in the same Business as the Company; however, the Company has no present agreements or understandings concerning any such acquisition or merger. The Company has no intention of investing in the securities of others for the purpose of exercising control. Borrowing Policy. In addition to the use of equity, the Company utilizes short-term and long-term borrowings to finance investments. During 1994 the Company issued $200 million of floating rate notes issued in two Series. During the fourth quarter of 1996, the Series A notes, representing $75 million, were prepaid in full through an in-substance defeasance. The Series B notes, representing $125 million, which were issued at a discount, may be called, at the Company's option, at par. The Series B notes bear interest at a spread over LIBOR and mature in July 1999. In October 1996, the Company issued $200 million of 7.5% and $40 million of 7.25% Convertible Subordinated Debentures (the "Debentures") due 2003 and 2001, respectively. The Debentures are non-callable for three years but are convertible at any time prior to maturity into common shares of the Company at a price of $18 per share. As of March 7, 1997, $28.3 million of the Debentures had been converted. At December 31, 1996, the Company had a revolving credit facility available to it totaling $250 million. As of December 31, 1996, $140 million of this amount was outstanding, and $110 million was available to be drawn. The Series B notes and the outstanding amounts on the 2 revolving credit facility are at variable interest rates determined by formulae based upon the London Interbank Offered Rate (LIBOR), prime or some other generally recognized interest rate standard. Fluctuations in interest rates on all of the outstanding term indebtedness have been limited by hedging arrangements so that the maximum average rates payable on $200 million of indebtedness is 6.24% per annum. The hedge agreements mature during 1997. The Company's borrowing guidelines established by its Trustees and covenants in various debt agreements prohibit the Company from maintaining a debt to equity ratio of greater than 1 to 1. At December 31, 1996 the Company's debt to equity ratio was .70 to 1. The Declaration prohibits the Company from incurring secured and unsecured indebtedness which in the aggregate exceeds 300% of the net assets of the Company, unless approved by a majority of the Independent Trustees. There can be no assurance that debt capital will in the future be available at reasonable rates to fund the Company's operations or growth. Developments Since January 1, 1996 During 1996, the Company acquired five nursing properties, three retirement communities, twelve medical office buildings and invested in capitalized improvements for existing properties for an aggregated amount of approximately $225.4 million. In addition, the Company provided debt and improvement financing totaling $17.2 million secured by a retirement community and by properties under existing mortgages with the Company. These transactions were funded by borrowing on the Company's revolving credit facility and available cash. In addition, the Company received principal payments and repayments on real estate mortgages of $10.2 million. At December 31, 1996, the Company owned 4,000,000, or 14.9%, of the common shares of beneficial interest of HPT with a carrying value of $103.1 million and market value of $116.0 million. During April 1996, HPT completed a public stock offering of 14,250,000 common shares of beneficial interest at a per share price of $26.625 for total consideration of approximately $379.4 million. As a result of this transaction, the Company's ownership percentage in HPT was reduced from 31.8% to 14.9% and the Company realized a gain of $3.6 million. Although the Company did not sell any shares, pursuant to the Company's accounting policy, gains and losses on the issuance of common shares of beneficial interest by HPT are recognized in the Company's income statement. In January 1996, the Company issued 475,000 common shares resulting in net proceeds of approximately $7 million as a result of the underwriters' exercise of the over-allotment option granted pursuant to the Company's equity offering in December 1995. In March 1996, the Company entered into a new credit facility to refinance its $250 million unsecured revolving bank credit facility. The restated credit facility matures in 2000 and bears interest at LIBOR plus 0.875% per annum. In connection with the refinancing, the Company recognized an extraordinary loss of $2.4 million from the early write-off of capitalized expenses associated with the prior credit facility. In April, 1996 the Company prepaid the outstanding secured Revenue Refunding Bonds totaling $17.6 million by borrowing on the revolving bank credit facility and from available cash. In June, 1996 the Company filed a $750 million shelf registration statement ("Shelf") that was declared effective by the Securities and Exchange Commission. At December 31, 1996, $640 million was available to be drawn on the Shelf. In October 1996, the Company issued $200 million of 7.5% and $40 million of 7.25% Convertible Subordinated Debentures (the "Debentures") due 2003 and 2001, respectively. The Debentures are non-callable for three years, but are convertible at any time prior to maturity into common shares of the Company at a price of $18 per share. The net proceeds were used in part to repay the then outstanding balance of $147 million on the Company's revolving bank credit facility and $75.5 million was placed in an irrevocable trust to complete an in-substance defeasance of the $75 million Floating Rate Senior Notes, Series A, due 1999. The Company recognized an extraordinary loss of $1.5 million as a result of the write-off of capitalized expenses associated with the debt prepaid in the fourth quarter of 1996. At December 31, 1996, approximately $12.2 million of the Debentures due 2003 had been converted into 679,441 common shares of the Company. During January 1997, approximately an additional $16 million of the Debentures due 2003 had been converted into 891,496 common shares of the Company. 3 In January 1997, the Company acquired a medical office building for $5.4 million with available cash. In March 1997, the Company sold 27.0 million shares in a public offering and received net proceeds of approximately $484.2 million. Proceeds were used, in part, to repay $140 million in outstanding indebtedness under the revolving credit facility and to fund the acquisition of the office buildings leased to the United States Government. Also in March 1997, the Company acquired 25 office buildings which are leased to various agencies of the United States Government. Consideration paid for this acquisition was approximately $291 million in cash to retire certain assumed debt and to pay certain other obligations of the seller, plus the assumption of approximately $26 million of other debt and the issuance of approximately 3.9 million of unregistered common shares of the Company. The Company has a commitment to acquire an additional five office buildings leased to the United States Government for approximately $55 million to be paid in cash to retire assumed debt and unregistered common shares of the Company in addition to those described above. The Advisor The Advisor is a Delaware corporation owned by Gerard M. Martin and Barry M. Portnoy. The Advisor's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. The Advisor provides management services and investment advice to the Company. The Advisor also acts as the investment advisor to HPT and has other business interest. The Directors of the Advisor are Gerard M. Martin, Barry M. Portnoy and David J. Hegarty. The officers of the Advisor are David J. Hegarty, President and Secretary, John G. Murray, Executive Vice President and Chief Financial Officer, Ajay Saini, Treasurer, John A. Mannix, David A. Lepore and Thomas M. O'Brien, Vice Presidents. Gerard M. Martin and Barry M. Portnoy are also Managing Trustees of the Company and David J. Hegarty and Ajay Saini are also officers of Company. Employees As of March 7, 1997, the Company had no employees. The Advisor, which administers the day-to-day operations of the Company, has 47 full-time employees and three active directors. Regulation and Reimbursement Compliance with federal, state and local statutes and regulations governing health care facilities is a prerequisite to continuation of the Company's business. The health care industry depends significantly upon federal and federal/state programs for revenues and, as a result, is vulnerable to the budgetary policies of both the federal and state governments. Certificates of Need. Certain of the Company's investments are in healthcare properties which require certificates of need ("CONs") prior to expansion of beds or services, certain capital expenditures, and in some states, a change in ownership. CON requirements are not uniform throughout the United States. Changes in CON requirements may affect competition, profitability of the Properties and the Company's opportunities for investment in health care facilities. Federal Regulation. The Company's healthcare properties are affected by a number of federal and state regulations including those related to reimbursement under Medicare and Medicaid programs. Such regulations, among other things, limit reimbursement for capital costs and in some circumstances for rental or lease 4 expenses. Such regulations also include federal and state anti-fraud and anti-kickback laws and regulations. An adverse determination concerning any operator's licensure or eligibility for government reimbursement or its compliance with applicable federal or state laws or regulations could materially and adversely affect such operator and its affiliates. A number of legislative proposals that would affect major reforms of the health care system have been introduced in Congress. Such proposals include universal health coverage, employer mandated insurance, and a single government health insurance plan. Following the failure of the Clinton administration's proposed Health Security Act or other major health care reform legislation to become law in 1994, legislative proposals for more incremental reforms have also been introduced, such as group health insurance plans for small businesses, health insurance industry reforms, and Medicare and Medicaid reforms and cost containment measures, including proposals that Medicaid be administered through block grants to the states and per capita limits on state Medicaid spending. The Company cannot predict whether any such legislative proposals will be adopted or, if adopted, what effect, if any, such proposals would have on the business of the Company or its lessees or mortgagors. Competition. The Company is one of several REITs currently investing primarily in health care related real estate. The REITs compete with one another in that each is continually seeking attractive investment opportunities in health care facilities. The Company also competes with banks, non-bank finance companies, leasing companies and insurance companies. Federal Income Tax Considerations The Company believes that it is and it intends to be and remain qualified as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code") . These Code provisions are highly technical and complex. Each shareholder therefore is urged to consult his own tax advisor with respect to the federal income tax and other tax consequences of the purchase, holding and sale of shares of beneficial interest of the Company. The Company has obtained legal opinions that the Company has been organized in conformity with the requirements for qualification as a REIT, has qualified as a REIT for its 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996 taxable years, and that its current and anticipated investments and its plan of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. Actual qualification of the Company as a REIT, however, will depend upon the Company's continued ability to meet, and its meeting, through actual annual operating results, the various qualification tests imposed under the Code. No assurance can be given that the actual results of the Company's operations for any one taxable year will satisfy such requirements. Taxation of the Company. If the Company qualifies for taxation as a REIT and distributes to its shareholders at least 95% of its "real estate investment trust taxable income", it generally will not be subject to federal corporate income taxes on the amount distributed. However, a REIT is subject to special taxes on the net income derived from "prohibited transactions." In addition, property acquired by the Company as the result of a default or imminent default on a lease or mortgage is classified as "foreclosure property". Certain net income from foreclosure property held by the Company for sale is taxable to it at the highest corporate marginal tax rate then prevailing. 5 Section 856(a) of the Code defines a REIT as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable, but for Sections 856 through 859 of the Code, as a domestic corporation; (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) which is not closely held as determined under the personal holding company stock ownership test (as applied with one modification) ; and (7) which meets certain other tests, described below. Section 856(b) of the Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. By reason of condition (6) above, the Company will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding Shares are owned directly or indirectly by five or fewer individuals. To help maintain conformity with condition (6), the Company's Declaration of Trust (the "Declaration") contains certain provisions restricting share transfers and giving the Board of Trustees power to redeem shares involuntarily. It is the expectation of the Company that it will have at least 100 shareholders during the requisite period for each of its taxable years. There can, however, be no assurance in this connection and, if the Company has fewer than 100 shareholders during the requisite period, condition (5) described above will not be satisfied, and the Company would not qualify as a REIT during such taxable year. For taxable years beginning after 1993, the rule that an entity will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding shares is owned directly or indirectly by five or fewer individuals has been liberalized in the case of a qualified pension trust owning shares in a REIT. Under the liberalized rule, the requirement is applied by treating shares in a REIT held by such a pension trust as held directly by its beneficiaries in proportion to their actuarial interests in the pension trust. Consequently, five or fewer pension trusts could own more than 50% of the interests in an entity without jeopardizing its qualification as a REIT. However, if a REIT is a "pension-held REIT" as defined in the liberalized law, each pension trust holding more than 10% of its shares (by value) generally will be taxable on a portion of the dividends it receives from the REIT, based on the ratio of the REIT's gross income for the year which would be unrelated trade or business income if the REIT were a qualified pension trust to the total gross income of the REIT for the year. A "pension-held REIT" is one which would not have qualified as a REIT but for the liberalization of the rule as applied to qualified pension trusts, and in which at least one qualified pension trust holds more than 25% (by value) of the interests by value, or a combination of qualified pension trusts each of which owns more than 10% by value of the REIT together holds more than 50% of the REIT interests by value. To qualify as a REIT for a taxable year under the Code, the Company must elect to be so treated and must meet other requirements, certain of which are summarized below, including percentage tests relating to the sources of its gross income, the nature of the Company's assets, and the distribution of its income to shareholders. The Company made such an election for 1987 (its first full year of operations) and such election, assuming continuing compliance with the qualification tests discussed herein, continues in effect for subsequent years. 6 Income Tests. There are three gross income requirements. First, at least 75% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived directly or indirectly from investments relating to real property (including "rents from real property") or mortgages on real property. When the Company receives new capital in exchange for its shares (other than dividend reinvestment amounts) or in a public offering of five-year or longer debt instruments, income attributable to the temporary investment of such new capital in stock or a debt instrument, if received or accrued within one year of the Company's receipt of the new capital, is qualifying income under the 75% test. Second, at least 95% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived from such real property investments, dividends, interest, certain payments under interest rate swap or cap agreements, and gain from the sale or disposition of stock, securities, or real property or from any combination of the foregoing. Third, short-term gain from the sale or other disposition of stock or securities, including, without limitation, stock in other REITS, dispositions of interest rate swap or cap agreements, and gain from certain prohibited transactions or other dispositions of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must represent less than 30% of the Company's gross income. (This rule does not apply for a year in which the REIT is completely liquidated, as to dispositions occurring after the adoption of a plan of complete liquidation.) For purposes of these rules, income derived from a "shared appreciation provision" is treated as gain recognized on the sale of the property to which it relates. Even though the Company's present mortgages do not contain shared appreciation provisions, the Company may make mortgage loans which include such provisions. The Company temporarily invests working capital in short-term investments, including shares in other REITS. Although the Company will use its best efforts to ensure that its income generated by these investments will be of a type which satisfies the 75% and 95% gross income tests, there can be no assurance in this regard (see Discussion above of the "new capital" rule under the 75% test). Moreover, the Company may realize short-term capital gain upon sale or exchange of such investments, and such short-term capital gain would be subject to the limitations imposed by the 30% gross income test. In order to qualify as "rents from real property," the amount of rent received generally must not be determined from the income or profits of any person, but may be based on receipts or sales. The Code also provides that rents will not qualify as "rents from real property," in satisfying the gross income tests, if the REIT owns 10% or more of the tenant, whether directly or under certain attribution rules. The Company intends not to lease property to any party if rents from such property would not so qualify. Application of the 10% ownership rule is, however, dependent upon complex attribution rules provided in the Code and circumstances beyond the control of the Company. Ownership, directly or by attribution, by an unaffiliated third party of more than 10% of the Company's shares and more than 10% of the stock of a lessee would result in lessee rents not qualifying as "rents from real property." The Declaration provides that transfers or purported acquisitions, directly or by attribution, of shares that could result in disqualification of the Company as a REIT are null and void and permits the Trustees to repurchase shares to the extent necessary to maintain the Company's status as a REIT. Nevertheless, there can be no assurance such provisions in the Declaration will be effective to prevent the Company's REIT status from being jeopardized under the 10% rule. Furthermore, there can be no assurance that the Company will be able to monitor and enforce such restrictions, nor will shareholders necessarily be aware of shareholdings attributed to them under the attribution rules. In addition, the Company must not manage property or furnish or render services to the tenants of such property, except through an independent contractor from whom the Company derives no income. There is an exception to this rule permitting a REIT to perform certain customary tenant services of the sort which a tax-exempt organization could perform without being considered in receipt of "unrelated business taxable income." 7 If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." The portion of rental income treated as attributable to personal property is determined according to the ratio of the tax basis of the personal property to the total tax basis of the property which is rented. If rent payments do not qualify, for the reasons discussed above, as rents from real property for the purposes of Section 856 of the Code, it will be more difficult for the Company to meet the 95% or 75% gross income tests and to qualify as a REIT. Finally, in order to qualify as mortgage interest on real property for purposes of the 75% test, interest must derive from a mortgage loan secured by real property with a fair market value at least equal to the amount of the loan. If the amount of the loan exceeds the fair market value of the real property, the interest will be treated as interest on a mortgage loan in a ratio equal to the ratio of the fair market value of the real property to the total amount of the mortgage loan. If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if its failure to meet such test was due to reasonable cause and not due to willful neglect, it attaches a schedule of the sources of its income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances the Company would be entitled to the benefit of these relief provisions. If these relief provisions apply, a special tax generally equal to 100% is imposed upon the greater of the amount by which the Company failed the 75% test or the 95% test, less an amount which generally reflects the expenses attributable to earning the non-qualified income. Asset Tests. At the close of each quarter of the Company's taxable year, it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must consist of real estate assets (including its allocable share of real estate assets held by joint ventures or partnerships in which the Company participates), cash, cash items and government securities. Second, not more than 25% of the Company's total assets may be represented by securities (other than those includable in the 75% asset class). Finally, of the investments included in the 25% asset class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities. Where a failure to satisfy the 25% asset test results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of such quarter. The Company intends to maintain adequate records of the value of its assets to maintain compliance with the 25% asset test, and to take such action as may be required to cure any failure to satisfy the test within 30 days after the close of any quarter. The Company, in order to qualify as a REIT, is required to distribute dividends (other than capital gain dividends) to its shareholders in an amount equal to or greater than the excess of (A) the sum of (i) 95% of the Company's "real estate investment trust taxable income" (computed without regard to the dividends paid deduction and the Company's net capital gain) and (ii) 95% of the net income, if any, (after tax) from foreclosure property, over (B) the sum of certain non-cash income (from certain imputed rental income and income from transactions inadvertently failing to qualify as like-kind exchanges). These requirements may be waived by the IRS if the REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that the Company does not distribute all of its capital gain and all of its "real estate investment trust taxable income," it will be subject to tax thereon. In addition, the Company will be subject to a 4% excise tax to the extent it fails within a calendar year to make "required distributions" to its shareholders of 85% of its ordinary income and 95% of its capital gain net income plus the excess, if any, of the "grossed up required distribution" for the preceding calendar year over the amount treated as distributed for such preceding calendar year. For this purpose, the term "grossed up required distribution" for any calendar year is 8 the sum of the taxable income of the Company for the calendar year (without regard to the deduction for dividends paid) and all amounts from earlier years that are not treated as having been distributed under the provision. Dividends declared in October, November, or December and paid during the following January will be treated as having been paid and received on December 31. It is possible that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses or dividends on the one hand and the inclusion of such income and deduction of such expenses or dividends in arriving at "real estate investment trust taxable income" of the Company on the other hand. The problem of inadequate cash to make required distributions could also occur as a result of the repayment in cash of principal amounts due on the Company's outstanding debt, particularly in the case of "balloon" repayments or as a result of capital losses on short-term investments of working capital. Therefore, the Company might find it necessary to arrange for short-term, or possibly long-term, borrowing, or new equity financing. If the Company were unable to arrange such borrowing or financing as might be necessary to provide funds for required distributions, its REIT status could be jeopardized. There can be no assurance that such borrowing or financing would be available on favorable terms. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to shareholders in a later year, which may be included in the Company's deduction for dividends paid for the earlier year. The Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company may in certain circumstances remain liable for the 4% excise tax discussed above. The Company is also required to request annually from record holders of certain significant percentages of its shares certain information regarding the ownership of such shares. Under the Declaration, shareholders are required to respond to such requests for information. Federal Income Tax Treatment of Leases. The availability to the Company of, among other things, depreciation deductions with respect to the facilities owned and leased by the Company will depend upon the treatment of the Company as the owner of the facilities and the classification of the leases of the facilities as true leases, rather than as sales or financing arrangements, for Federal income tax purposes. As to the approximately 5% of the leased facilities which constitutes personal property, it is less clear that the Company will be treated as the owner of such personal property and that the leases will be treated as true leases with respect to such property. The Company plans to insure its compliance with the 95% distribution requirement (and the "required distribution" requirement) by making distributions on the assumption that it is not entitled to depreciation deductions for the 5% of the leased facilities which constitute personal property, but to report the amount of income taxable to its shareholders by taking into account such depreciation. Other Issues. In the case of certain sale-leaseback arrangements, the IRS could assert that the Company realized prepaid rental income in the year of purchase to the extent that the value of a leased property exceeds the purchase price paid by the Company for that property. In litigated cases involving sale-leasebacks which have considered this issue, courts have concluded that buyers have realized prepaid rent where both parties acknowledged that the purported purchase price for the property was substantially less than fair market value and the purported rents were substantially less than the fair market rentals. Because of the lack of clear precedent, complete assurance cannot be given that the IRS could not successfully assert the existence of prepaid rental income. Additionally, it should be noted that Code Section 467 (concerning leases with increasing rents) would apply to the leases because many of the leases provide for rents that increase from one period to the next. Section 467 provides that in the case of a so-called "disqualified leaseback agreement," rental income must be accrued at a constant rate. If such constant rent accrual were required, the Company would recognize rental income in excess of cash rents and, as a result, may fail to meet the 95% dividend distribution requirement. "Disqualified leaseback agreements" include leaseback transactions where a principal purpose for providing increasing rent under the agreement is the avoidance of Federal income tax. Because Section 467 directs the Treasury to issue regulations providing that rents will not be treated as increasing for tax avoidance purposes where the increases are based upon a fixed percentage of lessee receipts and regulations proposed to be effective for "disqualified leaseback agreements" entered into after June 3, 1996 adopt this rule, the additional rent provisions of the leases should not cause the leases to be 9 "disqualified leaseback agreements". In addition, the legislative history of Section 467 indicates that the Treasury should issue regulations under which leases providing for fluctuations in rents by no more than a reasonable percentage from the average rent payable over the term of the lease will be deemed not motivated by tax avoidance, and the proposed regulations mentioned above permit a 10% fluctuation. Depreciation of Properties. For tax purposes, the Company's real property generally is depreciated on a straight-line basis over 40 years and personal property owned by the Company generally is depreciated over 12 years. Failure to Qualify. If the Company fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, the Company will be subject to tax on its taxable income at regular corporate rates (plus any applicable minimum tax). Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income and, subject to certain limitations in the Code, eligible for the 70% dividends received deduction for corporations. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from taxation as a REIT for the following four taxable years. It is not possible to state whether in all circumstances the Company would be entitled to statutory relief from such disqualification. Failure to qualify for even one year could result in the Company's incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes. Taxation of United States Shareholders--Generally As long as the Company qualifies as a REIT, distributions (including reinvestments pursuant to the Company's dividend reinvestment plan) made to the Company's shareholders out of current or accumulated earnings and profits will be taken into account by them as ordinary income (which will not be eligible for the 70% dividends received deduction for corporations). Distributions that are designated as capital gain dividends will be taxed as long-term capital gains to the extent they do not exceed the Company's actual net capital gain for the taxable year, although corporate shareholders may be required to treat up to 20% of any such capital gain dividend as ordinary income pursuant to Section 291 of the Code. For purposes of computing the Company's earnings and profits, depreciation on real estate is computed on a straight-line basis (over 40 years for property acquired after 1986). Distributions in excess of current or accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares, but will reduce the basis of the shareholder's shares. To the extent that such distributions exceed the adjusted basis of a shareholder's shares they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for not more than one year, assuming the shares are a capital asset in the hands of the shareholder. Shareholders may not include in their individual income tax returns any net operating losses or capital losses of the Company. Dividends declared by the Company in October, November or December of a taxable year to shareholders of record on a date in such month, will be deemed to have been received by such shareholders on December 31, provided the Company actually pays such dividends during the following January. The Company has, however, generally declared dividends for the quarter ended December 31 in January of the following year and paid these dividends in the following February. As a result, for tax purposes, the dividend for any calendar year will generally include the dividends for the first three quarters of that year plus the dividend for the fourth quarter of the prior year. For tax purposes, dividends paid in 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996 aggregated $1.085, $.840, $1.13, $1.16, $1.22, $1.25, $1.29, $1.32, $1.37 and $1.41 respectively, of which $.289, $.065, $.332, $.267, $.104, $.218, $.335, $.081, $.161 and $.350, respectively, represented a return of capital. A sale of a share will result in recognition of gain or loss to the holder in an amount equal to the difference between the amount realized and its adjusted basis. Such a gain or loss will be capital gain or loss, provided the share is a capital asset in the hands of the seller. In general, any loss upon a sale or exchange of shares by a shareholder who has held such shares for not more than six months (after applying certain rules), will be treated as a long-term capital loss to the extent of distributions from the Company required to be treated by such shareholders as long-term capital gain. Investors (other than certain corporations) who borrow funds to finance their acquisition of Shares in the Company could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred in such an 10 arrangement. Under Code Section 163(d), interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the taxpayer's net investment income. An investor's net investment income will include the dividend distributions and, if an appropriate election is made, the capital gain dividend distributions he receives from the Company; however, distributions treated as a nontaxable return of the shareholder's basis will not enter into the computation of net investment income. In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a real estate investment trust to a tax-exempt employee's pension trust did not constitute "unrelated business taxable income". Revenue rulings are interpretive in nature and subject to revocation or modification by the IRS. However, based upon Revenue Ruling 66-106 and the analysis therein, the Company has received an opinion of counsel that distributions by the Company to qualified pension plans (including individual retirement accounts) and other tax-exempt entities should not constitute "unrelated business taxable income," except as explained above in the case of a pension trust which holds more than 10% by value of a "pension-held REIT". This Revenue Ruling may not apply if a shareholder has borrowed money to acquire shares. Under Section 469 of the Code, taxpayers (other than certain corporations) generally will not be entitled to deduct losses from so-called passive activities except to the extent of their income from passive activities. For purposes of these rules, distributions received by a shareholder from the Company will not be treated as income from a passive activity and thus will not be available to offset a shareholder's passive activity losses. Tax preference and other items which are treated differently for regular and alternative minimum tax purposes are to be allocated between a REIT and its shareholders under regulations which are to be prescribed. It is likely that these regulations would require tax preference items to be allocated to the Company's shareholders with respect to any accelerated depreciation claimed by the Company, but the Company has not claimed accelerated depreciation with respect to its existing Properties. Special Tax Considerations for Foreign Shareholders The rules governing United States income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates (collectively, "Non-US Shareholders") are complex, and the following discussion is intended only as a summary of such rules. Non-US Shareholders should consult with their own tax advisors to determine the impact of Federal, state, and local income tax laws on their investment in the Company, including any reporting requirements. In general, a Non-US Shareholder will be subject to regular United States income tax with respect to its investment in the Company if such investment is "effectively connected" with the Non-US Shareholder's conduct of a trade or business in the United States, or if the Non-US Shareholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year. A corporate Non-US Shareholder that receives income that is (or is treated as) effectively connected with a US trade or business may also be subject to the branch profits tax under Section 884 of the Code, which is payable in addition to regular United States corporate income tax. The following discussion will apply to Non-US Shareholders whose investment in the Company is not so effectively connected. A distribution by the Company that is not attributable to gain from the sale or exchange by the Company of a United States real property interest and that is not designated by the Company as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. Generally, unless the dividend is effectively connected with the Non-US Shareholder's conduct of a trade or business, such a dividend will be subject to a United States withholding tax equal to 30% of the gross amount of the dividend unless such withholding is reduced by an applicable tax treaty. A distribution of cash in excess of the Company's earnings and profits will be treated first as a nontaxable return of capital that will reduce a Non-US Shareholder's basis in its shares (but not below zero) and then as gain from the disposition of such shares, the tax treatment of which is described under the rules discussed below with respect to disposition of shares. A distribution in excess of the Company's earnings and profits may be subject to 30% dividend withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of the Company's current and accumulated earnings and profits. If it is subsequently determined that such distribution is, in fact, in excess of current and accumulated earnings and profits, the Non-US Shareholder may seek a refund from 11 the IRS. The Company expects to withhold United States income tax at the rate of 30% on the gross amount of any such distributions made to a Non-US Shareholder unless (i) a lower tax treaty applies and the required form evidencing eligibility for that reduced rate is filed with the Company or (ii) the Non-US Shareholder files IRS Form 4224 with the Company claiming that the distribution is "effectively connected" income. For any year in which the Company qualifies as a REIT, distributions by the Company that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a Non-US Shareholder in accordance with the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-US Shareholder as if such distributions were gains "effectively connected" with a United States trade or Business. Accordingly, a Non-US Shareholder will be taxed at the normal capital gain rates applicable to a US Shareholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a foreign corporate shareholder that is not entitled to treaty exemption. The Company will be required to withhold from distributions to Non-US Shareholders, and remit to the IRS, 35% of the amount of any distribution that could be designated as capital gain dividends to the extent such dividends are attributable to the sale or exchange by the Company of United States real property interests. Tax treaties may reduce the Company's withholding obligations. If the amount of tax withheld by the Company with respect to a distribution to a Non-US Shareholder exceeds the shareholder's United States liability with respect to such distribution, the Non-US Shareholder may file for a refund of such excess from the IRS. It should be noted that the 35% withholding tax rate on capital gain dividends corresponds to the maximum income tax rate applicable to corporations but is higher than the 28% maximum rate on capital gains of individuals. The United States Treasury issued proposed regulation on April 22, 1996 (the "Proposed regulations") which, if adopted, would affect the United States taxation of dividends paid to a Non-US Shareholder. Under the Proposed Regulations, to obtain a reduced rate of withholding under a treaty, a Non-US Shareholder generally would be required to provide an Internal Revenue Service Form W-8 certifying such Non-US Shareholder's entitlement to benefits under the treaty. The Proposed Regulations also would provide special rules to determine whether, for purposed of determining the applicability of a tax treaty, dividends paid to a Non-US Shareholder that is an entity should be treated a paid to the entity or to those holding an interest in the entity. The Proposed Regulations are generally proposed to be effective with respect to dividends paid after December 31, 1997, subject to certain transition rules. The foregoing discussion is not intended to be a complete discussion of the provisions of the Proposed Regulations, and Shareholders a re urged to consult their tax advisors with respect to the effect the Proposed regulations would have if adopted. If the Shares fail to constitute a "United States real property interest" within the meaning of FIRPTA, a sale of the Shares by a Non-US Shareholder generally will not be subject to United States taxation unless (i) investment in the Shares is effectively connected with the Non-US Shareholder's United States trade or business, in which case, as discussed above, the Non-US Shareholder would be subject to the same treatment as US Shareholders on such gain or (ii) the Non-US Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. The Shares will not constitute a United States real property interest if the Company is a "domestically controlled REIT". A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50% in value of its shares is held directly or indirectly by Non-US Shareholders. It is currently anticipated that the Company will be a domestically controlled REIT, and therefore that the sale of Shares will not be subject to taxation under FIRPTA. However, because the Shares will be publicly traded, no assurance can be given that the Company will continue to be a domestically controlled REIT. If the Company did not constitute a domestically controlled REIT, whether a Non-US Shareholder's sale of Shares would be subject to tax under FIRPTA as a sale of a United States real property interest would depend on whether the Shares were "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market (e.g., the New York Stock Exchange, on which the Shares are listed) and on the size of the selling shareholder's interest in the 12 Company. If the gain on the sale of the Shares were subject to taxation under FIRPTA, the Non-US Shareholder would be subject to the same treatment as a US Shareholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of Shares from a Non-US Shareholder will not be required under FIRPTA to withhold on the purchase price if the purchased Shares are "regularly traded" on an established securities market or if the Company is a domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of Shares may be required to withhold 10% of the purchase price and to remit such amount to the IRS. Federal Estate Tax Shares owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includable in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise. Backup Withholding and Information Reporting Requirements The Company must report annually to the IRS and to each Non-US Shareholder the amount of dividends paid to and the tax withheld with respect to such holder. These information reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the Non-US Shareholder resides. United States backup withholding tax (which generally is a withholding tax imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) will generally not apply to dividends paid on Shares to a Non-US Shareholder at an address outside the United States. The payment of the proceeds from the disposition of Shares to or through the United States office of a broker will be subject to information reporting and backup withholding at a rate of 31% unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-US Shareholder, or otherwise establishes an exemption. The payment of the proceeds from the disposition of Shares to or through a non-US office of a broker generally will not be subject to backup withholding and information reporting. In the case of proceeds from a disposition of Shares paid to or through a non-US office of a US broker or paid to or through a non-US. office of a non-US broker that is (i) a "controlled foreign corporation" for United States federal income tax purposes or (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or Business, (a) backup withholding will not apply unless the broker has actual knowledge that the owner is not a Non-US Shareholder, and (b) information reporting will not apply if the broker has documentary evidence in its files that the owner is a Non-US Shareholder (unless the broker has actual knowledge to the contrary). Any amounts withheld under the backup withholding rules from a payment to a Non-US Shareholder will be refunded (or credited against the Non-US Shareholder's United States federal income tax liability, if any), provided that the required information is furnished to the IRS. As discussed above, the United States Treasury issued the Proposed regulations which also would, if adopted, alter the information reporting and backup withholding rules applicable to Non-US Shareholders. Among other things, the Proposed Regulations would provide certain presumptions under which a Non-US Shareholder would be subject to backup withholding and information reporting until the Company receives certification from such shareholder of Non-US status. As noted, the Proposed Regulations are generally proposed to be effective with respect to dividends paid after December 31, 1997, subject to certain transition rules. The foregoing discussion is not intended to be a complete discussion of the provisions of the Proposed Regulations, and Shareholders are urged to consult their tax advisors with respect to the effect that the Proposed Regulations would have if adopted. Other Tax Consequences The Company and its shareholders may be subject to state or local taxation in various state or local jurisdictions, including those in which it or they transact business or reside. 13 There may be other Federal, state, local or foreign income, or estate and gift, tax considerations applicable to the circumstances of a particular investor. Shareholders should consult their own tax advisors with respect to such matters. ERISA Plans, Keogh Plans and Individual Retirement Accounts General Fiduciary Obligations. Fiduciaries of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") ("ERISA Plan") must consider whether their investment in the Company's shares satisfies the diversification requirements of ERISA, whether the investment is prudent in light of possible limitations on the marketability of the shares, whether such fiduciaries have authority to acquire such shares under the appropriate governing instrument and Title I of ERISA, and whether such investment is otherwise consistent with their fiduciary responsibilities. Any ERISA Plan fiduciary should also consider ERISA's prohibition on improper delegation of control over or responsibility for "plan assets." Trustees and other fiduciaries of an ERISA plan may incur personal liability for any loss suffered by the plan on account of a violation of their fiduciary responsibilities. In addition, such fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the plan on account of such a violation (the "Fiduciary Penalty"). Also, fiduciaries of any Individual Retirement Account ("IRA") Keogh Plan or other qualified retirement plan not subject to Title I of ERISA because it does not cover common law employees ("Non-ERISA Plan") should consider that such an IRA or non-ERISA Plan may only make investments that are authorized by the appropriate governing instrument. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is inconsistent with any of the foregoing criteria. Prohibited Transactions. Fiduciaries of ERISA Plans and persons making the investment decision for an IRA or other Non-ERISA Plan should also consider the application of the prohibited transaction provisions of ERISA and the Code in making their investment decision. Sales and certain other transactions between an ERISA Plan, IRA, or other Non-ERISA Plan and certain persons related to it are prohibited transactions. The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan, IRA, or other Non-ERISA Plan may cause a wide range of other persons to be treated as disqualified persons or parties in interest with respect to it. A prohibited transaction, in addition to imposing potential personal liability upon fiduciaries of ERISA Plans, may also result in the imposition of an excise tax under the Code or a penalty under ERISA upon the disqualified person or party in interest with respect to the ERISA or Non-ERISA Plan or IRA. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA may lose its tax-exempt status and its assets may be deemed to have been distributed to such individual in a taxable distribution (and no excise tax will be imposed) on account of the prohibited transaction. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is a prohibited transaction. Special Fiduciary and Prohibited Transactions Considerations. On November 13, 1986 the Department of Labor ("DOL"), which has certain administrative responsibility over ERISA Plans as well as over IRAs and other Non- ERISA Plans, issued a final regulation defining "plan assets." The regulation generally provides that when an ERISA or Non-ERISA Plan or IRA acquires a security that is an equity interest in an entity and that security is neither a "publicly offered security nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant. The regulation defines a publicly offered security as a security that is "widely held," "freely transferable" and either part of a class of securities registered under the Securities Exchange Act of 1934, or sold pursuant to an effective registration statement under the Securities Act of 1933 (provided the securities are registered under the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year of the issuer during which the offering occurred). The Company's shares have been registered under the Securities Exchange Act of 1934. The regulation provides that a security is "widely held" only if it is part of a class of securities that is owned by 100 or more investors independent of 14 the issuer and of one another. However, a security will not fail to be "widely held" because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control. The regulation provides that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, certain restrictions ordinarily will not, alone or in combination, affect a finding that such securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include: any restriction on or prohibition against any transfer or assignment which would result in a termination or reclassification of the Company for Federal or state tax purposes, or would otherwise violate any state or Federal law or court order; any requirement that advance notice of a transfer or assignment be given to the Company and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer which are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence; any administrative procedure which establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and any limitation or restriction on transfer or assignment which is not imposed by the issuer or a person acting on behalf of the issuer. The Company believes that the restrictions imposed under the Declaration on the transfer of shares do not result in the failure of the shares to be "freely transferable." Furthermore, the Company believes that at present there exist no other facts or circumstances limiting the transferability of the shares which are not included among those enumerated as not affecting their free transferability under the regulation, and the Company does not expect or intend to impose in the future (or to permit any person to impose on its behalf) any limitations or restrictions on transfer which would not be among the enumerated permissible limitations or restrictions. However, the final regulation only establishes a presumption in favor of a finding of free transferability, and no guarantee can be given that the DOL or the Treasury Department will not reach a contrary conclusion. Assuming that the shares will be "widely held" and that no other facts and circumstances exist which restrict transferability of the shares, the Company has received an opinion of counsel that the shares should not fail to be "freely transferable" for purposes of the regulation due to the restrictions on transfer of the shares under the Declaration and that under the regulation the shares are publicly offered securities and the assets of the Company will not be deemed to be "plan assets" of any ERISA Plan, IRA or other Non-ERISA Plan that invests in the shares. If the assets of the Company are deemed to be plan assets under ERISA, (i) the prudence standards and other provisions of Part 4 of Title I of ERISA would be applicable to investments made by the Company; (ii) the person or persons having investment discretion over the assets of ERISA Plans which invest in the Company would be liable under the aforementioned Part 4 of Title I of ERISA for investments made by the Company which do not conform to such ERISA standards unless the Advisor registers as an investment adviser under the Investment Advisers Act of 1940 and certain other conditions are satisfied; and (iii) certain transactions that the Company might enter into in the ordinary course of its business and operation might constitute "prohibited transactions" under ERISA and the Code. Item 2. Properties General. At December 31, 1996, approximately 35% of the Company's total investments were in retirement and assisted living communities, 29% were in long-term care facilities, 14% were in long-term care facilities with subacute services, 14% were in medical office buildings and clinics, and 8% were in hotels through the Company's equity investment in HPT. The Company believes that the physical plant of each of the facilities in which it has invested is suitable and adequate for its present and any currently proposed uses. At December 31, 1996, the Company had direct and indirect real estate investments totaling $1.3 billion in 257 properties that were leased to or operated by over 30 separate companies. 15 Item 2. Properties continued The following table summarizes certain information about the Properties as of December 31, 1996. All dollar figures are in thousands.
REAL ESTATE OWNED: Number of Number of Investment Minimum Location Facilities Beds/Units Amount Rent - ------------------------------------------------------------------------------------------------------------- Retirement and Assisted Living Facilities: Arizona 3 481 $ 36,642 $ 3,061 California 1 402 31,791 3,319 Florida 5 1,527 131,989 9,986 Illinois 2 704 98,743 7,490 Maryland 1 351 33,080 4,054 New York 1 103 10,700 1,017 South Dakota 1 59 1,014 127 Texas 1 145 12,411 1,213 Virginia 3 848 57,662 5,817 Long-Term Care Facilities: Arizona 3 320 6,220 810 California 9 1,140 27,105 4,688 Colorado 6 731 21,978 3,118 Connecticut 5 867 42,821 4,926 Georgia 5 531 15,874 1,738 Illinois 1 230 2,711 452 Iowa 13 862 22,829 2,308 Kansas 7 526 10,673 1,267 Missouri 3 305 5,877 851 Nebraska 1 80 1,800 208 New Hampshire 1 108 3,689 430 New Jersey 1 140 13,007 1,418 Ohio 2 400 9,872 1,177 South Dakota 2 322 6,575 854 Vermont 8 808 29,766 3,316 Washington 1 143 5,193 626 Wisconsin 7 920 31,680 5,074 Wyoming 4 295 8,898 1,062 Long-Term Care Facilities with Subacute Services: Connecticut 4 660 49,058 6,097 Massachusetts 5 762 82,059 10,044 Pennsylvania 1 120 15,598 1,951 Medical Office Buildings and Clinics: California 8 -- 60,734 6,707 District of Columbia 1 -- 25,181 3,652 Massachusetts 4 -- 66,919 8,482 New York 2 -- 19,899 1,999 Virginia 1 -- 5,691 945 --------------------------------------------------------------- Total Real Estate 123 14,890 $1,005,739 $ 110,284 ---------------------------------------------------------------
16 Item 2. Properties continued
MORTGAGE AND NOTE INVESTMENTS: Number of Number of Investment Minimum Location Facilities Beds/Units Amount Rent - ------------------------------------------------------------------------------------------------------------- Retirement and Assisted Living Facilities: California 3 389 $ 8,390 $ 880 Florida 1 248 5,000 525 North Carolina 3 345 11,500 1,206 Long-Term Care Facilities: California 1 299 6,329 712 Colorado 5 389 15,444 1,703 Florida 1 58 10,897 1,185 Georgia 1 124 1,737 170 Kansas 2 120 2,463 264 Michigan 1 153 4,274 493 Nebraska 15 1,032 14,696 1,396 North Carolina 6 677 11,210 1,186 Ohio* 3 507 11,249 1,133 Pennsylvania 1 120 2,743 251 Texas 5 496 4,848 478 Wisconsin 2 339 12,383 1,444 Long-Term Care Facilities with Subacute Services: Connecticut -- -- 2,365 134 Louisiana 1 118 19,358 2,140 Michigan 1 189 5,069 585 Medical Office Buildings: California* -- -- 250 -- --------------------------------------------------------------- Total Mortgages and Notes 52 5,603 $150,205 $ 15,885 --------------------------------------------------------------- * Amounts represent or include notes receivable related to improvements to real estate owned.
Item 3. Legal Proceedings The information required by this item is incorporated by reference Current Report on Form 8-K dated February 13, 1997, Item 5, Other Events, in the section entitled "Legal Proceedings". Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of shareholders during the fourth quarter of the year covered by this Form 10-K. 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's Shares are traded on the New York Stock Exchange (symbol: HRP). The following table sets forth for the periods indicated the high and low sale prices for the Shares as reported in the New York Stock Exchange Composite Transactions reports. High Low ---- --- 1995 First Quarter $ 15 1/4 $ 13 1/4 Second Quarter 15 3/8 14 5/8 Third Quarter 16 3/8 14 7/8 Fourth Quarter 16 7/8 15 1/2 1996 First Quarter 17 3/8 16 Second Quarter 17 7/8 16 3/8 Third Quarter 18 1/8 16 3/8 Fourth Quarter 19 1/4 17 3/4 The closing price of the Shares on the New York Stock Exchange on March 21, 1997 was $18.875. As of March 21, 1997, there were approximately 4,786 holders of record of the Shares and the Company estimates that as of such date there were in excess of 110,000 beneficial owners of the Shares. Dividends declared with respect to each period for the two most recent fiscal years and the amount of such dividends and the respective annualized rates are set forth in the following table. Dividend Annualized Per Share Dividend Rate --------- -------------- 1995 First Quarter $.34 $1.36 Second Quarter .34 1.36 Third Quarter .35 1.40 Fourth Quarter .35 1.40 1996 First Quarter .35 1.40 Second Quarter .35 1.40 Third Quarter .36 1.44 Fourth Quarter .36 1.44 All dividends declared have been paid. The Company intends to continue to declare and pay future dividends on a quarterly basis. In order to qualify for the beneficial tax treatment accorded to REITs by Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company is required to make distributions to shareholders which annually will be at least 95% of the Company's "real estate investment Trust taxable income" (as defined in the Code). All distributions will be made by the Company at the discretion of the Board of Trustees and will depend on the earnings of the Company, the cash flow available for distribution, the financial condition of the Company and such other factors as the Board of Trustees deems relevant. The Company has in the past distributed, and intends to continue to distribute, substantially all of its "real estate investment trust taxable income" to its shareholders. 18 Item 6. Selected Financial Data Set forth below are selected financial data for the Company for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and accompanying notes included elsewhere in this Form 10-K. Amounts are in thousands, except per Share information.
Income Statement Data: Year Ended December 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------------- --------------- --------------- ---------------- ----------- Total revenues $120,183 $113,322 $ 86,683 $ 56,485 $ 48,735 Income before gain (loss) on sale of properties and extraordinary item 77,164 61,760 57,878 37,738 27,243 Income before extraordinary items 77,164 64,236 51,872 37,738 27,243 Net income 73,254 64,236 49,919 33,417 27,243 Fund from operations (1) 99,106 84,638 71,851 46,566 35,365 Dividends declared (2) 94,299 83,954 76,317 44,869 33,079 Per share amounts: Income before gain (loss) on sale of properties and extraordinary items 1.16 1.04 1.10 1.10 1.02 Income before extraordinary items 1.16 1.08 .98 1.10 1.02 Net income 1.11 1.08 .95 .97 1.02 Funds from operations (1) 1.50 1.43 1.36 1.35 1.32 Dividends declared (2) 1.42 1.38 1.33 1.30 1.26 Average shares outstanding 66,255 59,277 52,738 34,407 26,760 Balance Sheet Data: At December 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------------- --------------- --------------- ---------------- ----------- Real estate properties at cost $1,005,739 $ 778,211 $ 673,083 $ 384,811 $ 337,076 Real estate mortgages and notes 150,205 141,307 133,477 157,281 47,173 Investment in HPT 103,062 99,959 -- -- -- Total assets 1,229,522 999,677 840,206 527,662 374,468 Total indebtedness 492,175 269,759 216,513 73,000 138,500 Total shareholders' equity 708,048 685,592 602,039 441,135 228,301 (1) Funds from operations is net income before gain (loss) on sale of properties and extraordinary items plus depreciation, other non-cash items and the Company's equity in funds from operations of HPT. (2) Distributions in excess of net income generally constitute a return of capital.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the current Report on form 8-K dated February 17, 1997. Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to the "Consolidated Financial Statements of Health and Retirement Properties Trust" in the Current Report on Form 8-K dated February 17, 1997. The 19 financial statements and financial statement schedules for Marriott are incorporated by reference to Marriott's Annual Report on Form 10-K for the year ended January 3, 1997, Commission File No. 1-12188. Item 9. Changes in and Disagreements on Accounting and Financial Disclosure Not applicable PART III The information in Part III (Items, 10, 11, 12 and 13) is incorporated by reference to the Company's definitive Proxy Statement, which will be filed not later than 120 days after the end of the Company's fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Index to Financial Statements and Financial Statement Schedules
HEALTH AND RETIREMENT PROPERTIES TRUST Page 1) The following consolidated financial statements of Health and Retirement Properties Trust are incorporated by reference in to the Company's Current Report on Form 8-K dated February 17, 1997, page references are to such Current Report: Balance Sheets as of December 31, 1995 and 1996 F-4 Statements of Income for the years ended December 31, 1994, 1995 and 1996 F-5 Statements of Shareholders' Equity for the years ended December 31, 1994, 1995, and 1996 F-6 Statements of Cash Flows for the years ended December 31, 1994, 1995, and 1996 F-7 Notes to Financial Statements F-8 2) The following schedules are filed herewith: III -- Real Estate and Accumulated Depreciation S-1 IV -- Mortgage Loans on Real Estate S-6
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3) Exhibits: 3.1 Conformed copy of Amended and Restated Declaration of Trust as amended by the amendment approved by the shareholders June 28, 1996 and filed with the Maryland Department of Assessments and Taxation on July 9, 1996. (1) 3.2 Amendment, effective March 3, 1997, Amended and Restated Declaration of Trust providing for an increase in the authorized common shares of beneficial interest, $.01 par value per share, from 100,000,000 to 125,000,000. (2) 3.3 Amended and Restated Bylaws (3) 4.1 Form of Series B Notes (4) 4.2 Supplemental Indenture, dated as of June 29, 1994, between the Company and Shawmut Bank, N.A. (4) 4.3 Indenture, dated as of June 1, 1994, between the Company and Shawmut Bank, N.A. (4) 4.4 First Supplemental Indenture, dated as of October 7, 1996, between the Company and Fleet National Bank ("Fleet"), as trustee, relating to the Company's 7.5% Convertible Subordinated Debentures, due 2003, Series A, including form thereof. (5) 20 4.5 Second Supplemental Indenture, dated as of October 7, 1996, between the Company and Fleet, as trustee, relating to the Company's 7.5% Convertible Subordinated Debentures, due 2003, Series B, including form thereof. (5) 4.6 Third Supplemental Indenture, dated as of October 7, 1996, between the Company and Fleet, as trustee, relating to the Company's 7.25% Convertible Subordinated Debentures, due 2001, including form thereof. (5) 4.7 Indenture, dated as of September 20, 1996, between the Company and Fleet, as trustee. (6) 8.1 Opinion of Sullivan & Worcester, LLP as to certain tax matters (filed herewith) 9.1 Amended and Restated AMS Voting Trust Agreement (7) 10.1 Advisory Agreement, as amended (8) (+) 10.2 Second Amendment to Advisory Agreement (9) (+) 10.3 Incentive Share Award Plan (7) (+) 10.4 Master Lease Document (10) 10.5 AMS Properties Security Agreement (10) 10.6 AMS Subordination Agreement (10) 10.7 AMS Guaranty (10) 10.8 AMS Pledge Agreement (10) 10.9 AMS Holding Co. Pledge Agreement (10) 10.10 Amended and Restated Renovation Funding Agreement (10) 10.11 Amendment to AMS Transaction Documents (10) 10.12 GCI Master Lease Document (7) 10.13 Amended and Restated HRP Shares Pledge Agreement (7) 10.14 Guaranty, Cross-Default and Cross-Collateralization Agreement (7) 10.15 Marriott Senior Living Series Purchase and Sale Agreement (9) 10.16 Connecticut Subacute Corporation II Lease Document Waterbury (3) 10.17 Connecticut Subacute Corporation II Lease Document Cheshire (3) 10.18 Connecticut Subacute Corporation II Lease Document New Haven (3) 10.19 Vermont Subacute/New Hampshire Subacute Corporation Mater Lease Agreement (Chapple) (3) 10.20 Amended and Restated Agreement and Plan of Reorganization (Chapple) (3) 10.21 Purchase Option Agreement (3) 10.22 Amended and Restated Promissory Note, dated July 29, 1996, from Connecticut Subacute Corporation to the Company. (11) 10.23 Third Amended and Restated Revolving Loan Agreement, dated as of March 15, 1996, among Health and Retirement Properties Trust, as a borrower, the lenders named therein, Klweinwort Benson Limited, as agent, Wells Fargo Bank, National Association, as administrative agent, Natwest Bank, N.A., as co-agent, et al. (12) 10.24 Letter Agreement, dated as of October 21, 1996, among Health and Retirement Properties Trust, as borrower, Kleinwort Benson Limited, as agent, and the Majority Lenders (12) 10.25 First Amendment, dated as of December 15, 1996, to Third Amended and Restated Revolving Loan Agreement, dated as of March 15, 1996, among Health and Retirement Properties Trust, as borrower, Kleinwort Benson Limited as agent, Wells Fargo Bank, National Association, as administrative agent, Natwest Bank, N.A., as co-agent, et al. (12) 10.26 Second Amendment and Waiver, dated as of March 19, 1997, to Third Amended and Restated Revolving Loan Agreement, dated as of March 15, 1996, among Health and Retirement Properties Trust, as borrower, the lenders named therein, Dresdner Kleinwort Benson North American LLC (as successor to Kleinwort Benson Limited), as agent, Wells Fargo Bank, National Association, as administrative agent, Fleet National Bank (as successor to Fleet Bank of Massachusetts), as co-agent, et al. (13) 10.27 Merger Agreement dated February 17, 1997 between Health and Retirement Properties Trust and Government Property Investors, Inc. including forms of Escrow Agreement, Investment and Registration Rights Agreement, Voting Agreement, Information Access Agreement, Indemnification Agreement, Service Contract, Non-Solicitation Agreement and Second Closing Escrow Agreement. (12) 12.1 Earnings to Fixed Charges (filed herewith) 21.1 Subsidiaries of the Registrant (filed herewith) 23.1 Consent of Ernst & Young LLP (filed herewith) 21 23.2 Consents of Arthur Andersen (filed herewith) 23.3 Consent of Sullivan & Worcester LLP (included as part of Exhibit 8.1 hereto) (+) Management contract or compensatory plan or arrangement. (1) Incorporated by reference to the Company's Current Report on Form 8-K, dated July 10, 1996. (2) Incorporated by reference to the Company's Current Report on Form 8-K, dated March 3, 1997. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (4) Incorporated by reference to the Company's Registration Statement on Form 8-A dated July 11, 1994. (5) Incorporated by reference to the Company's Current Report on Form 8-K dated October 7, 1996. (6) Incorporated by reference to the Company's Registration Statement on Form S-3, File No. 333-02863. (7) Incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-55684, dated December 23, 1992, and amendments thereto. (8) Incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-16799, dated August 27, 1987, and amendments thereto. (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. (11) Incorporated by reference to the Company's Current Report on Form 8-K dated October 1, 1996. (12) Incorporated by reference to the Company's Current Report on Form 8-K, dated February 17, 1997. (13) Incorporated by reference to the Company's Current Report on Form 8-K dated March 20, 1997. (b) During the fourth quarter of 1996, the Company filed the following Current Reports on Form 8-K: (i) Current Report on Form 8-K dated October 1, 1996 related to the Company's offering of its 7.5% Convertible Subordinated Debentures, due 2003, Series A and B and 7.25% Convertible Subordinated Debentures, due 2001. (ii) Current Report on Form 8-K dated October 7, 1996 related to the Company's offering of its 7.5% Convertible Subordinated Debentures, due 2003, Series A and B and 7.25% Convertible Subordinated Debentures, due 2001. (iii) Current Report on Form 8-K dated October 23, 1996 relating to the redemption of the Company's Floating Rate Senior Notes, due 1999, Series A. 22
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 (Dollars in thousands) Initial Cost to Gross Amount Carried at Company Close of Period 12/31/96 ---------------------- ----------------------------- Cost Accumu- Capitalized lated Original Building & Subsequent to Building & Depreci- Date Construction Location State Land Equipment Acquisition Land Equipment Total (1) ation(2) Acquired Date - ----------------------------------------------------------------------------------------------------------------------------------- Retirement and Assisted Living Communities: Scottsdale AZ $ 979 $ 8,807 $ 140 $ 990 $ 8,936 $ 9,926 $ 586 $ 5/16/94 1990 Sun City AZ 1,174 10,569 173 1,189 10,727 11,916 681 6/17/94 1990 Mesa AZ 1,480 13,320 -- 1,480 13,320 14,800 14 12/27/96 1985 Laguna Hills CA 3,132 28,184 475 3,172 28,619 31,791 1,641 9/9/94 1975 Boca Raton FL 4,404 39,633 799 4,474 40,362 44,836 2,646 5/20/94 1994 Deerfield Beach FL 1,664 14,972 298 1,690 15,244 16,934 999 5/16/94 1986 Ft. Myers FL 2,349 21,137 419 2,385 21,520 23,905 1,278 8/16/94 1984 Palm Harbor FL 3,327 29,945 591 3,379 30,484 33,863 1,999 5/16/94 1992 Port St. Lucie FL 1,223 11,009 219 1,242 11,209 12,451 735 5/20/94 1993 Chicago IL 6,200 55,800 -- 6,200 55,800 62,000 58 12/27/96 1990 Arlington Heights IL 3,621 32,587 535 3,665 33,078 36,743 1,896 9/9/94 1986 Silver Spring MD 3,229 29,065 786 3,301 29,779 33,080 1,830 7/25/94 1992 Rochester NY 1,070 9,630 -- 1,070 9,630 10,700 10 12/27/96 1988 Huron SD 45 968 1 44 970 1,014 122 6/30/92 1968 Bellaire TX 1,223 11,010 178 1,238 11,173 12,411 732 5/16/94 1991 Arlington VA 1,859 16,734 295 1,885 17,003 18,888 1,045 7/25/94 1992 Charlottesville VA 2,936 26,422 472 2,976 26,854 29,830 1,705 6/17/94 1991 Virginia Beach VA 881 7,926 137 890 8,054 8,944 528 5/16/94 1990 -------- --------- ------- -------- -------- -------- ------- Subtotal 40,796 367,718 5,518 41,270 372,762 414,032 18,505 -------- --------- ------- -------- -------- -------- ------- Long-Term Care Facilities: Phoenix AZ 655 2,525 5 655 2,530 3,185 326 6/30/92 1963 Yuma AZ 223 2,100 4 223 2,104 2,327 267 6/30/92 1984 Yuma AZ 103 604 1 103 605 708 77 6/30/92 1984 Fresno CA 738 2,577 188 738 2,765 3,503 483 12/28/90 1968 Lancaster CA 601 1,859 1,029 601 2,888 3,489 439 12/28/90 1963 Newport Beach CA 1,176 1,729 1,223 1,176 2,952 4,128 424 12/28/90 1962 Palm Springs CA 103 1,264 982 103 2,246 2,349 307 12/28/90 1969 San Diego CA 1,114 1,073 480 1,114 1,553 2,667 272 12/28/90 1969 Stockton CA 382 2,750 4 382 2,754 3,136 351 6/30/92 1968 Tarzana CA 1,277 977 806 1,278 1,782 3,060 298 12/28/90 1969 Thousand Oaks CA 622 2,522 310 622 2,832 3,454 476 12/28/90 1965 Van Nuys CA 716 378 225 718 601 1,319 113 12/28/90 1969 S-1 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III-continued REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 (Dollars in thousands) Initial Cost to Gross Amount Carried at Company Close of Period 12/31/96 ---------------------- ----------------------------- Cost Accumu- Capitalized lated Original Building & Subsequent to Building & Depreci- Date Construction Location State Land Equipment Acquisition Land Equipment Total (1) ation(2) Acquired Date - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Care Facilities - continued Colorado Springs CO 23 777 209 26 983 1,009 72 11/1/94 1960 Grand Junction CO 6 2,583 1,313 136 3,766 3,902 291 12/30/93 1978 Grand Junction CO 204 3,875 322 204 4,197 4,401 387 12/30/93 1968 Lakewood CO 232 3,766 724 232 4,490 4,722 722 12/28/90 1972 Littleton CO 185 5,043 349 185 5,392 5,577 914 12/28/90 1965 Paonia CO 115 2,179 73 115 2,252 2,367 209 12/30/93 1981 Cheshire CT 520 7,380 1,559 520 8,939 9,459 2,003 11/1/87 1963 Killingly CT 240 5,360 460 240 5,820 6,060 1,627 5/15/87 1972 New Haven CT 1,681 14,953 1,236 1,681 16,189 17,870 2,226 5/11/92 1971 Waterford CT 86 4,714 453 86 5,167 5,253 1,498 5/15/87 1965 Willimantic CT 134 3,566 479 166 4,013 4,179 1,077 5/15/87 1965 College Park GA 300 2,702 19 300 2,721 3,021 52 5/15/96 1985 Glenwood GA 174 1,564 3 174 1,567 1,741 28 5/15/96 1972 Dublin GA 442 3,982 41 442 4,023 4,465 73 5/15/96 1968 Macon GA 363 3,271 -- 363 3,271 3,634 62 5/15/96 1969 Marrietta GA 300 2,702 11 300 2,713 3,013 50 5/15/96 1969 Clarinda IA 77 1,453 228 77 1,681 1,758 146 12/30/93 1968 Council Bluffs IA 50 467 84 50 551 601 44 6/4/93 1970 Council Bluffs IA 225 2,125 90 225 2,215 2,440 93 4/1/95 1963 Glenwood IA 45 2,155 24 45 2,179 2,224 93 4/1/95 1964 Mediapolis IA 94 1,776 236 94 2,012 2,106 179 12/30/93 1973 Muscatine IA 246 4,683 2,268 246 6,951 7,197 475 12/30/93 1964 Pacific Junction IA 32 368 5 32 373 405 16 4/1/95 1978 Toledo IA 153 2,907 337 153 3,244 3,397 294 12/30/93 1975 Winterset IA 111 2,099 491 111 2,590 2,701 218 12/30/93 1973 Nashville IL 75 2,556 80 75 2,636 2,711 454 12/28/90 1964 Arma KS 47 1,953 103 47 2,056 2,103 86 4/1/95 1970 Ellinwood KS 130 1,420 38 130 1,458 1,588 61 4/1/95 1972 Smith Center KS 111 2,099 145 111 2,244 2,355 205 12/30/93 1971 Topeka KS 110 890 24 110 914 1,024 38 4/1/95 1963 Topeka KS 137 913 47 137 960 1,097 38 4/1/95 1970 Topeka KS 18 232 156 18 388 406 11 4/1/95 1968 Wichita KS 105 1,995 -- 105 1,995 2,100 42 10/1/96 1973 Oak Grove MO 119 1,831 233 119 2,064 2,183 82 4/1/95 1976 St. Joseph MO 111 1,027 135 111 1,162 1,273 93 6/4/93 1976 S-2 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III-continued REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 (Dollars in thousands) Initial Cost to Gross Amount Carried at Company Close of Period 12/31/96 ---------------------- ----------------------------- Cost Accumu- Capitalized lated Original Building & Subsequent to Building & Depreci- Date Construction Location State Land Equipment Acquisition Land Equipment Total (1) ation(2) Acquired Date - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Care Facilities - continued Tarkio MO 102 1,938 381 102 2,319 2,421 193 12/30/93 1970 Grand Island NE 119 1,331 350 119 1,681 1,800 62 4/1/95 1963 Rochester NH 466 3,219 4 466 3,223 3,689 158 1/30/95 1972 Burlington NJ 1,300 11,700 7 1,300 11,707 13,007 367 9/28/95 1994 Akron OH 330 5,370 727 330 6,097 6,427 1,743 5/15/87 1971 Grove City OH 332 3,081 32 332 3,113 3,445 275 6/4/93 1965 Huron SD 144 3,108 4 144 3,112 3,256 393 6/30/92 1968 Sioux Falls SD 253 3,062 4 253 3,066 3,319 388 6/30/92 1960 Barre VT 261 4,530 133 389 4,535 4,924 222 1/30/95 1979 Barre VT 129 3,825 4 129 3,829 3,958 187 1/30/95 1972 Bennington VT 160 4,385 5 160 4,390 4,550 215 1/30/95 1971 Burlington VT 791 5,985 410 872 6,314 7,186 307 1/30/95 1968 Springfield VT 50 747 1 50 748 798 37 1/30/95 1976 Springfield VT 89 3,724 157 242 3,728 3,970 183 1/30/95 1971 St. Albans VT 154 710 1 154 711 865 35 1/30/95 1900 St. Johnsbury VT 95 3,416 4 95 3,420 3,515 167 1/30/95 1978 Seattle WA 256 4,869 68 256 4,937 5,193 478 11/1/93 1972 Brookfield WI 834 3,849 8,014 834 11,863 12,697 1,231 12/28/90 1954 Clintonville WI 49 1,625 88 30 1,732 1,762 290 12/28/90 1965 Clintonville WI 14 1,695 37 14 1,732 1,746 292 12/28/90 1960 Madison WI 144 1,633 109 144 1,742 1,886 292 12/28/90 1920 Milwaukee WI 277 3,883 -- 277 3,883 4,160 541 3/27/92 1969 Milwaukee WI 116 3,438 123 116 3,561 3,677 597 12/28/90 1960 Waukesha WI 68 3,452 2,232 68 5,684 5,752 730 12/28/90 1958 Laramie WY 191 3,632 190 191 3,822 4,013 355 12/30/93 1964 Saratoga WY 13 1,487 185 14 1,671 1,685 124 11/1/94 1974 Worland WY 132 2,503 565 132 3,068 3,200 246 12/30/93 1970 -------- --------- ------- -------- -------- -------- ------- Subtotal 21,580 213,921 31,067 22,092 244,476 266,568 27,900 -------- --------- ------- -------- -------- -------- ------- Long-Term Care Facilities with Subacute Services: Wallingford CT 557 11,043 1,921 557 12,964 13,521 3,466 12/23/86 1974 Waterbury CT 514 10,186 1,114 630 11,184 11,814 3,165 12/23/86 1971 Forestville CT 465 9,235 3,083 478 12,305 12,783 2,972 12/23/86 1972 Waterbury CT 1,003 9,023 914 1,003 9,937 10,940 1,356 5/11/92 1974 Boston MA 2,164 20,836 1,978 2,164 22,814 24,978 5,117 5/1/89 1968 S-3 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III-continued REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 (Dollars in thousands) Initial Cost to Gross Amount Carried at Company Close of Period 12/31/96 ---------------------- ----------------------------- Cost Accumu- Capitalized lated Original Building & Subsequent to Building & Depreci- Date Construction Location State Land Equipment Acquisition Land Equipment Total (1) ation(2) Acquired Date - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Care Facilities with Subacute Services - continued Worcester MA 1,829 15,071 1,869 1,829 16,940 18,769 4,259 5/1/88 1970 Hyannis MA 829 7,463 -- 829 7,463 8,292 1,115 5/11/92 1972 Middleboro MA 1,771 15,752 -- 1,771 15,752 17,523 2,328 5/11/92 1975 North Andover MA 1,448 11,049 -- 1,448 11,049 12,497 1,651 5/11/92 1985 Canonsburg PA 1,499 13,493 606 1,518 14,080 15,598 2,565 3/1/91 -------- --------- ------- -------- -------- -------- ------- Subtotal 12,079 123,151 11,485 12,227 134,488 146,715 27,994 -------- --------- ------- -------- -------- -------- ------- Medical Office Buildings and Clinics: San Diego CA 1,425 12,842 -- 1,425 12,842 14,267 13 12/31/96 1985 San Diego CA 4,205 38,335 -- 4,206 38,334 42,540 40 12/5/96 1985 Sacramento CA 644 3,206 77 644 3,283 3,927 194 12/18/95 1988 Washington DC 2,485 22,696 -- 2,485 22,696 25,181 165 9/3/96 1976 Boston MA 3,378 30,397 381 3,379 30,777 34,156 985 9/28/95 1985 Boston MA 1,447 13,028 39 1,447 13,067 14,514 422 9/28/95 1993 Boston MA 1,500 13,500 206 1,500 13,706 15,206 356 12/18/95 1988 Westwood MA 303 2,740 -- 303 2,740 3,043 9 11/26/96 1980 Brooklyn NY 775 7,054 -- 775 7,054 7,829 95 6/6/96 1982 White Plains NY 1,200 10,870 -- 1,200 10,870 12,070 238 2/6/96 1995 Fairfax VA 569 5,122 -- 569 5,122 5,691 5 12/3/96 1990 -------- --------- ------- -------- -------- -------- ------- Subtotal 17,931 159,790 703 17,933 160,491 178,424 2,522 -------- --------- ------- -------- -------- -------- ------- Total Real Estate $92,386 $864,580 $48,773 $93,522 $912,217 $1,005,739 $76,921 ======== ========= ======= ======== ======== ========== ======= (1) Aggregate cost for federal income tax purposes is approximately $979,802. (2) Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.
S-4
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III - continued REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 (Dollars in thousands) Real Estate and Accumulated Equipment Depreciation ---------------- ---------------- Balance at January 1, 1994 $ 384,811 $ 34,969 Additions 341,610 13,594 Disposals (53,338) (8,993) ----------- ----------- Balance at December 31, 1994 673,083 39,570 Additions 309,853 21,047 Disposals (24,376) (2,352) Real estate investments of Hospitality Properties Trust (180,349) (2,410) ----------- ----------- Balance at December 31, 1995 778,211 55,855 Additions 227,528 21,066 ----------- ----------- Balance at December 31, 1996 $ 1,005,739 $ 76,921 =========== ===========
S-5
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1996 (Dollars in thousands) Principal Amount of Loans Subject to Final Face (1) Carry Delinquent Interest Maturity Value of Value of Principal Location Rate Date Periodic Payment Terms Mortgage Mortgage or Interest - ----------------------------------------------------------------------------------------------------------------------------------- Farmington, MI 11.50% 12/31/00 Principal and interest, payable $ 4,274 $4,274 $ -- monthly in arrears. $4.1 million due at maturity. Jacksonville, FL 10.50% 3/31/06 Interest only, payable monthly 5,000 5,000 -- in arrears. $5.0 million due at maturity. Howell, MI 11.50% 12/31/00 Principal and interest, payable 5,069 5,069 -- monthly in arrears. $4.9 million due at maturity. Medina, OH 8.25% 2/1/98 Principal and interest, payable 5,854 5,539 -- monthly in arrears. $5.8 million due maturity. Ainsworth, NE 9.00% 12/31/16 Interest only, payable in arrears; 5,967 5,967 -- Ashland, NE principal and interest starting Blue Hill, NE 1998. $2.9 million due at Central City, NE maturity. Gretna, NE Sutherland, NE Waverly, NE Aberdeen, NC 11.35% 4/30/07 Interest only, payable in arrears; 11,500 11,500 -- King, NC principal and interest starting New Bern, NC 1997. $9.6 million due at maturity. Milwaukee, WI 11.50% 12/31/10 Interest only, payable in arrears; 11,500 11,500 -- Pewaukee, WI principal and interest starting 1997. $9.6 million due at maturity. Torrance, CA 11.25% 12/31/02 Interest only, payable in arrears; 12,309 12,309 -- Torrance, CA principal and interest starting 1997. Anaheim, CA $11.5 million due at maturity. S-6 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV-continued MORTGAGE LOANS ON REAL ESTATE December 31, 1996 (Dollars in thousands) Principal Amount of Loans Subject to Final Face (1) Carry Delinquent Interest Maturity Value of Value of Principal Location Rate Date Periodic Payment Terms Mortgage Mortgage or Interest - ----------------------------------------------------------------------------------------------------------------------------------- Canon City, CO 11.50% 12/31/16 Interest only, payable in arrears; 13,551 13,551 -- Colorado Springs, CO principal and interest starting Delta, CO in 1998. $7.6 million due at maturity. Slidell, LA 11.00% 12/31/10 Principal and interest, payable 19,358 19,358 -- monthly in arrears. $13.9 million due at maturity. 22 Mortgages 7.37% - 13.75% 4/97-12/16 Interest only or principal and interest, payable monthly in arrears. 46,180 43,178 -- ---------------------------------------------- $ 140,562 $ 137,245 $ -- ============================================== (1) Also represent cost for federal income tax purposes.
S-7 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV-continued MORTGAGE LOANS ON REAL ESTATE December 31, 1996 (Dollars in thousands) Reconciliation of the carrying amount of mortgage loans at the beginning of the period: Balance at January 1, 1994 $ 148,250 New mortgage loans 11,772 Collections of principal, net of discounts (44,178) Reclassification of real estate investment 9,947 --------- Balance at December 31, 1994 125,791 New mortgage loans 40,064 Collections of principal, net of discounts (26,607) --------- Balance at December 31, 1995 139,248 New mortgage loans 5,918 Collections of principal, net of discounts (7,921) --------- Balance at December 31, 1996 $ 137,245 ========= S-8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HEALTH AND RETIREMENT PROPERTIES TRUST By:/s/David J. Hegarty David J. Hegarty President and Chief Operating Officer Dated: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, or by their attorney-in-fact, in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/David J. Hegarty President and Chief Operating Officer March 28, 1997 David J. Hegarty /s/Ajay Saini Treasurer and Chief Financial Officer March 28, 1997 Ajay Saini /s/Bruce M. Gans, M.D. Trustee March 28, 1997 Bruce M. Gans, M.D. _________________________ Trustee Ralph J. Watts ____________________________ Trustee Rev. Justinian Manning, C.P. /s/ Gerard M. Martin Trustee March 28, 1997 Gerard M. Martin /s/Barry M. Portnoy Trustee March 28, 1997 Barry M. Portnoy
EX-8.1 2 SULLIVAN & WORCESTER LLP One Post Office Square Boston, Massachusetts 02109 March 28, 1997 Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Ladies and Gentlemen: In connection with the filing of its Annual Report on Form 10-K for the year ended December 31, 1996 (the "Annual Report") by Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), the following opinion is furnished to you to be filed with the Securities and Exchange Commission (the "SEC") as Exhibit 8.1 to the Annual Report, to be filed within one week of the date hereof, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have acted as counsel for the Company in connection with the preparation of the Annual Report, and we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Annual Report, corporate records, certificates and statements of officers and accountants of the Company and of public officials, and such other documents as we have considered relevant and necessary in order to furnish the opinion hereinafter set forth. Specifically, and without limiting the generality of the foregoing, we have reviewed: the declaration of trust, as amended and restated, and the by-laws of the Company and the Annual Report. We have reviewed the sections in the Annual Report captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts." With respect to all questions of fact on which such opinions are based, we have assumed the accuracy and completeness of and have relied on the information set forth in the Annual Report and on representations made to us by the officers of the Company. We have not independently verified such information; nothing has come to our attention, however, which would lead us to believe that we are not entitled to rely on such information. The opinion set forth below is based upon the Internal Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively the "Tax Laws"), and upon the Employee Retirement Income Security Act of Health and Retirement Properties Trust March 28, 1997 Page 2 1974, as amended, the Department of Labor regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively, the "ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws will not change. In preparing the discussions with respect to federal income tax and ERISA Laws matters in the sections of the Annual Report captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," we have made certain assumptions and expressed certain conditions and qualifications therein, all of which assumptions, conditions and qualifications are incorporated herein by reference. Based upon and subject to the foregoing, we are of the opinion that the discussions with respect to federal income tax and ERISA Laws matters in the sections of the Annual Report captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," in all material respects are accurate and fairly summarize the federal income tax issues and ERISA Laws issues addressed therein, and hereby confirm that the opinions of counsel referred to in said sections represent our opinions on the subject matter thereof. We hereby consent to the incorporation of this opinion by reference as an exhibit to the Company's Registration Statements on Form S-3, No. 333-02863 and 33-62135 and to any references to our firm therein. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Act or under the rules and regulations of the SEC promulgated thereunder. Very truly yours, /s/ SULLIVAN & WORCESTER LLP SULLIVAN & WORCESTER LLP EX-12.1 3
HEALTH AND RETIREMENT PROPERTIES TRUST Exhibit 12.1 Computation of Earnings to Fixed Charges (dollars in thousands) YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- EARNINGS: INCOME BEFORE GAIN ON SALE OF PROPERTIES AND EXTRAORDINARY ITEMS $22,079 $27,243 $37,738 $57,578 $61,760 $ 77,164 ADJUSTMENT FOR FIXED CHARGES 12,305 10,419 66,529 10,096 26,218 23,279 -------- -------- -------- -------- -------- --------- TOTAL EARNINGS $34,384 $37,662 $44,267 $67,974 $87,978 $100,443 FIXED CHARGES: INTEREST EXPENSE $11,741 $ 9,466 $6,217 $ 8,965 $24,274 $22,545 AMORTIZATION 564 953 312 1,131 1,944 734 --------- --------- -------- -------- -------- --------- TOTAL FIXED CHARGES $12,305 $10,419 $6,529 $10,096 $26,218 $23,279 RATIO OF EARNINGS TO FIXED CHARGES 2.8 3.6 6.8 6.7 3.4 4.3
EX-21.1 4 Exhibit 21.1 Subsidiaries of Health and Retirement Property Trust Causeway Holdings, Inc., a Massachusetts Corporation Church Creek Corporation, a Massachusetts Corporation Health and Retirement Properties International, Inc., a Delaware Corporation Hub Acquisition Trust, a Maryland Real Estate Investment Trust Hub Properties Trust, a Maryland Real Estate Investment Trust SJO Corporation, a Massachusetts Corporation EX-23.1 5 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in Posteffective Amendment No. 1 to the Registration Statement (Form S-3 No. 62135) of Health and Retirement Properties Trust and in the related Prospectus and in the Registration Statement (Form S-3 No. 333-02863) of Health and Retirement Properties Trust and in the related Prospectus of our report dated February 6, 1997, with respect to the consolidated financial statements of Health and Retirement Properties Trust included in the Company's Form 8-K dated February 17, 1997 and incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1996. Our audits also included the financial statement schedules of Health and Retirement Properties Trust listed in Item 14(a). These schedules are the responsibility of Health and Retirement Properties Trust's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP ERNST & YOUNG LLP Boston, Masschusetts March 27, 1997 EX-23.2 6 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 24, 1997 included in Marriott International, Inc.'s Form 10-K for the year ended January 3, 1997 (File No. 1-12188) into Health and Retirement Properties Trust's Form 10-K for the year ended December 31, 1996, and into Health and Retirement Properties Trust's previously filed Registration Statements File Nos. 333-02863 and 33- 62135. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Washington, D.C. March 26, 1997 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 10, 1997 on Hospitality Properties Trust incorporated by reference in Health and Retirement Properties Trust's Form 10-K, into Health and Retirement Properties Trust's previously filed Registration Statements File No. 333-02863 and No. 33-62135. /s/ Arthur Andersen LLP Washington, D.C. March 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----