SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 27, 2002
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NATIONWIDE HEALTH PROPERTIES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Maryland 1-9028 95-3997619
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification
Incorporation) No.)
610 Newport Center Drive, Suite 1150, Newport Beach, California 92660-6429
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (949) 718-4400
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
On June 27, 2002, Nationwide Health Properties, Inc., entered into a
transaction to issue and sell $100,000,000 aggregate principal amount of 8.25%
fixed rate Medium-Term Notes, Series D, in an underwritten public offering. The
issuance and sale of the notes was completed on July 3, 2002. The notes will
mature on July 1, 2012 and will accrue interest from July 3, 2002. We expect the
issuance of the notes to result in net proceeds of approximately $98,700,000,
after deducting estimated underwriters' discounts and commissions and other
offering expenses payable by us. The net proceeds from the sale of the notes
will be used for general corporate purposes, including the repayment of amounts
outstanding under our revolving line of credit.
Our filing on Form 10-K for the year ended December 31, 2001, includes
a description of risks relating to investment in our company. For convenience
and completeness, these risks are updated below.
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision in our company. The risks and uncertainties described
below are not the only ones facing us and there may be additional risks that we
do not presently know of or that we currently consider immaterial. All of these
risks could adversely affect our business, financial condition, results of
operations and cash flows.
Operator Obligations
Our income would be adversely affected if a significant number of our
operators were unable to meet their obligations to us or if we were unable to
lease our facilities or make mortgage loans on economically favorable terms.
There can be no assurance that a lessee will exercise its option to renew its
lease upon the expiration of the initial term or that if such failure to renew
were to occur, we could lease the facility to another operator on favorable
terms.
Operator Governmental Regulations
Our operators are subject to regulation by federal, state and local
governments. These laws and regulations are subject to frequent and substantial
changes resulting from legislation, adoption of rules and regulations, and
administrative and judicial interpretations of existing law. These changes may
have a dramatic effect on our operators' costs associated with doing business
and the amount of reimbursement by both government and other third-party payors.
These changes may be applied retroactively. The ultimate timing or effect of
these changes cannot be predicted. The failure of any of our operators to comply
with such laws, requirements and regulations could adversely affect such
operator's ability to meet its obligations to us.
Operator Reimbursement Rates
The ability of our operators to generate revenue and profit affects the
underlying value of our facilities. Revenues of our operators are generally
derived from payments for patient care from the federal Medicare program, state
Medicaid programs, private insurance carriers, health
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care service plans, health maintenance organizations, preferred provider
arrangements, self-insured employers as well as the patients themselves.
A significant portion of our operators' revenue is derived from
governmentally-funded reimbursement programs, such as Medicare and Medicaid.
Federal and state governments have adopted and continue to consider various
health care reform proposals to control health care costs. In recent years,
there have been fundamental changes in the Medicare program that have resulted
in reduced levels of payment for a substantial portion of health care services.
In many instances, revenues from Medicaid programs are already insufficient to
cover the actual costs incurred in providing care to those patients. In
addition, reimbursement from private payors has in many cases effectively been
reduced to levels approaching those of government payors.
Governmental and public concern regarding health care costs may result
in significant reductions in payment to health care facilities, and there can be
no assurance that future reimbursement rates for either governmental or private
payors will be sufficient to cover cost increases in providing services to
patients. Any changes in reimbursement policies that reduce reimbursement to
levels that are insufficient to cover the cost of providing patient care could
adversely affect revenues of our operators and thereby adversely affect their
ability to meet their obligations to us.
Operator Financial Difficulties
Our facilities are operated by 60 different operators including the
following publicly traded companies: Alterra Healthcare Corporation, American
Retirement Corporation, ARV Assisted Living, Inc., Beverly Enterprises, Inc.,
Harborside Healthcare Corporation, HEALTHSOUTH Corporation, Integrated Health
Services, Inc., Mariner Health Care, Inc., and Sun Healthcare Group, Inc. At
March 31, 2002, only Alterra, Beverly and ARV, which accounted for 13%, 10% and
10%, respectively, of our revenues for the three months ended March 31, 2002,
account for 10% of more of our revenues.
Four operators of skilled nursing facilities and one operator of
assisted living facilities we own have filed for protection under the United
States bankruptcy laws since 1999. These operators included Sun, Mariner,
Integrated, SV/Home Office Inc. and certain affiliates, or SV, and Assisted
Living Concepts, Inc., or ALC. During 2002, Sun, Mariner and ALC emerged from
bankruptcy. In March 2002, the bankruptcy court approved our final settlement
with Sun that included their assumption of five leases and rejection of one
other. In April 2002, the bankruptcy court approved Mariner's Second Amended
Joint Plan of Reorganization that will result in our obtaining ownership of the
facility securing our only mortgage loan with Mariner. Also in April 2002, the
bankruptcy court approved our final settlement with Integrated that resulted in
the assumption by Integrated of the amended leases on five buildings and the
rejection of two others. Over the course of these proceedings, (A) Sun (which
emerged from bankruptcy earlier this year) has returned 20 facilities and agreed
to a master lease of the remaining five facilities involved in the bankruptcy;
(B) Mariner (which emerged from bankruptcy earlier this year) has returned 15
facilities, agreed to give us a deed in lieu of foreclosure for a facility that
secured a mortgage loan receivable and assumed leases on six facilities; (C)
Integrated has returned two facilities and agreed to a master lease on the other
five facilities; (D) SV has agreed to assume the lease on one
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building, return one facility and extend its mortgage on two other buildings for
five years; and (E) ALC (which emerged from bankruptcy earlier this year)
assumed the leases on two buildings and transferred title to us and signed
leases on two buildings that had previously secured mortgages loans receivable
from ALC. We have leased 32 of these facilities to new operators and sold two
facilities.
Our financial position and our ability to make distributions may be
adversely affected by financial difficulties experienced by any of our major
operators, including bankruptcy, insolvency or general downturn in business of
any such operator, or in the event any such operator does not renew or extend
its relationship with us as its term expires.
Operators Seeking Bankruptcy Protection
We are exposed to the risk that our operators may not be able to meet
their obligations, which may result in their bankruptcy or insolvency. Although
our leases and loans provide us the right to terminate an investment, evict an
operator, demand immediate repayment and other remedies, the bankruptcy laws
afford certain rights to a party that has filed for bankruptcy or
reorganization. An operator in bankruptcy may be able to restrict our ability to
collect unpaid rent and interest during the bankruptcy proceeding.
If one of our lessees seeks bankruptcy protection, the lessee can
either assume or reject the lease. Generally, the operator is required to make
rent payments to us during their bankruptcy until they reject the lease. If the
lessee assumes the lease, the court cannot change the rental amount or any other
lease provision that could financially impact us. However, if the lessee rejects
the lease, the facility would be returned to us. If the facility is returned to
us, our financial condition could be adversely affected by delays in leasing the
facility to a new operator.
In the event of a default by our operators under mortgage loans, we may
have to foreclose on the mortgage or protect our interest by acquiring title to
a property and thereafter making substantial improvements or repairs in order to
maximize the facility's investment potential. Operators may contest enforcement
of foreclosure or other remedies, seek bankruptcy protection against such
enforcement and/or bring claims for lender liability in response to actions to
enforce mortgage obligations. If an operator seeks bankruptcy protection, the
automatic stay of the federal bankruptcy law would preclude us from enforcing
foreclosure or other remedies against the operator unless relief is obtained
from the court. High "loan to value" ratios or declines in the value of the
facility may prevent us from realizing an amount equal to our mortgage loan upon
foreclosure.
The receipt of liquidation proceeds or the replacement of an operator
that has defaulted on its lease or loan could be delayed by the approval process
of any federal, state or local agency necessary for the replacement of the
operator licensed to manage the facility. In some instances, we may take
possession of a property that may expose us to successor liabilities. If any of
these events occur, our revenue and operating cash flow could be adversely
affected.
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Fraud and Abuse Regulations
There are various federal and state laws prohibiting fraud by health care
providers, including criminal provisions that prohibit filing false claims or
making false statements to receive payment or certification under Medicare and
Medicaid, or failing to refund overpayments or improper payments.
There are also laws that govern referrals and financial relationships. A
wide array of relationships and arrangements, including ownership interests in a
company by persons who refer or who are in a position to refer patients, as well
as personal services agreements, have under certain circumstances, been alleged
or been found to violate these provisions. State and federal governments are
devoting increasing attention and resources to anti-fraud initiatives against
health care providers.
Licensing, Certification and Accreditation
Our operators and facilities are subject to regulatory and licensing
requirements of federal, state and local authorities. In granting and renewing
licenses, regulatory agencies consider, among other things, the physical
buildings and equipment, the qualifications of the administrative personnel and
nursing staff, the quality of care and the continuing compliance with the laws
and regulations relating to the operation of the facilities. In the ordinary
course of business, the operators receive notices of deficiencies for failure to
comply with various regulatory requirements and take appropriate corrective and
preventive actions.
Failure to obtain licensure or loss of licensure would prevent a facility
from operating. Failure to maintain certification in the Medicare and Medicaid
programs would result in a loss of funding from those programs. Although
accreditation is generally voluntary, loss of accreditation could result in a
facility failing to meet eligibility requirements to participate in various
reimbursement programs. These events could adversely affect the facility
operator's ability to meet its obligations to us.
Competition
The health care industry is highly competitive and we expect that it may
become more competitive in the future. Our operators are competing with numerous
other companies providing similar health care services or alternatives such as
home health agencies, life care at home, community-based service programs,
retirement communities and convalescent centers. In addition, overbuilding in
the assisted living market during the past several years caused a slow-down in
the fill-rate of newly constructed buildings and a reduction in the monthly rate
many newly built and previously existing facilities were able to obtain for
their services. This resulted in lower revenues for the operators of certain of
our facilities. It may also have contributed to the financial difficulties of
some of our operators. While we believe that overbuilt markets should reach
stabilization in the next couple of years due to minimal new development, we
cannot be certain the operators of all of our facilities will be able to achieve
occupancy and rate levels that will enable them to meet all of their obligations
to us. There can also be no assurance that our operators will not encounter
increased competition in the future that could limit their ability to attract
residents or expand their businesses and therefore affect their ability to meet
their obligations to us.
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Debt Obligations
We are subject to risks normally associated with debt financing,
including the risks that our cash flow will be insufficient to make
distributions to our stockholders, that we will be unable to refinance existing
indebtedness and that the terms of refinancing will not be as favorable as the
terms of existing indebtedness.
If we are unable to refinance or extend principal payments due at
maturity or pay them with proceeds from other capital transactions, our cash
flow may not be sufficient in all years to pay distributions to our stockholders
and to repay all maturing debt. Furthermore, if prevailing interest rates,
changes in our debt ratings or other factors at the time of refinancing result
in higher interest rates upon refinancing, the interest expense relating to that
refinanced indebtedness would increase. This increased interest expense would
adversely affect our financial condition and results of operations.
Leverage
Financing for our future investments may be provided by borrowings
under our bank line of credit, private or public offerings of debt, the
assumption of secured indebtedness, obtaining mortgage financing on a portion of
our owned portfolio or through joint ventures. Accordingly, we could become more
highly leveraged. The degree of leverage could have important consequences to
stockholders, including affecting our ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions, development
or other general corporate purposes and making us more vulnerable to a downturn
in business or the economy generally.
External Sources of Capital
In order to qualify as a REIT under the Internal Revenue Code, we are
required each year to distribute to our stockholders at least 90% of our REIT
taxable income. Because of this distribution requirement, we may not be able to
fund all future capital needs, including capital needs in connection with
acquisitions, from cash retained from operations. As a result, we rely on other
sources of capital, which we may not be able to obtain on favorable terms or at
all. Our access to capital depends upon a number of factors, including general
market conditions and the market's perception of our growth potential and our
current and potential future earnings and cash distributions and the market
price of the shares of our capital stock. Additional debt financing may
substantially increase our leverage.
Investment Level
Difficult capital market conditions in our industry during the past
several years have limited our access to capital. As a result, the level of our
new investments decreased. If the level of our new investments does not increase
or if mortgage repayments or sales of our facilities exceed our new investments,
our revenues may decrease.
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Arthur Andersen Consent
Arthur Andersen LLP, which audited our financial statements, was found
guilty of obstruction of justice arising from the government's investigation of
Enron Corp. The inability of Arthur Andersen in the future to provide its
consent to use our audited financial statements could impact our ability to,
among other things, fulfill the SEC's periodic reporting requirements or access
the public capital markets. In addition, in the event the SEC ceases to accept
the financial statements audited by Arthur Andersen, it is possible that our
available audited financial statements may not satisfy SEC requirements. Any
delay or inability to, among other things, fulfill the SEC's periodic reporting
requirements or access the public markets could have an adverse impact on our
business. Also, investors' ability to seek potential recoveries from Arthur
Andersen related to any claims such investors may assert as a result of the work
performed by Arthur Andersen may be significantly limited.
Change of Control Provisions
Our charter and bylaws contain provisions that may delay, defer or
prevent a change in control or other transactions that could provide the holders
of our common stock with the opportunity to realize a premium over the
then-prevailing market price for our common stock.
In order to protect us against the risk of losing our REIT status for
federal income tax purposes, our charter prohibits the ownership by any single
person of more than 9.9% of the issued and outstanding shares of our voting
stock. We will redeem shares acquired or held in excess of the ownership limit.
In addition, any acquisition of our common stock or preferred stock that would
result in our disqualification as a REIT is null and void. The ownership limit
may have the effect of delaying, deferring or preventing a change in control
and, therefore, could adversely affect our stockholders' ability to realize a
premium over the then-prevailing market price for the shares of our common stock
in connection with such transaction. The Board of Directors has increased the
ownership limit applicable to our voting stock to 20% with respect to Cohen &
Steers Capital Management, Inc. As of March 31, 2002, Cohen & Steers Capital
Management, Inc. held 13.1% of our common stock.
Our charter authorizes us to issue additional shares of common stock
and one or more series of preferred stock and to establish the preferences,
rights and other terms of any series of preferred stock that we issue. Although
our Board of Directors has no intention to do so at the present time, it could
establish a series of preferred stock that could delay, defer or prevent a
transaction or a change in control that might involve a premium price for our
common stock or otherwise be in the best interests of our stockholders.
Our charter also contains other provisions that may delay, defer or
prevent a transaction, including a change in control, that might involve payment
of a premium price for our common stock or otherwise be in the best interests of
our stockholders. Those provisions include the following:
. a proposed consolidation, merger, share exchange or transfer must be
approved by two-thirds of the votes entitled to be cast on the matter;
and
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. the requirement that any business combination be approved by 90% of
the outstanding shares unless the transaction receives a unanimous
vote or a consent of the Board of Directors or is a combination solely
with the wholly-owned subsidiary.
These provisions may impede various actions by stockholders without approval of
our Board of Directors, which in turn may delay, defer or prevent a transaction
involving a change of control.
Stock Price
As with other publicly-traded equity securities, the market price of
our common stock will depend upon various market conditions, which may change
from time to time. Among the market conditions that may affect the market price
of our stock are the following:
. the extent of investor interest;
. the general reputation of REITs and the attractiveness of their equity
securities in comparison to other equity securities (including
securities issued by other real estate-based companies);
. our financial performance and that of our operators;
. the contents of analyst reports about us and the REIT industry; and
. general stock and bond market conditions, including changes in
interest rates on fixed income securities, which may lead prospective
purchasers of our common stock to demand a higher annual yield from
future distributions. Such an increase in the required yield from
distributions may adversely affect the market price of our common
stock.
Other factors such as governmental regulatory action and changes in tax laws
could also have a significant impact on the future market price of our common
stock.
The market value of the equity securities of a REIT is generally based
upon the market's perception of the REIT's growth potential and its current and
potential future earnings and cash distributions. For that reason, shares of our
common stock may trade at prices that are higher or lower than the net asset
value per share. Our failure to meet the market's expectation with regard to
future earnings and cash distributions likely would adversely affect the market
price of our common stock. Another factor that may influence the price of our
common stock will be the distribution yield on our common stock (as a percentage
of the price of our common stock) relative to market interest rates. An increase
in market interest rates might lead prospective purchasers of our common stock
to expect a higher distribution yield, which would adversely affect the market
price of our common stock.
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REIT Status
We intend to operate in a manner to qualify as a REIT under the Internal
Revenue Code. We believe that we have been organized and have operated in a
manner, which would allow us to qualify as a REIT under the Internal Revenue
Code. However, it is possible that we have been organized or have operated in a
manner that would not allow us to qualify as a REIT, or that our future
operations could cause us to fail to qualify. Qualification as a REIT requires
us to satisfy numerous requirements established under highly technical and
complex Internal Revenue Code provisions. For example, in order to qualify as a
REIT, at least 95% of our gross income in any year must be derived from
qualifying sources, and we must pay dividends to stockholders aggregating at
least 90% of our annual REIT taxable income. Legislation, new regulations,
administrative interpretations or court decisions could significantly change the
tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. However, we are not aware of any pending tax
legislation that would adversely affect our ability to operate as a REIT.
If we fail to qualify as a REIT in any taxable year, we will be subject to
federal income tax on our taxable income at regular corporate rates. Unless we
are entitled to relief under statutory provisions, we would be disqualified from
treatment as a REIT for the four taxable years following the year during which
we lost qualification. If we lose our REIT status, our net earnings available
for investment or distribution to stockholders would be significantly reduced
for each of the years involved. In addition, we would no longer be required to
make distributions to stockholders.
Key Personnel
We depend on the efforts of our executive officers, particularly Mr. R.
Bruce Andrews, Mr. T. Andrew Stokes and Mr. Mark L. Desmond. While we believe
that we could find suitable replacements for these key personnel, the loss of
their services or the limitation of their availability could have an adverse
impact on our operations. Although we have entered into employment agreements
with these executive officers, these employment agreements may not assure their
continued service.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
Exhibit No. Description
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1.1 Terms Agreement, dated June 27, 2002, between J.P. Morgan
Securities Inc., Banc of America Securities LLC, Credit Suisse
First Boston Corporation and the Registrant.
1.2 Letter Agreement, dated June 27, 2002, between J.P. Morgan
Securities Inc. and the Registrant.
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1.3 Letter Agreement, dated June 27, 2002, between Banc of America
Securities LLC and the Registrant.
1.4 Letter Agreement, dated June 27, 2002, between Credit Suisse First
Boston Corporation and the Registrant.
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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 hereunto duly authorized.
NATIONWIDE HEALTH PROPERTIES, INC.
Date: July 3, 2002 By: /s/ Mark L. Desmond
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Name: Mark L. Desmond
Title: Senior Vice President and
Chief Financial Officer
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