NHP » Topics » Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

This excerpt taken from the NHP 10-K filed Feb 25, 2008.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

 

Triple-net lease rental income increased $52.6 million, or 31%, in 2006 as compared to 2005. The increase was primarily due to rental income from 84 facilities acquired in 2006, 64 facilities acquired during 2005 and rent increases at existing facilities.

 

Operating rent was generated by the multi-tenant medical office building portfolio we acquired during the first quarter of 2006 through one of our consolidated joint ventures.

 

Interest and other income increased $2.9 million, or 28%, in 2006 as compared to 2005. The increase was primarily due to five loans funded during 2006, two loans funded during 2005 and a lease assumption fee included in other income, partially offset by loan repayments.

 

Interest and amortization of deferred financing costs increased $23.0 million, or 34%, in 2006 as compared to 2005. The increase was primarily due to increased borrowings to fund acquisitions in 2006 and 2005, including the issuance of $350 million of notes in July 2006, an increase in the interest rates on our floating rate debt, the assumption of $134.5 million of secured debt during 2006 and $70.5 million during 2005 and obtaining a loan on the medical office building portfolio for $32.0 million, partially offset by interest savings from the prepayment of $41.8 million of secured debt during 2006 and the extinguishment of $131.8 million of notes in August 2005.

 

Depreciation and amortization increased $23.6 million, or 52%, in 2006 as compared to 2005. The increase was primarily due to the acquisition of 105 facilities, including 21 multi-tenant medical office buildings, in 2006 and 64 facilities during 2005, as well as the amortization of lease related intangible assets in one of our consolidated joint ventures.

 

General and administrative expenses increased $1.4 million, or 10%, in 2006 as compared to 2005. The increase was primarily due to the amortization of restricted stock grants and increases in other general corporate expenses.

 

Medical office building operating expenses relate to the operations of the multi-tenant medical office building portfolio that was acquired during the first quarter of 2006 through one of our consolidated joint ventures.

 

During 2005, we recognized an impairment charge of $0.3 million in continuing operations. The impairment related to a receivable from the operator of two facilities, one of which was impaired for $6.7 million in 2005, which portion of the impairment is reported in discontinued operations because we transferred the building to assets held for sale

 

SFAS No. 144 requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale and in which we have no continuing interest be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations. If we have a continuing investment, as in the sales to our unconsolidated joint venture, the operating results remain in continuing operations. Discontinued operations income increased $95.9 million in 2006 as compared to 2005. Discontinued operations income of $120.6 million for 2006 was comprised of gains on sale of $96.8 million, rental income of $33.6

 

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million and interest and other income of $0.2 million, partially offset by depreciation of $9.5 million, interest expense of $0.3 million, impairment charges of $0.1 million and general and administrative expenses of $0.1 million. Discontinued operations income of $24.6 million for 2005 was comprised of rent revenue of $42.2 million and gains on sale of $4.9 million, partially offset by depreciation of $12.3 million, asset impairment charges of $9.7 million, interest expense of $0.3 million and general and administrative expenses of $0.1 million. The difference in the composition of discontinued operations income (excluding the gains and impairments) was primarily caused by the fact that income from facilities sold during 2005 and 2006 is included in discontinued operations in 2005 while only income from facilities sold in 2006 is included in discontinued operations in 2006. We expect to have future sales of facilities or reclassifications of facilities to assets held for sale, and the related income or loss would be included in discontinued operations unless the facilities were transferred to an entity in which we maintain an interest.

 

Our leases and mortgages generally contain provisions under which rents or interest income increase with increases in facility revenues and/or increases in the Consumer Price Index. If facility revenues and/or the Consumer Price Index do not increase, our revenues may not increase. Rent levels under renewed leases will also impact revenues. As of December 31, 2007, we had leases on 10 facilities expiring in 2008. Tenant purchase option exercises would decrease rental income. We believe our tenants may exercise purchase options on assets with option prices totaling approximately $46 million during 2008.

 

We expect to make additional acquisitions during 2008, although we cannot predict the quantity and timing of any such acquisitions. As we make additional investments in facilities, depreciation and/or interest expense will also increase. We expect any such increases to be at least partially offset by associated rental or interest income. While additional investments in healthcare facilities would increase revenues, facility sales or mortgage repayments would serve to offset any revenue increases and could reduce revenues.

 

This excerpt taken from the NHP 10-K filed Feb 14, 2007.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

 

Triple-net lease rental income increased $52,971,000, or 29%, in 2006 as compared to 2005. The increase was primarily due to rental income from 84 facilities acquired in 2006, 64 facilities acquired during 2005 and rent increases totaling $4,041,000. Medical office building rent was generated by the medical office buildings we acquired through our joint venture with Broe during the first quarter of 2006. Interest and other income increased $3,048,000, or 29%, over 2005. The increase was primarily due to five loans funded during 2006, two loans funded during 2005 and a lease assumption fee included in other income, partially offset by loan repayments.

 

Interest and amortization of deferred financing costs increased $22,961,000, or 34%, in 2006 as compared to 2005. The increase was primarily due to increased borrowings to fund acquisitions in 2005 and 2006, including the issuance of $350,000,000 of notes in July 2006, an increase in the interest rates on our floating rate debt, the assumption of $134,529,000 of secured debt during 2006 and $70,506,000 during 2005 and obtaining a loan on the medical office building portfolio for $32,018,000, partially offset by interest savings from the prepayment of $41,760,000 of secured debt during 2006 and the extinguishment of $131,775,000 of notes in August 2005. Depreciation and amortization increased $24,024,000, or 47%, over 2005. The increase was primarily due to the acquisition of 84 facilities in 2006 and 64 facilities during 2005, as well as the amortization of lease related intangible assets in the medical office building joint venture. General and administrative expenses increased $1,378,000, or 10%, over 2005. The increase was primarily due to the amortization of restricted stock grants and increases in other general corporate expenses. Medical office building operating expenses relate to the operations

 

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of the medical office building portfolio that was acquired during the first quarter of 2006. The medical office buildings are not triple-net leased like the rest of our portfolio. During 2005, we recognized an impairment charge of $310,000 in continuing operations. The impairment related to a receivable from the operator of two facilities, one of which was impaired for $6,709,000 in 2005, which portion of the impairment is reported in discontinued operations because we transferred the building to assets held for sale

 

SFAS No. 144 requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations. Discontinued operations income increased $95,815,000 versus 2005. Discontinued operations income of $110,063,000 for the year ended December 31, 2006 was comprised of gains on sale of $96,791,000, rent revenue of $16,866,000 and interest and other income of $23,000, partially offset by depreciation of $3,455,000, asset impairment charges of $83,000 and general and administrative expenses of $79,000. Discontinued operations income of $14,248,000 for the year ended December 31, 2005 was comprised of rent revenue of $25,864,000, gains on sale of $4,908,000 and interest and other income of $6,000, partially offset by asset impairment charges of $9,731,000, depreciation of $6,668,000, general and administrative expenses of $118,000 and interest and amortization of deferred financing costs of $13,000. The difference in the composition of discontinued operations income (excluding the gains and impairments) was primarily caused by the fact that income from facilities sold during 2005 and 2006 is included in discontinued operations in 2005 while only income from facilities sold in 2006 is included in discontinued operations in 2006. We expect to have future sales of facilities or reclassifications of facilities to assets held for sale, and the related income or loss would be included in discontinued operations.

 

Our leases and mortgages generally contain provisions under which rents or interest income increase with increases in facility revenues and/or increases in the Consumer Price Index. If facility revenues and/or the Consumer Price Index do not increase, our revenues may not increase. Rent levels under renewed leases will also impact revenues. As of December 31, 2006, we had leases on eight facilities expiring in 2007. The exercise of purchase options by our tenants would also decrease rental income. We believe our tenants may exercise purchase options on assets with option prices totaling approximately $37,000,000 during 2007 which would result in revenue leakage in 2007 of approximately $2,300,000 (full year impact is approximately $3,900,000), however, actual options exercised may be higher or lower than our estimates. We expect to make additional acquisitions during 2007, although we cannot predict the quantity and timing of any such acquisitions. As we make additional investments in facilities, depreciation and/or interest expense will also increase. We expect any such increases to be at least partially offset by associated rental or interest income. While additional investments in healthcare facilities would increase revenues, facility sales or mortgage repayments would serve to offset any revenue increases and could reduce revenues.

 

EXCERPTS ON THIS PAGE:

10-K
Feb 25, 2008
10-K
Feb 14, 2007
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