ITEM 1. BUSINESS
GENERAL
Health Care REIT, Inc. (the "Company") is a self-administered real estate investment trust that invests in health care facilities, primarily nursing homes, assisted living facilities and retirement centers. The Company also invests in specialty care facilities. As of December 31, 1996, long-term care facilities, which include nursing homes, assisted living facilities and retirement centers, comprised approximately 85% of the investment portfolio. Founded in 1970, the Company was the first real estate investment trust to invest exclusively in health care facilities.
As of December 31, 1996, the Company had $541,496,000 of real estate investments, inclusive of credit enhancements, in 137 facilities located in 28 states and managed by 51 different operators. At that date, the portfolio included 56 nursing homes, 63 assisted living facilities, 11 retirement centers, five specialty care facilities, and two behavioral care facilities. At December 31, 1996, the Company had approximately $236,277,000 in unfunded commitments.
The Company's primary objectives are to protect shareholders' capital and enhance shareholder value. The Company seeks to pay consistent cash dividends to shareholders and create opportunities to increase dividend payments from annual increases in rental and interest income and portfolio growth. To meet these objectives, the Company invests primarily in long-term care facilities managed by experienced operators and diversifies its investment portfolio by form of investment, operator and geographic location.
The Company anticipates providing mortgage financing for qualified health care operators and acquiring additional health care facilities through operating lease arrangements. Capital for future investments may be provided by borrowing under the Company's revolving credit facilities, public offerings or private placements of debt or equity, and the assumption of secured indebtedness.
PORTFOLIO OF PROPERTIES
The following table reflects the diversification of the Company's portfolio as of December 31, 1996:
(2) Investments do not include $144,389,000 in commitments for financings for which the Company has not yet commenced funding.
(3) Due to a number of factors, it is possible that some portion of the commitments for financings will not result in permanent financing.
(4) Investment Per Bed/Unit was computed by using the total investment amount of $633,384,000 which includes real estate investments, unfunded commitments for which initial funding has commenced, and credit enhancements of, $522,681,000, $91,888,000 and $18,815,000, respectively.
(5) The Company has investments in properties located in 28 states.
Nursing Homes
Skilled nursing facilities provide inpatient skilled nursing and custodial services as well as rehabilitative, restorative and transitional medical services. In some instances, nursing facilities supplement hospital care by providing specialized care for medically complex patients whose conditions require intense medical and therapeutic services, but who are medically stable enough to have these services provided in facilities that are less expensive than acute care hospitals.
Assisted Living Facilities
The assisted living facilities provide services to aid in everyday living, such as bathing, meals, security, transportation, recreation, medication supervision and limited therapeutic programs. More intensive medical needs of the resident are often met within assisted living facilities by home health providers, close coordination with the resident's physician and skilled nursing facilities. Assisted living facilities are increasingly successful as lower cost, less institutional alternatives to the health problems of the elderly or medically frail.
Retirement Centers
The retirement centers offer specially designed residential units for active and ambulatory elderly residents and provide various ancillary services. Retirement centers offer residents an opportunity for an independent lifestyle with a range of social and health services.
Specialty Care Facilities
The specialty care facilities provide specialized inpatient services for specific illnesses or diseases, including, among others, coronary and cardiovascular services. Specialty care facilities are lower cost alternatives to acute care hospitals.
Behavioral Care Facilities
The behavioral care facilities offer comprehensive inpatient and outpatient psychiatric treatment programs. Programs are tailored to the individual and include individual, group and family therapy.
INVESTMENTS
The Company invests in income producing health care facilities with a primary focus on long-term care facilities, which include skilled nursing facilities, assisted living facilities and retirement centers. The Company also invests in specialty care facilities. The Company intends to continue to diversify its investment portfolio by type of health care facilities and form of financing.
In determining whether to finance a facility, the Company focuses on: (a) the experience of the operator; (b) the financial and operational feasibility of the property; (c) the financial strength of the borrower or lessee; (d) the security available to support the financing; and (e) the amount of capital committed to the property by the borrower or lessee. Management conducts market research and analysis for all potential investments. In addition, Management reviews the value of all properties, the interest rates and debt service coverage requirements of any debt to be assumed and the anticipated sources for repayment for such debt.
The Company's investments primarily take the form of operating lease transactions, permanent mortgage loans and construction financings. Substantially all of the Company's loans and leases are designed with escalating rate structures that may result in principal payment or purchase prior to maturity. The Company's policy is to structure long term financing to maximize returns. The Company believes that appropriate new investments will be available in the future with substantially the same spreads over its costs of borrowing regardless of interest rate fluctuations.
Investments are typically structured using mortgage loans or operating leases which are normally secured by guarantees and/or letters of credit. As of December 31, 1996, letters of credit from commercial banks, and cash deposits aggregating $26,012,000 were available to the Company as security for operating lease, permanent mortgage loan and construction loan obligations. In addition, the leases and loans are generally cross-defaulted and the loans are cross-collateralized with any other mortgage loans, leases, or other agreements between the operator or any affiliate of the operator and the Company.
The Company typically finances up to 90% of the appraised value of a property. Economic terms normally include annual rate increases and fair market value based purchase options in operating leases, and may include contingent interest for mortgage loans.
The Company monitors its investments through a variety of methods, which are determined by the type of health care facility and operator. The monitoring process includes a review and analysis of facility, borrower or lessee, and guarantor financial statements; periodic site visits; property reviews; and meetings with operators. Such reviews of operators and facilities generally encompass licensure and regulatory compliance materials and reports, contemplated building improvements and other material developments.
For certain investments, the Company receives warrants or other similar equity instruments that provide the Company with an opportunity to share in an operator's enterprise value. As of December 31, 1996, the Company had obtained warrants from seven operators to purchase their common stock or partnership interest. None of the warrants are publicly traded. In one instance, the underlying common stock that relates to one set of warrants is publicly traded, and the market price of the common stock was below the exercise price of the related warrants at December 31, 1996.
In connection with an investment in one operator, the Company also received warrants that were converted into 87,823 shares of common stock at the time of the operator's initial public offering. As of December 31, 1996, those shares of common stock were recorded on the Company's balance sheet at a value of $768,451.
Operating Leases
Each facility, which includes the land, buildings, improvements and related rights (the "Leased Properties") owned by the Company is leased to a health care provider pursuant to a long-term lease (collectively, the "Leases"). The
Leases generally have a fixed term of 10 to 13 years and contain multiple five to ten-year renewal options. Each Lease is a triple net lease requiring the lessee to pay rent and all additional charges incurred in the operation of the Leased Property. The lessees are required to repair, rebuild and maintain the Leased Properties.
The Company's Leased Properties aggregated approximately $153,623,000 at December 31, 1996. The base rents range from approximately 8.3% to 15.9% per annum of the Company's equity investment in the Leased Properties. The base rents for the renewal periods are generally fixed rents set at a spread above the Treasury yield for the corresponding period. In addition, the Company typically charges a lease commitment fee at the initiation of the transaction.
Permanent Mortgage Loans
The Company's investments in permanent mortgage loans are structured to provide the Company with interest income, principal amortization and commitment fees. Virtually all of the approximately $292,442,000 of permanent mortgage loans as of December 31, 1996 were first mortgage loans.
The interest rate on the Company's investments in permanent mortgage loans for operating facilities ranges from 10.3% to 13.0% per annum on the outstanding balances. The yield to the Company on permanent mortgage loans depends upon a number of factors, including the stated interest rate, average principal amount outstanding during the term of the loan, the amount of the commitment fee charged at the inception of the loan, the interest rate adjustments and the additional interest earned.
The permanent mortgage loans for operating facilities made through December 31, 1996 are generally subject to seven to ten year terms with 25-year amortization schedules that provide for a balloon payment of the outstanding principal balance at the end of the term. Generally, the permanent mortgage loans provide five to seven years of prepayment protection.
Construction Financing
The Company provides construction financing that by their terms converts either into a long-term operating lease or mortgage loan upon the completion of the facilities. Generally, the rates on the outstanding balances of the Company's construction financings are 250 to 350 basis points over the prime rate of a specified financial institution. The Company also typically charges a commitment fee at the commencement of the financing. The construction financing period commences upon funding and terminates upon the earlier of the completion of development of the applicable facility or the end of a specified period, generally 12 to 18 months. During the term of the construction financing, funds are advanced pursuant to draw requests made by the operator in accordance with the terms and conditions of the applicable loan agreement, which terms require, among other things, a site visit by a Company representative prior to the advancement of funds. Monthly payments are made on the total amount of the proceeds advanced during the development period.
During the construction financing period, the Company generally requires additional security and collateral in the form of either payment and performance bonds and/or completion guarantees by either one, or a combination of, the operator's parent entity, other affiliates of the operator, or one or more of the individual principals of the operator.
At December 31, 1996, the Company had outstanding construction financings of $71,912,000 and was committed to providing additional financing of approximately $69,308,000 to complete construction.
BORROWING POLICIES
The Company may arrange for long-term borrowing from banks, private placements to institutional investors, or public offerings. For other short-term purposes, the Company may, from time to time, negotiate lines of credit, or arrange for other short-term borrowing from banks or others.
In addition, the Company may incur mortgage indebtedness on real estate that it has acquired through purchase, foreclosure or otherwise. When terms are deemed favorable, the Company may invest in properties subject to existing loans and mortgages. In addition, the Company may obtain financing for unleveraged properties in which it has invested or may refinance properties acquired on a leveraged basis.
Under documents pertaining to existing indebtedness, the Company is subject to various restrictions with respect to secured and unsecured indebtedness.
ALLOWANCE FOR LOSSES
The Company maintains an allowance for possible losses that is evaluated quarterly to determine its adequacy. See Notes 1 and 5 of Notes to Financial Statements. At December 31, 1996, $6,000,000 of the total allowance of $9,787,000 was allocated to two specific properties. The Company believes that its allowance is adequate.
COMPETITION
The Company competes with other real estate investment trusts, real estate partnerships, banks, insurance companies and other investors in the acquisition, leasing and financing of health care facilities.
The operators of the facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for patients and residents based on a number of factors, including quality of care, reputation, physical appearance of facilities, services offered, family preferences, physicians, staff and price.
EMPLOYEES
As of December 31, 1996, the Company employed 19 full-time employees.
CERTAIN GOVERNMENT REGULATIONS
The Company invests in single purpose health care facilities. The Company's customers must comply with the licensing requirements of federal, state and local health agencies, and with the requirements of municipal building codes, health codes and local fire departments. In granting and renewing a facility's license, the state health agency considers, among other things, the physical buildings and equipment, the qualifications of the administrative personnel and clinical staffs, the quality of health care programs and compliance with applicable laws.
Many of the facilities operated by the Company's customers receive a substantial portion of their revenues from the federal Medicare program and state Medicaid programs; therefore, the Company's revenues may be indirectly affected by changes in these programs. The amounts of program payments can be changed by legislative or regulatory actions and by determinations by agents for the programs. Since Medicaid programs are funded by both the states and the federal government, the amount of payments can be affected by changes at either the state or federal level. There is no assurance that payments under these programs will remain at levels comparable to present levels or be sufficient to cover costs allocable to these patients.
Under Medicare and Medicaid programs, acute care hospitals are generally paid a fixed amount per discharge (based on the patient's diagnosis) for inpatient services. Behavioral and rehabilitation hospitals are generally paid on a cost basis, subject to certain limitations on allowable costs; however, proposals have been made to change the system to a diagnosis-based fixed payment per discharge.
Medicare and Medicaid programs have traditionally reimbursed nursing facilities for the reasonable direct and indirect allowable costs incurred in providing routine services (as defined by the programs), subject to certain cost ceilings. However, many states have converted to a system based on prospectively determined fixed rates, which may be based in part on historical costs.
Medicare and Medicaid regulations could adversely affect the resale value of the Company's health care facilities. Medicare regulations provide that when a facility changes ownership (by sale or under certain lease transactions), reimbursement for depreciation and interest will be based on the lesser of the cost to the new owner or the historical cost of the original owner. Medicaid regulations allow a limited increase in the valuation of nursing facilities (but not hospitals) during the time the seller owned the facility. Other Medicare and Medicaid regulations provide that upon resale, facilities are responsible to pay back prior depreciation reimbursement payments that are "recaptured" as a result of the sale.
Health care facilities that participate in Medicare or Medicaid must meet extensive program requirements, including physical plant and operational requirements, which are revised from time to time. Such requirements may include a duty to admit Medicare and Medicaid patients, limiting the ability of the facility to increase its private pay census beyond certain limits. Medicare and Medicaid facilities are regularly inspected to determine compliance, and may be excluded from the programs--in some cases without a prior hearing--for failure to meet program requirements.
Under the Medicare program, "peer review organizations" have been established to review the quality and appropriateness of care rendered by health care providers. These organizations may not only deny claims that fail to meet their criteria, but can also fine and/or recommend termination of participation in the program.
Recent changes in the Medicare and Medicaid programs will likely result in increased use of "managed care" organizations to meet the needs of program beneficiaries. These organizations selectively contract with health care facilities, resulting in some facilities being excluded from the ability to serve program beneficiaries.
Health care facilities also receive a substantial portion of their revenues from private insurance carriers, health maintenance organizations, preferred provider organizations, self-insured employees and other health benefit payment arrangements. Such payment sources increasingly pay facilities under contractual arrangements that include a limited panel of providers and/or discounted or other special payment arrangements, including arrangements that shift the risk of high utilization to the providers. A number of states have established rate-setting agencies which control inpatient health care facility rates, including private pay rates.
Recent proposals to significantly reduce Medicare and Medicaid spending at the federal level could reduce revenues of the Company's customers. President Clinton recently proposed legislation that would, over six years, reduce Medicare spending by an estimated $138 billion. The proposed reductions include specific elements that would affect the Company's customers, including a prospective payment system for skilled nursing facilities that would reduce payments by approximately $9 billion. It is impossible to predict with any certainty what form any such legislation may ultimately take.
In order to meet a federal requirement, most states required providers to obtain certificates of need prior to construction of inpatient facilities and certain outpatient facilities. However, in 1987, the federal requirement was repealed. Some states have repealed these requirements, which may result in increased competition, and other states are considering similar repeals.
Nursing facilities compete with other subacute care providers, including rehabilitation centers and hospitals. Many of these providers have underutilized facilities and are converting some or all of their facilities into nursing facilities. Some of these entities operate on a tax-exempt basis, which gives them a capital cost advantage. Furthermore, some states have granted rest homes the ability to provide limited nursing care services.
Certain states have adopted pre-admission screening and other programs to promote utilization of outpatient and home-based services as an alternative to inpatient facility services. Recent changes in Medicaid regulations allow states to use Medicaid funding for home and community-based alternatives to inpatient care.
TAXATION
General
A corporation, trust or association meeting certain requirements may elect to be treated as a "real estate investment trust." Beginning with its first fiscal year and in all subsequent years, the Company has elected to be treated as a real estate investment trust under Sections 856 to 860, inclusive, of the Internal Revenue Code of 1986, as amended (the "Code"). The Company intends to operate in such manner as to continue to qualify as a real estate investment trust for federal income tax purposes. No assurance can be given that the actual results of the Company's operations for any one taxable year will satisfy such requirements.
To qualify as a real estate investment trust, the Company must satisfy a variety of complex requirements each year, including organizational and stock ownership tests and percentage tests relating to the sources of its gross income, the nature of its assets and the distribution of its income.
Generally, for each taxable year during which the Company qualifies as a real estate investment trust, it will not be taxed on the portion of its taxable income (including capital gains) that is distributed to shareholders. Any undistributed income or gains will be taxed to the Company at regular corporate tax rates. The Company will be subject to tax at the highest corporate rate on its net income from foreclosure property, regardless of the amount of its distributions. The highest corporate tax rate is currently 35%. The Company may elect to treat any real property it acquires by foreclosure as foreclosure property, including any property acquired in future foreclosure actions brought with respect to the two loans in default. This would permit the Company to hold such property for up to two years without adverse consequences. Subject to certain limitations, the Company will also be subject to an additional tax equal to 100% of the net income, if any, derived from prohibited transactions. A prohibited transaction is defined as a sale or disposition of inventory-type property or property held by the Company primarily for sale to customers in the ordinary course of its trade or business, which is not property acquired on foreclosure.
The Company is subject to a nondeductible federal excise tax equal to 4% of the amount, if any, by which 85% of its ordinary income plus 95% of its capital gain net income (plus distribution deficiencies from prior years) exceeds distributions actually paid or treated as paid to stockholders during the taxable year, plus current year income upon which the Company pays tax and any overdistribution from prior years. Due to the growth of the Company's income, primarily as a result of large capital gains from the exercise of purchase options under leases, the Company did not satisfy this requirement in 1996, 1995 and 1994 and incurred an excise tax of approximately $317,000, $326,000 and $575,000 respectively, in those years. There is a cumulative underdistribution of $15,930,000 that will carry over to 1997 and later years until reduced by distributions in a subsequent year that exceed the percentage of that year's income that is required to be distributed currently.
Failure To Qualify
While the Company intends to operate so as to qualify as a real estate investment trust under the Code, if in any taxable year the Company fails to qualify, and certain relief provisions do not apply, its taxable income would be subject to tax (including alternative minimum tax) at corporate rates. If that occurred, the Company might have to dispose of a significant amount of its assets or incur a significant amount of debt in order to pay the resulting federal income tax. Further distributions to its stockholders would not be deductible by the Company nor would they be required to be made.
Distributions out of the Company's current or accumulated earnings and profits would be taxable to stockholders as dividends and would be eligible for the dividends received deduction for corporations. No portion of any distributions would be eligible for designation as a capital gain dividend.
Unless entitled to relief under specific statutory provisions, the Company also would be disqualified from taxation as a real estate investment trust for the four taxable years following the year during which qualification was lost.
The foregoing is only a summary of some of the significant federal income tax considerations affecting the Company and is qualified in its entirety by reference to the applicable provisions of the Code, the rules and regulations promulgated thereunder, and the administrative and judicial interpretations thereof. Stockholders of the Company are urged to consult their own tax advisors as to the effects of these rules and regulations on them. In particular, foreign stockholders should consult with their tax advisors concerning the tax consequences of ownership of shares in the Company, including the possibility that distributions with respect to the shares will be subject to federal income tax withholding.
SUBSIDIARIES AND AFFILIATES
On November 1, 1993 and July 9, 1996, the Company formed two wholly-owned subsidiaries, HCRI Pennsylvania Properties, Inc. and HCRI Overlook Green, Inc., respectively. These Pennsylvania corporations were created to own real estate in the State of Pennsylvania.
On December 27, 1996 and December 30, 1996, the Company formed a wholly-owned subsidiary, HCRI Texas Properties, Inc., a Delaware corporation, and HCRI Texas Properties, Ltd., a Texas limited partnership, respectively. Both entities were created in connection with real estate investments in the State of Texas.
ITEM 2.

ITEM 2. PROPERTIES
The Company's headquarters are currently located at One SeaGate, Suite 1500, Toledo, Ohio 43604. The following table sets forth certain information regarding the facilities that comprise the Company's investments as of December 31, 1996.
- -------------------------- (1) Reflects gross investment less specified allowance for losses, except for facilities under construction, for which the Company's total investment commitment is reflected.
(2) Reflects contract rate of annual base rent or interest received or to be received upon completion of construction.
ITEM 3.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the high and low prices of the Company's Common Stock on the New York Stock Exchange, as reported on the Composite Tape and dividends paid per share. There were 5,446 shareholders of record as of December 31, 1996.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31, 1996 are derived from the audited consolidated financial statements of the Company.
(1) General and administrative and other expenses include loan expense, management fees through November 30, 1995, provision for losses, expenses related to disposition of investments and other operating expenses.
(2) On November 30, 1995, the Company's advisor merged into the Company. Consideration for this transaction totaled approximately $5,048,000 which was solely comprised of 282,407 Shares. In addition, the Company acquired approximately $46,000 in net assets and incurred approximately $792,000 of related transaction expenses. The consideration, plus related transaction expenses, were accounted for as a settlement of a management contract.
(3) Cash available for distribution is defined as net cash provided from operating activities, but does not consider the effects of changes in operating assets and liabilities such as other receivables and accrued expenses. The Company uses cash available for distribution in evaluating investments and the Company's operating performance. Cash available for distribution does not represent cash generated from operating activities in accordance with generally accepted accounting principles, is not necessarily indicative of cash available to fund cash needs, and should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's net real estate investments totaled approximately $512,894,000, which included 56 nursing facilities, 63 assisted living facilities, 11 retirement centers, five specialty care facilities and two behavioral care facilities. The Company funds its investments through a combination of long-term and short-term financing, utilizing both debt and equity.
During 1996, the Company provided permanent mortgage financings of $69,970,000, invested $31,900,000 in operating leases and made construction advances of $93,993,000. During 1996, the Company received principal payments on real estate mortgages of $3,080,000, net repayments on working capital loans of $2,053,000 and proceeds of $52,047,000 from the prepayment of mortgage loans.
Also during 1996, 16 of the above-mentioned construction loans completed the construction phase of the Company's investment process and were converted to investments in operating leases, with an aggregate investment of $26,418,000, and 4 construction loans converted to permanent mortgage loans with an aggregate investment balance of $24,298,000.
As of December 31, 1996, the Company had shareholders' equity of $325,536,000 and a total outstanding debt balance of approximately $184,395,000, which represents a debt to equity ratio of 0.57 to 1.0.
In April 1996, the Company issued Senior Notes in the aggregate principal amount of $30,000,000 which mature in 2001 and 2003, and have a weighted average interest rate of 7.18%. The notes are secured by approximately $40,000,000 of assets.
In May 1996, the Company issued 2,322,200 shares of Common Stock, $1.00 par value per share, at the price of $22.00 per share, which generated net proceeds of $48,103,000 to the Company.
In September 1996, the Company issued 1,587,800 shares of Common Stock, $1.00 par value per share, at the price of $22.00 per share, which generated net proceeds to the Company of $34,111,000.
In December 1996, the Company issued 2,200,000 shares of Common Stock, $1.00 par value per share, at the price of $23.875 per share, which generated net proceeds to the Company of $49,898,000.
As of December 31, 1996, the Company had a secured revolving line of credit expiring March 31, 1997 in the amount of $150,000,000 bearing interest at the lender's prime rate or LIBOR plus 1.50%. In addition, the Company had unsecured revolving lines of credit in the amounts of $25,000,000 and $10,000,000 bearing interest at the lenders' prime rate expiring May 31, 1997 and April 30, 1997, respectively. At December 31, 1996, under the Company's line of credit arrangements, available funding totaled $92,875,000.
As of February 4, 1997, the Company has effective shelf registrations on file with the Securities and Exchange Commission under which the Company may issue up to $300,000,000 of securities including debt, convertible debt, common and preferred stock. The Company anticipates issuing securities under such shelf registrations to invest in additional health care facilities and to repay borrowings under the Company's line of credit arrangements.
As of December 31, 1996, the Company had approximately $236,277,000 in unfunded commitments. The Company believes its liquidity and various sources of available capital are sufficient to fund operations, finance future investments, and meet debt service and dividend requirements.
RESULTS OF OPERATIONS DECEMBER 31, 1996 VS. DECEMBER 31, 1995
Revenues for the year ended December 31, 1996, were $54,402,000 compared to $44,596,000 for the year ended December 31, 1995, an increase of $9,806,000 or 22%. Revenue growth resulted primarily from increased interest income of $5,457,000, operating lease income of $3,496,000 and loan and commitment fees of $941,000 resulting primarily from additional real estate investments made during the past twelve to fifteen months.
Expenses for the year ended December 31, 1996, totaled $23,726,000, a decrease of $7,235,000 from expenses of $30,961,000 for the year ended December 31, 1995. Expenses for the year ended December 31, 1995, were negatively influenced by nonrecurring charges, primarily related to a $4,800,000 provision for losses and a $5,794,000 charge for the settlement of the management contract, an expense associated with the merger of the Company's advisor into the Company.
The provision for depreciation for the year ended December 31, 1996, totaled $2,427,000, an increase of $848,000 over the year ended 1995 as a result of additional operating lease investments.
Interest expense for the year ended December 31, 1996, was $14,635,000 compared to $12,752,000 for the year ended December 31, 1995. The increase in interest expense during 1996 was primarily due to the issuance of $30,000,000 Senior Notes in April 1996 and higher average borrowings under the Company's line of credit arrangements, which were offset by lower interest rates.
General and administrative expense for the year ended December 31, 1996 totaled $4,448,000 as compared to $5,284,000 for the year ended December 31, 1995. The expenses for the year ended December 31, 1996 were 8.18% of revenues as compared to 11.85% for the year ended December 31, 1995.
It is the Company's intention to systematically eliminate its investments in behavioral care facilities. As a result, at September 30, 1996, the Company declared a disposition of investment associated with its behavioral care portfolio. As a result, any gains realized through the repayment or sale of investments associated with the Company's behavioral care facilities will be added to the Company's general allowance for losses and applied against any losses incurred through the repayment or sale of behavioral care related investments. During the year ended December 31, 1996, the Company recorded an $808,000 disposition of investment expense as an offset to an $808,000 prepayment fee received from the repayment of two behavioral care related mortgage loans. Additionally, the Company's general allowance for losses was reduced by $481,000, resulting from the repayment of these loans.
As a result of the various factors mentioned above, net income for the year ended December 31, 1996, was $30,676,000 as compared to $13,635,000 for the year ended December 31, 1995. Net income per share for the year ended December 31, 1996, was $2.18 versus $1.16 for the year ended December 31, 1995. The per share increase resulted from an increase in net income offset by an increase in average shares outstanding during 1996.
RESULTS OF OPERATIONS DECEMBER 31, 1995 VS. DECEMBER 31, 1994
Revenues for the year ended December 31, 1995, were $44,596,000 compared to $42,732,000 for the year ended December 31, 1994, an increase of $1,864,000 or 4.4%. Revenue growth resulted primarily from increased interest income of $6,731,000 and increased operating lease income of $872,000 resulting primarily from additional real estate investments made during the previous twelve months. The growth in interest income and rental income was offset by a high incidence of prepayment fees and gains on the exercise of purchase options earned during 1994, which totaled $6,982,000 as compared to $4,082,000 for 1995.
Expenses for the year ended December 31, 1995, totaled $30,961,000, an increase of $13,182,000 from expenses of $17,779,000 for the year ended December 31, 1994. Expenses for the year ended December 31, 1995, were negatively influenced by nonrecurring charges, primarily related to a $4,800,000 provision for losses and a $5,794,000 charge for the settlement of the management contract, an expense associated with the merger of the Company's advisor into the Company.
The provision for depreciation for the year ended December 31, 1995, totaled $1,580,000, an increase of $194,000 over the year ended December 31, 1994 as a result of additional operating lease investments.
Interest expense for the year ended December 31, 1995, was $12,752,000 compared to $9,684,000 for the year ended December 31, 1994. The increase in interest expense during 1995 was primarily due to higher average borrowings under the Company's line of credit arrangements, and higher costs of borrowing.
General and administrative expense for the year ended December 31, 1995 totaled $5,284,000 as compared to $5,072,000 for the year ended December 31, 1994. The expenses for the year ended December 31, 1995 were 11.85% of revenues as compared to 11.87% for the year ended December 31, 1994.
As a result of the various factors mentioned above, net income for the year ended December 31, 1995, was $13,635,000 as compared to $24,953,000 for the year ended December 31, 1994. Net income per share for the year ended December 31, 1995, was $1.16 versus $2.17 for the year ended December 31, 1994. The per share decrease resulted from a decrease in net income.
IMPACT OF INFLATION
During the past three years, inflation has not significantly affected the earnings of the Company because of the moderate inflation rate. Additionally, earnings of the Company are primarily long-term investments with fixed interest rates. These investments are mainly financed with a combination of equity, senior notes and borrowings under the revolving lines of credit, of which a portion is hedged with interest rate swaps. During inflationary periods, which generally are accompanied by rising interest rates, the Company's ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, the Company believes that equity and debt financing will be available.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT AUDITORS
Shareholders and Directors Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of Health Care REIT, Inc. as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Health Care REIT, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
January 31, 1997 Toledo, Ohio
See accompanying notes
See accompanying notes
See accompanying notes
See accompanying notes
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES AND RELATED MATTERS
INDUSTRY
The Company is a self-administered real estate investment trust that invests primarily in long-term care facilities, which include nursing homes, assisted living facilities, and retirement centers. The Company also invests in specialty care facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
LOANS RECEIVABLE
Loans receivable consist of construction-period loans maturing in two years or less, working capital loans to related parties, and long-term mortgage loans. Interest income on loans is recognized as earned based upon the principal amount outstanding. The loans are generally collateralized by a first or second mortgage on or assignment of partnership interest in the related facilities which consist of nursing homes, assisted living facilities, retirement centers, behavioral care facilities and specialty care hospitals.
OPERATING-LEASE PROPERTIES
Certain properties owned by the Company are leased under operating leases. These properties are recorded at the lower of cost or net realizable value. Depreciation is provided for at rates which are expected to amortize the cost of the assets over their estimated useful lives using the straight-line method. The leases provide for payment of all taxes, insurance and maintenance by the lessees. Operating lease income includes the rent payments, which are recognized on a straight-line basis over the minimum lease period.
DIRECT FINANCING LEASES
Certain properties owned by the Company are subject to long-term leases which are accounted for by the direct financing method. The leases provide for payment of all taxes, insurance and maintenance by the lessees. The leases are generally for a term of 20 years and include an option to purchase the properties generally after a period of five years. Option prices equal or exceed the Company's original cost of the property. Income from direct financing leases is recorded based upon the implicit rate of interest over the lease term. This income is greater than the amount of cash received during the first six to seven years of the lease term.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED)
CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST
The Company capitalizes interest costs associated with funds used to finance the construction of facilities. The amount capitalized is based upon the borrowings outstanding during the construction period using the rate of interest which approximates the Company's cost of financing.
ALLOWANCE FOR LOSSES
The allowance for losses is maintained at a level believed adequate to absorb potential losses in the Company's real estate investments. The determination of the allowance is based on a quarterly evaluation of these earning assets (in the case of direct financing leases, estimated residual values), including general economic conditions, estimated collectibility of loan and lease payments, reappraisals (where appropriate), and the recoverability of the carrying amount of these investments in relationship to their net realizable value.
DEFERRED LOAN EXPENSES
Deferred loan expenses are costs incurred in acquiring financing for properties. The Company amortizes these costs by the straight-line method over the term of the debt.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Management determines the appropriate classification of a security at the time of acquisition and reevaluates such designation as of each balance sheet date. Investment securities available for sale are stated at fair value, with unrealized gains and losses reported in a separate component of shareholders' equity. At December 31, 1996, available-for-sale securities are the common stock of a corporation, which were obtained by the Company at no cost.
LOAN AND COMMITMENT FEES
Loan and commitment fees are earned by the Company for its agreement to provide direct and standby financing to, and credit enhancement for, owners of health care facilities. The Company amortizes loan and commitment fees over the initial fixed term of the lease, the mortgage or the construction period related to such investments.
FEDERAL INCOME TAX
No provision has been made for federal income taxes since the Company has elected to be treated as a real estate investment trust under the applicable provisions of the Internal Revenue Code, and the Company believes that it has met the requirements for qualification as such for each taxable year. See Note 8.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED)
STOCK OPTIONS
The Company typically grants stock options for a fixed number of shares to employees with an exercise price equal to fair value of the shares at the date of the grant. The Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees in accounting for its employee stock options, and, accordingly, recognizes no compensation expense for the stock option grants when the market price on the underlying stock on the date of grant equals the exercise price of the Company's employee stock option. The effect of applying Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation, fair value method to the Company's stock based awards results in net income and earnings per share that are not materially different from amounts reported.
NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted average number of common stock and common stock equivalents outstanding during the year.
2. LOANS RECEIVABLE
Loans to related parties (various entities whose ownership includes three Company directors and former officers) included above are at competitive rates, and are equal to or greater than the Company's net interest cost on borrowings to support such loans. The amount of interest income and loan and commitment fees from related parties amounted to $3,089,376, $3,378,347 and $3,810,340 for 1996, 1995 and 1994, respectively.
One loan (in default) has a prior lien of approximately $1,195,000; and six loans maturing in 2007 have prior liens aggregating $1,420,000.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The leases contain an option to purchase the leased property. Total minimum lease payments are computed assuming that the option will not be exercised.
At December 31, 1996, future minimum lease payments receivable (assuming that the option will not be exercised) are as follows:
During 1994, the Company restructured two direct financing leases, one into a $3,324,000 mortgage loan and the other into a $3,582,000 operating lease. During 1996, the Company restructured nineteen loans totalling $40,567,000 into operating leases. This noncash investing activity is appropriately not reflected in the accompanying statement of cash flows.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CONCENTRATION OF RISK
As of December 31, 1996, long-term care facilities comprised 85% of the Company's real estate investments and were located in 25 states. The Company's investments with the three largest operators totaled approximately 30%. No single operator has a real estate investment balance which exceeds 12% of total real estate investments, including credit enhancements.
5. ALLOWANCE FOR LOSSES
The allowance consists of $6,000,000 relating to specifically identified loans and an unallocated amount for other potential losses in the portfolio. Interest income on impaired loans is recognized as payments are received. The Company recognized $323,000 of interest income on impaired loans in 1995.
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS
The Company has a credit arrangement with a consortium of ten banks providing for a revolving line of credit (revolving credit) in the amount of $150,000,000 which expires on March 31, 1997. The agreement specifies that borrowings under the revolving credit are subject to interest payable in periods no longer than three months on either the agent bank's base rate of interest or 1.5% over LIBOR interest rate (based at the Company's option). The effective interest rate at December 31, 1996 was 7.39%. In addition, the Company pays a commitment fee at an annual rate of .5% of the unused line and an annual agent's fee of $75,000. At December 31, 1996, the revolving line of credit was collateralized by 41 real estate investments in health care facilities. Principal is due upon expiration of the agreement, but the total amount outstanding may not exceed a specified percentage of the agreed-upon values of the collateral. The Company has two other lines of credit with two banks for a total of $35,000,000 which expire at various dates through May 31, 1997. Borrowings under these lines of credit are subject to interest at each bank's prime rate of interest (8.25% at December 31, 1996) and are due on demand.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS (CONTINUED)
The Company has a five-year interest rate swap agreement totalling $20,000,000, which expires in 1997, for the purpose of reducing the Company's interest rate risk on its borrowings under the revolving credit. The maximum rate of interest under the swap agreement is 8.77%. At December 31, 1996, the Company had elected to borrow $20,000,000 at six-month LIBOR. The differential to be paid or received is accrued as interest rates change and is recognized as an interest expense. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements are not recognized in the financial statements.
The Company may or may not elect to continue to match certain of its borrowings with interest rate swap agreements. Such decisions are principally based on the Company's policy to match its variable rate investments with comparable borrowings, but is also based on the general trend in interest rates at the applicable dates and the Company's perception of future volatility of interest rates. At December 31, 1996, the Company was at risk for rising interest rates because its variable interest rate debt exceeded its variable interest rate assets.
Interest paid amounted to $14,210,532, $13,083,783 and $9,256,551 for 1996, 1995 and 1994, respectively, which includes $298,562, $706,318 and $1,309,368, respectively, for the net cost of the swaps. The Company capitalized interest costs of $287,397 during 1996 related to construction of its facilities.
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS
The Company has $82,000,000 of Senior Notes with interest ranging from 6.96% to 8.24% and maturing at various dates to 2003. These notes are collateralized by 23 real estate investments in health care facilities.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)
At December 31, 1996, the annual principal payments on these long-term obligations for the succeeding five years are 1997 - $695,134; 1998 - $23,366,282; 1999 - $239,677; 2000 - $15,273,977; and 2001 - $10,319,285.
8. STOCK OPTION PLANS AND RETIREMENT ARRANGEMENTS
The Company's 1995 Stock Incentive Plan authorized up to 600,000 shares of Common Stock to be issued at the discretion of the Board of Directors. The 1995 Plan replaced the 1985 Incentive Stock Option Plan. The options granted under the 1985 Plan continue to vest through 2005 and expire ten years from the date of grant. Officers and key salaried employees of the Company are eligible to participate in the 1995 plan. Such options expire ten years from the date of grant and one-fifth of all options granted become exercisable each year.
The following summarizes the activity in the Plans for the years ended December 31:
The Company has a 401(k) Profit Sharing Plan covering all eligible employees. Under the Plan, eligible employees may make contributions, and the Company may make a profit sharing contribution. Company contributions to this Plan totaled $90,000 and $6,000 in 1996 and 1995, respectively.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISTRIBUTIONS
In order to continue to qualify as a real estate investment trust for federal income tax purposes, 95% of taxable income (not including capital gains) must be distributed to shareholders. Real estate investment trusts which do not distribute a certain amount of current year taxable income in the current year are also subject to a 4% federal excise tax. The Company's excise tax expense was $317,000, $326,000 and $575,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Undistributed net income for federal income tax purposes amounted to $15,930,000 at December 31, 1996. The principal reasons for the difference between undistributed net income for federal income tax purposes and financial statement purposes are the use of the operating method of accounting for leases for federal income tax purposes and the provision for losses for reporting purposes versus bad debt expense for tax purposes.
Cash distributions paid to shareholders, for federal income tax purposes, are as follows:
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company has outstanding commitments to provide financing for facilities in the approximate amount of $236,277,000. The above commitments are generally on similar terms as existing financings of a like nature with rates of return to the Company based upon current market rates at the time of the commitment.
The Company has entered into several agreements to purchase health care facilities, or the loans with respect thereto, in the event that the present owners default upon their obligations. In consideration for these agreements, the Company receives and recognizes fees annually related to these agreements. Although the terms of these agreements vary, the purchase prices are equal to the amount of the outstanding obligations financing the facility. These agreements expire between the years 1997 and 2005. At December 31, 1996, obligations under these agreements for which the Company was contingently liable aggregated approximately $18,815,000, all of which were with related parties.
11. MANAGEMENT AGREEMENT
Through November 30, 1995, the Company had a management agreement with First Toledo Advisory Company (the Manager). Two of the Company's directors were officers and co-owners of the Manager. The Company accrued a fee to the Manager as defined in the Management Agreement. On November 30, 1995, the Manager merged with and into the Company pursuant to a Revised Merger Agreement (the "Merger"). Consideration for this transaction totaled approximately $5,048,000 which was solely comprised of 282,407 shares of the Company's common stock. In addition, the Company acquired approximately $46,000 in net assets and incurred approximately $792,000 of related transaction expenses. The Merger was a tax-free reorganization. The consideration, plus related transaction expenses, were accounted for as a settlement of a management contract.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDER RIGHTS PLAN
Under the terms of a Shareholder Rights Plan approved by the Board of Directors in July 1994, a Preferred Share Right (Right) is attached to and automatically trades with each outstanding share of Common Stock.
The Rights, which are redeemable, will become exercisable only in the event that any person or group becomes a holder of 15% or more of the Common Stock, or commences a tender or exchange offer which, if consummated, would result in that person or group owning at least 15% of the Common Stock. Once the Rights become exercisable, they entitle all other shareholders to purchase one one-thousandth of a share of a new series of junior participating preferred stock for an exercise price of $48.00. The Rights will expire on August 5, 2004 unless exchanged earlier or redeemed earlier by the Company for $.01 per Right at any time before public disclosure that a 15% position has been acquired.
13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Mortgage Loans--The fair value of all mortgage loans, except those matched with debt, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Mortgage loans matched with debt are presumed to be at fair value.
Working Capital and Construction Loans--The carrying amount is a reasonable estimate of fair value for working capital and construction loans because the interest earned on these instruments is variable.
Cash and Cash Equivalents--The carrying amount approximates fair value because of the short maturity of these financial instruments.
Investment Securities Available-for-Sale--The asset is recorded at its fair market value.
Borrowings Under Line of Credit Arrangements--The carrying amount of the line of credit approximates fair value because the borrowings are interest rate adjustable.
Senior Notes and Industrial Development Bonds--The fair value of the senior notes payable and the industrial development bonds was estimated by discounting the future cash flow using the current borrowing rate available to the Company for similar debt.
Mortgage Loans Payable--Mortgage loans payable is a reasonable estimate of fair value because they are matched with loans receivable.
HEALTH CARE REIT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996 and 1995 are as follows:
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations of the Company for the years ended December 31, 1996 and 1995:
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the information under the heading "Election of Directors" and "Executive Officers of the Company" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the information under the heading "Remuneration" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the information under the heading "Security Ownership of Certain Beneficial Owners" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the information under the heading "Certain Relationships and Related Transactions" in the definitive proxy statement of the Company which will be filed with the Commission prior to April 22, 1997.
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
2. The following Financial Statement Schedules are included in Item 14 (d):
III - Real Estate and Accumulated Depreciation IV - Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
3. Exhibit Index:
3(i) Second Restated Certificate of Incorporation.
3(ii) By-Laws, as amended.
4 The Registrant, by signing this Report, agrees to furnish the Securities and Exchange Commission upon its request a copy of any instrument which defines the rights of holders of long-term debt of Registrant and which authorizes a total amount of securities not in excess of 10% of the total assets of the Registrant.
10(ii)(A) Rights Agreement.
10(ii)(B) Note Purchase Agreement between Health Care REIT, Inc. and each of the Purchasers a Party thereto, dated as of April 8, 1993.
10(ii)(C) Amended and Restated Credit Agreement dated as of September 8, 1994 among Health Care REIT, Inc., certain banks, and National City Bank, as Agent.
10(ii)(D) Note Purchase Agreement between Health Care REIT, Inc. and each of the Purchasers a Party thereto, dated as of April 15, 1995.
10(iii)(A) The 1985 Incentive Stock Option Plan of Health Care REIT, Inc. as amended.
10(iii)(B) The Health Care REIT, Inc. 1995 Stock Incentive Plan
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule (Edgar version only).
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
Form 8-K filed with the Securities and Exchange Commission on December 12, 1996.
(c) Exhibits:
The exhibits listed in Item 14(a)(3) above are filed with this Form 10-K.
(d) Financial Statement Schedules:
Financial statement schedules are included in pages 36 through 40.
Pursuant to the requirements of Section 13 or 15(d) 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 CARE REIT, INC. (Registrant)
By: GEORGE L. CHAPMAN ---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February ___, 1997 by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ William C. Ballard, Jr.* /s/ Richard A. Unverferth* - ------------------------------------- ---------------------------------- William C. Ballard, Jr., Director Richard A. Unverferth, Director
/s/ Pier C. Borra* - ------------------------------------ ---------------------------------- Pier C. Borra, Director Frederic D. Wolfe, Director
/s/ Bruce Douglas* /s/ George L. Chapman - ------------------------------------ ---------------------------------- Bruce Douglas, Director George L. Chapman, Chairman, Chief Executive Officer, President and Director (Principal Executive Officer)
/s/ Richard C. Glowacki* /s/ Edward F. Lange, Jr.* - ------------------------------------ ---------------------------------- Richard C. Glowacki, Director Edward F. Lange, Jr., Chief Financial Officer (Principal Financial Officer)
/s/ Sharon M. Oster* /s/ Michael A. Crabtree* - ------------------------------------ ---------------------------------- Sharon M. Oster, Director Michael A. Crabtree, Controller (Principal Accounting Officer)
/s/ Bruce G. Thompson* *By: /s/ George L. Chapman - ------------------------------------ ---------------------------------- Bruce G. Thompson, Director George L. Chapman, Attorney-in-Fact
(A) For income tax purposes, the cost of investments is the carrying amount less $6,000,000, as disclosed in the schedule.
(B) The Company is in dispute with two operators, both of which are over three months past due on certain interest and principal payments. The Company has evaluated these investments and has allocated in the aggregate $6,000,000 of its allowance to reduce their carrying value to their estimated net realizable value.
SCHEDULE IV - Continued
(1) During 1994, the Company restructured a direct financing lease into a mortgage loan.
(2) Includes collection of negative principal amortization.
(3) During 1996, the Company restructured nineteen loans into operating leases.
EXHIBIT INDEX -------------