-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AjFU8myMNPurF4IuFP+flo1SaRba+ywXv1KE1bFQm4D3AVX4HmFXbfpwm5p3b9Wm 5KjfxRXRBXqPAmzNu/bmEg== 0000893877-96-000382.txt : 19961118 0000893877-96-000382.hdr.sgml : 19961118 ACCESSION NUMBER: 0000893877-96-000382 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENT ASSISTED LIVING INC CENTRAL INDEX KEY: 0001000693 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 931171049 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27108 FILM NUMBER: 96666197 BUSINESS ADDRESS: STREET 1: 2260 US BANCORP TOWER STREET 2: 111 SW FIFTH AVE CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032274000 MAIL ADDRESS: STREET 1: 2260 US BANCORP TOWER STREET 2: 111 SW FIFTH AVE CITY: PORTLAND STATE: OR ZIP: 97204 10QSB 1 FORM 10-QSB - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) - --- OF THE SECURITIES EXCHANGE ACT OF 1994 For the Quarterly period ending September 30, 1996 __ TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1994 For the Transition period from ____ to ____ Commission file number 0-27108 REGENT ASSISTED LIVING, INC. (Exact name of registrant as specified in its charter) OREGON 93-1171049 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2260 U.S. Bancorp Tower 111 SW Fifth Avenue Portland, Oregon 97204 (Address of principle executive offices) 503-227-4000 (Registrant's telephone number, including area code) Indicated by check mark whether Registrant (1) has filed all reports to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Shares of Registrant's Common Stock, No par value, outstanding at November 1, 1996 - 4,633,000 - -------------------------------------------------------------------------------- REGENT ASSISTED LIVING, INC. FORM 10-QSB SEPTEMBER 30, 1996 INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets of Regent Assisted Living, Inc. as of September 30, 1996 and December 31, 1995..............................3 Condensed Statements of Operations of Regent Assisted Living, Inc. for the three months and nine months ended September 30, 1996 and Regent Assisted Living Group for the three months and nine months ended September 30, 1995....................................................4 Condensed Statements of Cash Flows of Regent Assisted Living, Inc. for the nine months ended September 30, 1996 and Regent Assisted Living Group for the nine months ended September 30, 1995...................5 Notes to Condensed Financial Statements.....................................6 Item 2. Management's Discussion and Analysis or Plan of Operations........11
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS REGENT ASSISTED LIVING, INC. (The Company) CONDENSED BALANCE SHEETS September 30, December 31, 1996 1995 (Unaudited) ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $7,585,952 $4,530,627 Investments 1,952,542 Accounts receivable 115,736 116,684 Prepaid expenses 77,928 76,616 ---------------- ---------------- Total current assets 9,732,158 4,723,927 Property and equipment, net 7,927,331 12,618,160 Restricted cash 76,364 611,700 Other assets 450,757 785,919 ---------------- ---------------- Total assets $18,186,610 $18,739,706 ================ ================ LIABILITIES Current liabilities: Accounts payable and accrued expenses $975,464 $1,442,186 Accrued interest 33,939 39,298 Current portion of long-term debt 76,284 72,413 ---------------- ---------------- Total current liabilities 1,085,687 1,553,897 Long-term debt 6,023,716 5,974,387 Other liabilities 417,005 461,064 ---------------- ---------------- Total liabilities 7,526,408 7,989,348 ---------------- ---------------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 5,000,000 shares authorized; no shares issued and outstanding - - - - - - Common stock, no par value, 25,000,000 shares authorized; 4,633,000 shares issued and outstanding 10,758,703 10,758,703 Accumulated deficit (98,501) (8,345) ---------------- ---------------- Total shareholders' equity 10,660,202 10,750,358 ---------------- ---------------- Total liabilities and shareholders' equity $18,186,610 $18,739,706 ================ ================ The accompanying notes are an integral part of these condensed financial statements.
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REGENT ASSISTED LIVING, INC. (The Company) AND REGENT ASSISTED LIVING GROUP (Predecessor) CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (Unaudited) Predecessor The Company Predecessor The Company ------------------- -------------------- ------------------ ------------------ Three Months Ended Nine Months Ended Nine Months Ended Nine Months Ended September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996 ------------------- -------------------- ------------------ ------------------ Revenues: Rental and service $2,472,877 $3,323,145 $7,072,903 $9,715,818 Management fee 69,754 43,179 222,228 129,593 ---------------- ---------------- ---------------- ---------------- Total revenues 2,542,631 3,366,324 7,295,131 9,845,411 ---------------- ---------------- ---------------- ---------------- Operating expenses: Residence operating expenses 1,414,188 2,089,765 4,267,178 6,010,159 General and administrative 259,757 423,729 577,545 1,348,073 Lease 689,312 2,067,937 Depreciation and amortization 167,898 61,848 491,490 180,979 ---------------- ---------------- ---------------- ---------------- Total operating expenses 1,841,843 3,264,654 5,336,213 9,607,148 ---------------- ---------------- ---------------- ---------------- Operating income 700,788 101,670 1,958,918 238,263 Interest income 8,712 73,365 18,477 277,346 Interest expense (380,722) (129,456) (1,315,924) (388,037) Other income, net (279) 3,172 1,014 13,284 ---------------- ---------------- ---------------- ---------------- Income before income taxes 328,499 48,751 662,485 140,856 Provision for income taxes 15,700 50,700 ---------------- ---------------- ---------------- ---------------- Net income $328,499 $33,051 $662,485 $90,156 ================ ================ ================ ================ Per share net income $0.01 $0.02 ================ ================ Pro forma data: Income before income taxes $328,499 $662,485 Pro forma provision for income taxes 124,800 251,700 ---------------- ---------------- Pro forma net income $203,699 $410,785 ================ ================ Pro forma per share net income $0.07 $0.14 ================ ================ Weighted average common shares outstanding 3,000,000 4,633,000 3,000,000 4,633,000 ================ ================ ================ ================ The accompanying notes are an integral part of these condensed financial statements.
Page 4
REGENT ASSISTED LIVING, INC. (The Company) AND REGENT ASSISTED LIVING GROUP (Predecessor) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Predecessor The Company ------------------ ------------------ Nine Months Ended Nine Months Ended September 30, 1995 September 30, 1996 ------------------ ------------------ Cash flows from operating activities: Net income $662,455 $90,156 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 491,490 180,979 Changes in other non-cash items: Accounts receivable (98,363) (948) Prepaid expenses (21,338) 1,312 Restricted cash 49,364 Other assets 40,641 (140,756) Accounts payable and accrued expenses 107,049 466,722 Accrued interest (110,226) 5,359 Other liabilities 31,347 44,059 ---------------- ---------------- Net cash provided by operating activities 1,103,055 696,247 ---------------- ---------------- Cash flows from investing activities: Maturity of investments 1,952,542 Purchases of property and equipment (741,426) (4,840,373) Other assets (163,591) ---------------- ---------------- Net cash used in investing activities (741,426) (3,051,422) ---------------- ---------------- Cash flows from financing activities: Restricted cash (584,700) Other assets (62,250) Deferred stock offering costs (329,078) Accrued stock offering costs 265,000 Loan fees (227,230) Proceeds from issuance of long-term debt 18,450,000 Payments on long-term debt (15,363,715) (53,200) Repayment of notes payable to an owner, net (1,527,341) Capital distributions (1,389,981) ---------------- ---------------- Net cash used in financing activities (122,345) (700,150) ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 239,284 (3,055,325) Cash and cash equivalents, beginning of period 566,028 7,585,952 ---------------- ---------------- Cash and cash equivalents, end of period $805,312 $4,530,627 ================ ================ The accompanying notes are an integral part of these condensed financial statements.
Page 5 REGENT ASSISTED LIVING, INC. (THE COMPANY) REGENT ASSISTED LIVING GROUP (PREDECESSOR) NOTES TO FINANCIAL STATEMENTS 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES: THE COMPANY Regent Assisted Living, Inc. ("the Company") is an owner, operator, and developer of private-pay assisted living communities. Assisted living is part of a spectrum of long-term care services that provide a combination of housing, personal services and health care designed to respond to elderly individuals who require assistance with activities of daily living in a manner that promotes maximum independence. The Company was formed to acquire the assisted living property management business of Bowen Property Management Co., which is wholly owned by Walter C. Bowen, the Chairman of the Board, President, Chief Executive Officer, and majority shareholder of the Company, and was initially capitalized through the sale of 3,000,000 shares of common stock for $2,000. On December 26, 1995, the Company sold 1,400,000 shares of common stock to the public at a price of $7.50 per share in an initial public offering (the Offering). Concurrently, the Company sold an additional 233,000 shares at a price of $7.50 per share to Mr. Bowen. The Company realized net proceeds of $10,756,563 from these transactions. During 1995 the Company provided property management services to four assisted living communities including Regency Park, Sterling Park, Park Place, and Sunshine Villa. Regency Park, Sterling Park, and Park Place are owned by entities controlled by Mr. Bowen. Effective December 1, 1995, the Company acquired Sunshine Villa from an unrelated party for approximately $7,700,000. Unaudited pro forma results of operations for the three month and nine month periods ended September 30, 1995 (as if the acquisition of Sunshine Villa, the Offering, and the commencement of the leases of Regency Park and Sterling Park had occurred as of January 1, 1995) are included in Note 5. Effective January 1, 1996, the Company entered into agreements to lease Regency Park and Sterling Park from Regency Park Apartments Limited Partnership (Regency Partnership) and Bowen-Gionet Joint Venture (BGJV), respectively, (see also Predecessor below and Note 5). Page 6 REGENT ASSISTED LIVING, INC. (THE COMPANY) REGENT ASSISTED LIVING GROUP (PREDECESSOR) NOTES TO FINANCIAL STATEMENTS, CONTINUED 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: The Company also provides management and administrative services for Bowen Property Management Co., Bowen Financial Services Corp., Bowen Development Company and Bowen Condominium Marketing, Inc. (collectively, the Bowen Companies), all of which are Oregon corporations and are wholly owned by Mr. Bowen. These services are provided pursuant to the terms of an Administrative Services Agreement described in Note 4. THE PREDECESSOR The Predecessor financial statements for the three months and nine months ended September 30, 1995, represent the combined results of operations and financial position of the Predecessor. The Predecessor consists of the affiliated entities described below which own assisted living communities operated by the Company pursuant to lease agreements which became effective January 1, 1996. The Predecessor represents a combination of the business of the Company (an S corporation prior to the Offering), Regency Partnership and BGJV, which have 100 percent ownership in each of their respective assisted living communities and common management and controlling interests. Regency Partnership and BGJV are 100 percent owned by Walter C. Bowen and his family. Prior to the Offering, the Company was also 100 percent owned by Walter C. Bowen. The assisted living communities operated by the Predecessor were as follows: COMMENCED COMMUNITY ENTITY LEGAL FORM OPERATIONS --------- ------ ---------- ---------- Regency Park Regency Partnership Limited Partnership 1987 Sterling Park BGJV General Partnership 1990 BASIS OF PRESENTATION The condensed financial statements include the accounts of the Company and the Predecessor. The combined financial statements of the Predecessor include the assets, liabilities and operations associated with the assisted living communities listed above, as well as the Company. Since the communities have common ownership and management interests, the assets and liabilities are reflected at historical cost. All significant inter-company accounts and transactions have been eliminated in combination. Page 7 REGENT ASSISTED LIVING, INC. (THE COMPANY) REGENT ASSISTED LIVING GROUP (PREDECESSOR) NOTES TO FINANCIAL STATEMENTS, CONTINUED 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: The accompanying unaudited financial statements as of September 30, 1996 and for the three month and nine month periods ended September 30, 1996 and 1995 have been prepared in conformity with generally accepted accounting principles. The financial information as of December 31, 1995, is derived from the Company's Form 10-KSB for the year ended December 31, 1995. Certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. The accompanying financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1995 included in the Company's Form 10-KSB for the year ended December 31, 1995. Operating results for the three months and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 1996, or any portion thereof. 2. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost and consist of the following: December 31, September 30, 1995 1996 ----------- ------------ Land $ 1,100,000 $ 1,100,000 Buildings and improvements 6,321,169 6,383,371 Furniture and equipment 308,594 382,354 Construction in progress 210,665 4,915,076 ------------ ------------ 7,940,428 12,780,801 Less accumulated depreciation 13,097 162,641 ------------ ------------ Total property and equipment, net $ 7,927,331 $ 12,618,160 ============ ============ Land, buildings and certain furniture and equipment serve as collateral for long-term debt. See Note 3. Page 8 REGENT ASSISTED LIVING, INC. (THE COMPANY) REGENT ASSISTED LIVING GROUP (PREDECESSOR) NOTES TO FINANCIAL STATEMENTS, CONTINUED 3. SUBSEQUENT EVENT: On October 24, 1996, the Company completed the sale and leaseback of Sunshine Villa. The total consideration for the sale was $8,300,000. As a result of the transaction, the Company realized net cash proceeds of approximately $2,660,000 (after related costs of approximately $99,000) and retired long-term debt totaling $5,541,000. The Company will record a deferred gain of approximately $560,000 related to the sale. The gain will be amortized over the life of the lease. The annualized net impact on future operating results comparing lease expense to interest, depreciation, and amortization charges is estimated to be a decrease in net income of approximately $50,000. The Company will continue to operate the property pursuant to a 15-year lease agreement which stipulates an annual base rental of $829,176 and additional rent payments based on a percentage of the increase in annual revenues. Under the terms of the lease, the Company is responsible for all costs including property taxes, maintenance and other direct operating costs. The Company has a right to purchase the property at the end of the lease term at the then determined fair market value. The future minimum payments under the lease for the years ending December 31 are as follows: 1996 $ 156,028 1997 829,176 1998 829,176 1999 829,176 2000 829,176 Thereafter 9,328,230 ------------- Total $12,800,962 ============= 4. ADMINISTRATIVE SERVICES AGREEMENT: The Company has entered into an agreement with the Bowen Companies, all of which are Oregon corporations controlled by Mr. Bowen, whereby the Company will provide each of the Bowen Companies executive assistance, accounting and financial management services, legal and administrative assistance, insurance, management information services, and other management services as required by the Bowen Companies. Under the terms of the agreement, the Company will be reimbursed at its cost on a monthly basis for all services provided. Page 9 REGENT ASSISTED LIVING, INC. (THE COMPANY) REGENT ASSISTED LIVING GROUP (PREDECESSOR) NOTES TO FINANCIAL STATEMENTS, CONTINUED 5. PRO FORMA FINANCIAL INFORMATION (UNAUDITED): The following table sets forth the unaudited pro forma statements of operations of the Company for the three months and nine months ended September 30, 1995, as if the acquisition of Sunshine Villa and the Offering (including approximately $187,500 per quarter of additional general and administrative expenses that are anticipated to be incurred as a result of being a public entity) had occurred as of January 1, 1995, and the agreements to lease Regency Park and Sterling Park had been consummated at that date:
Three Months Ended Nine Months Ended September 30, 1995 September 30, 1995 ------------------ ------------------ Revenues: Rental and service $ 3,218,592 $ 9,245,918 Management fee 32,854 114,558 ------------- ------------- Total revenues 3,251,446 9,360,476 ------------- ------------- Operating expenses: Residence operating expenses 1,953,413 5,822,821 General and administrative 447,257 1,140,045 Lease 689,313 2,067,938 Depreciation and amortization 100,408 213,000 ------------- ------------- Total operating expenses 3,190,391 9,243,804 ------------- ------------- Operating income 61,055 116,672 Interest income 8,712 18,477 Interest expense (132,798) (400,000) Other income, net (279) 1,014 ------------- ------------- Net loss $ (63,310) $ (263,837) ============= ============= Per share net loss $ (0.01) $ (0.06) ============= ============= Weighted average common shares outstanding 4,633,000 4,633,000 ============= =============
Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. OVERVIEW THE COMPANY The Company reported net income of approximately $33,000, or $.01 per share, on revenue of $3,366,000 for the quarter ended September 30, 1996. For the nine months ended September 30, 1996, the Company reported net income of approximately $90,000, or $.02 per share, on revenue of $9,845,000. This report marks the third full quarter of operations since the Company's $10.8 million initial public offering on December 26, 1995. Effective December 1, 1995, the Company acquired Sunshine Villa, a 126 bed assisted living community located in Santa Cruz, California. On October 24, 1996, the Company sold Sunshine Villa and effective the same date entered into a long term lease pursuant to which the Company will continue to operate the community. The Company operates two other assisted living communities pursuant to long-term leases: Regency Park, a 140 bed community in Portland, Oregon, and Sterling Park, a 192 bed community in Redmond, Washington, for total operations of 458 beds. The Company also manages Park Place, a 112 bed community in Portland, Oregon from which the Company derives a management fee. As of November 11, 1996, the Company had started construction on four new facilities: a 136 bed community in Boise, Idaho, a 123 bed community in Folsom, California, a 133 bed community in San Antonio, Texas, and a 108 bed community in Roseville, California. An additional eleven communities were under varying stages of development. If all fifteen communities are developed, total operations of the Company will increase by approximately 1,800 beds. Additionally, the Company is engaged in negotiations to acquire several additional sites on which to develop new communities. All costs associated with the development of these communities have been capitalized as "Construction in Progress" as disclosed in Note 2 to the financial statements. Operating results for the three month and nine month periods ended September 30, 1996, are not necessarily indicative of future financial performance as the Company intends to expand its operating base of communities using the remaining proceeds of the public offering. PREDECESSOR The historical financial statements for the three month and nine month periods ended September 30, 1995, represent the combined historical results of operations and financial condition of the Predecessor. The Predecessor consists of a combination of the business of the Company and the two entities that own Regency Park and Sterling Park. The discussion of the results of operations which follows is based upon the combined results of operations of the Predecessor. For the purpose of preparing the historical financial statements of the Predecessor, expenses have been allocated among the Bowen Companies in a manner consistent with the Administrative Services Agreement. Page 11 Certain pro forma data discussed below has been derived from Note 5 to the financial statements of the Company for the three month and nine month periods ended September 30, 1996 and 1995, which presents unaudited pro forma results of operations for the three month and nine month periods ended September 30, 1995, as if the acquisition of Sunshine Villa, the initial public offering, and the lease of Regency Park and Sterling Park had occurred as of January 1, 1995. OPERATIONS OF EXISTING COMMUNITIES The following table sets forth, for the periods presented, the number of communities and beds owned or leased and average occupancy percentages of the Predecessor, the Company on a pro forma basis, and the Company:
Communities Owned or Number Average Leased of Beds Occupancy (end of period) (end of period) Percentage --------------- --------------- ---------- Three Months ended September 30, 1995: Predecessor 2 327 98.1% The Company (pro forma) 3 453 97.0% Three Months ended September 30, 1996: The Company 3 458 98.5% Nine Months ended September 30, 1995: Predecessor 2 327 95.5% The Company (pro forma) 3 453 94.8% Nine Months ended September 30, 1996: The Company 3 458 96.9% Note: Pro Forma includes Sunshine Villa, which was acquired effective December 1, 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996 (THE COMPANY), COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 (PREDECESSOR) Revenues. For the three month period ended September 30, 1996, revenues were $3,366,324 compared to $2,542,631 in the three month period ended September 30, 1995. The Company operated three communities in the 1996 quarterly period and managed a fourth community whereas it operated two communities and managed two additional communities in the corresponding 1995 period. The increase in revenue of $823,693, or 32.4 percent, is due primarily to the addition of Sunshine Villa (pro forma revenues would have been $3,251,446 for the three month period ended September 30, 1995, if Sunshine Villa had been acquired as of January 1, 1995) and to an increase in occupancy. Revenue from the operation of Sunshine Villa was $837,754 in the third quarter of 1996. Overall occupancy at all three of the Company's communities increased to an average of 98.5 percent for the three month period ended September 30, 1996, whereas on a pro forma basis the average occupancy for the same period in 1995 was 97.0 percent. Page 12 Residence Operating Expenses. Residence operating expenses were $2,089,765 for the three month period ended September 30, 1996, and $1,414,188 for the same period in 1995. The increase of $675,577 is due primarily to the addition of Sunshine Villa for 1996 (pro forma residence operating expenses would have been $1,953,413 for the three month period ended September 30, 1995, if Sunshine Villa had been acquired as of January 1, 1995). Residence operating expenses totaled 62.9 percent and 57.2 percent of rental and service revenues for the three month periods ended September 30, 1996 and 1995, respectively, whereas on a pro forma basis for the third quarter of 1995 the expenses totaled 60.7 percent of revenues. General and Administrative Expenses. General and administrative expenses were $423,729 for the three month period ended September 30, 1996, compared to $259,757 for the Predecessor for the three month period ended September 30, 1995. The increase of $163,972 is due primarily to the increase in development activities by the Company, including payroll and related costs primarily resulting from staffing increases related to the implementation of the Company's strategy for rapid growth and costs associated with being a public company. General and administrative expenses, on a pro forma basis, would have been $447,257 for the three month period ended September 30, 1995. General and administrative expenses were 12.6 percent of total revenues for the three month period ended September 30, 1996, whereas on a pro forma basis expenses were 13.7 percent of revenues for same period in 1995. Lease Expense. Lease expense for the Company's two leased communities was $689,312 for the three month period ended September 30, 1996, and there was no similar lease expense for the three month period ended September 30, 1995, since Regency Park and Sterling Park were owned by entities included in the Predecessor. The Company entered into long-term operating leases for the Sterling Park and Regency Park communities effective January 1, 1996. Depreciation and Amortization. Depreciation and amortization expense was $61,848 for the three month period ended September 30, 1996, compared to $167,898 for the three month period ended September 30, 1995. Depreciation for the third quarter of 1996 relates primarily to Sunshine Villa while depreciation for the same period of 1995 relates primarily to Regency Park and Sterling Park, which are now being leased by the Company. Depreciation and amortization would have been $100,408 on a pro forma basis for the three month period ended September 30, 1995. Interest Expense. Interest expense decreased in the three month period ended September 30, 1996, to $129,456, from $380,722 for the three month period ended September 30, 1995. Interest expense for the third quarter of 1996 is related to financing incurred to acquire Sunshine Villa whereas interest expense for the third quarter of 1995 is related to indebtedness secured by the Regency Park and Sterling Park communities. Interest expense would have been $132,798 on a pro forma basis for the three month period ended September 30, 1995. Interest Income. Interest income increased in the three month period ended September 30, 1996, to $73,365, from $8,712 for the same period in 1995. The increase in interest income is due to the Company's investment of the net proceeds from its initial public offering in high quality, short term securities placed with institutions with high credit ratings. Page 13 Net Income. Net income decreased to $33,051 for the Company during the three month period ended September 30, 1996, from $203,699 (after a pro forma tax provision of $124,800) for the Predecessor for the same period in 1995. The decrease in net income is the result primarily of an increase in general and administrative expenses (as discussed above) and a decrease in residence operating profits (operating income before general and administrative expense, less interest expense) of $184,000, offset by an increase in interest income of $65,000. On a pro forma basis, the net loss for the three month period ended September 30, 1995, would have been approximately $63,000 as compared to net income of approximately $33,000 for the three month period ended September 30, 1996, an increase of approximately $99,000. The increase is due primarily to an increase in interest income of approximately $65,000 and operating income of approximately $41,000, offset by an increase in income taxes of approximately $16,000. NINE MONTHS ENDED SEPTEMBER 30, 1996 (THE COMPANY), COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 (PREDECESSOR) Revenues. For the nine month period ended September 30, 1996, revenues were $9,845,411 compared to $7,295,131 in the nine month period ended September 30, 1995. During 1996, the Company operated three communities and managed a fourth community whereas in the corresponding 1995 period it operated two communities and managed two additional communities. The increase in revenue of $2,550,280, or 35.0 percent, is due primarily to the addition of Sunshine Villa (pro forma revenues would have been $9,360,476 for the nine month period ended September 30, 1995, if Sunshine Villa had been acquired as of January 1, 1995) and to management's continuing focus on more accurately assessing resident's needs (the effect of which resulted in increased per bed revenues beginning in the third quarter of 1995). Revenue from the operation of Sunshine Villa was $2,411,130 for the nine months ended September 30, 1996. In addition, overall occupancy at all three of the Company's communities increased to an average of 96.9 percent for the nine month period ended September 30, 1996, whereas on a pro forma basis the average occupancy for the same period in 1995 was 94.8 percent. Residence Operating Expenses. Residence operating expenses were $6,010,159 for the nine month period ended September 30, 1996, and $4,267,178 for the same period in 1995. The increase of $1,742,981 is due primarily to the addition of Sunshine Villa for 1996 (pro forma residence operating expenses would have been $5,822,821 for the nine month period ended September 30, 1995, if Sunshine Villa had been acquired as of January 1, 1995). Residence operating expenses totaled 61.9 percent and 60.3 percent of rental and service revenues for the nine month periods ended September 30, 1996 and 1995, respectively, whereas on a pro forma basis for the same period in 1995 expenses totaled 63.0 percent of revenues. General and Administrative Expenses. General and administrative expenses were $1,348,073 for the nine month period ended September 30, 1996, compared to $577,545 for the Predecessor for the nine month period ended September 30, 1995. The increase of $770,528 is due primarily to the increase in development activities by the Company, including payroll and related costs primarily resulting from staffing increases related to the implementation of the Company's strategy for rapid growth and costs associated with being a public company. General and Page 14 administrative expenses, on a pro forma basis, would have been $1,140,045 for the nine month period ended September 30, 1995. General and administrative expenses were 13.7 percent of total revenues for the nine month period ended September 30, 1996, whereas on a pro forma basis expenses were 12.2 percent of revenues for same period in 1995. Lease Expense. Lease expense for the Company's two leased communities was $2,067,937 for the nine month period ended September 30, 1996, and there was no similar lease expense for the nine month period ended September 30, 1995, since Regency Park and Sterling Park were owned by entities included in the Predecessor. The Company entered into long-term operating leases for the Sterling Park and Regency Park communities effective January 1, 1996. Depreciation and Amortization. Depreciation and amortization expense was $180,979 for the nine month period ended September 30, 1996, compared to $491,490 for the nine month period ended September 30, 1995. Depreciation for 1996 relates primarily to Sunshine Villa while depreciation for 1995 relates primarily to Regency Park and Sterling Park, which are now being leased by the Company. Depreciation and amortization would have been $213,000 on a pro forma basis for the nine month period ended September 30, 1995. Interest Expense. Interest expense decreased in the nine month period ended September 30, 1996, to $388,037, from $1,315,924 for the nine month period ended September 30, 1995. Interest expense for 1996 is related to financing incurred to acquire Sunshine Villa whereas interest expense for 1995 is related to indebtedness secured by the Regency Park and Sterling Park communities. Interest expense would have been $400,000 on a pro forma basis for the nine month period ended September 30, 1995. Interest Income. Interest income increased in the nine month period ended September 30, 1996, to $277,346, from $18,477 for the same period in 1995. The increase in interest income is due to the Company's investment of the net proceeds from its initial public offering in high quality, short term securities placed with institutions with high credit ratings. Net Income. Net income decreased to $90,156 for the Company during the nine month period ended September 30, 1996, from $410,785 (after a pro forma tax provision of $251,700) for the Predecessor for the same period in 1995. The decrease in net income is the result primarily of an increase in general and administrative expenses (as discussed above) and a decrease in residence operating profits (operating income before general and administrative expense, less interest expense) of $22,000, offset by an increase in interest income of $259,000. On a pro forma basis, the net loss for the nine month period ended September 30, 1995, would have been approximately $264,000 as compared to net income of approximately $90,000 for the nine month period ended September 30, 1996, an increase of approximately $354,000. The increase is due primarily to an increase in interest income of approximately $259,000 and an increase in operating income of approximately $122,000, offset by an increase in income taxes of approximately $51,000. Page 15 LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996, the Company had approximately $3.2 million of working capital compared to approximately $8.6 million at December 31, 1995, a decrease of $5.4 million. Net cash provided by operating activities totaled approximately $696,000 for the nine month period ended September 30, 1996, which resulted primarily from net income of $90,000 and an increase in accounts payable and accrued expenses of $467,000. Net cash used in investing activities totaled approximately $3,051,000 for the nine month period ended September 30, 1996, comprised of $5,004,000 used in development activities offset by $1,953,000 provided from the maturity of investments. The Company purchased land in Boise, Idaho; Folsom, California; and Eugene, Oregon; during the first quarter; in Roseville, California; and San Antonio, Texas; during the second quarter, and in Clovis, California during the third quarter. During the period, the Company incurred initial construction costs in Boise, Idaho; San Antonio, Texas; and Folsom, California; and Roseville, California and conducted preliminary development activities related to twelve sites located in California, Oregon, Washington, Texas, Nevada, New Mexico, and Arizona. At September 30, 1996, the aggregate purchase price for the Company's binding options related to eight parcels of land was approximately $5,768,000. The Company has paid initial deposits relating to these sites and has also completed the demographic analysis and other preliminary due diligence for purposes of developing assisted living communities at these sites. The Company entered into an agreement pursuant to which it owns a fifty percent equity interest in an assisted living community which is currently under development in Kenmore, Washington. During the third quarter, that entity completed the acquisition of the land required for the project. As reported above, net cash used in development activities includes amounts advanced for this project. The Company will manage this community upon its completion. Net cash used in financing activities totaled approximately $700,000 during the nine month period ended September 30, 1996, consisting of increases in restricted cash of $584,700 and other assets of $62,250, and $53,200 of principal payments on the indebtedness incurred related to the purchase of Sunshine Villa. On October 24, 1996, the Company completed the sale and leaseback of Sunshine Villa generating net proceeds of $2.7 million. As a condition of the lease, the Company restricted cash totaling $415,000. During the remainder of 1996, the Company intends to utilize current working capital resources, including the Sunshine Villa proceeds, to develop and construct assisted living communities. The Company intends to finance a substantial portion of the cost of developing each new community through additional sale/leaseback transactions with REITs, as well as conventional financing with commercial banks, pension funds, and other financial institutions. In April, 1996, the Company entered into a letter of intent with Health Care Property Investors, Inc. ("HCPI") pursuant to which HCPI agreed to provide $15.3 million in financing to the Company for the development and sale/leaseback of two new assisted living communities to be developed in Boise, Idaho and Clovis, California. Effective August 8, 1996, the Company Page 16 completed the first transaction with HCPI pursuant to which the Company sold the Boise, Idaho site to HCPI and agreed to construct an assisted living community and then leaseback the completed facility for an initial term of 15 years. In addition, in July, 1996, HCPI issued a letter of intent in the amount of $7.9 million for the development and sale/leaseback of a third community to be located in San Antonio, Texas. The Company is in the process of finalizing terms related to the San Antonio and Clovis transactions. In April, 1996, U.S. Bank delivered to the Company letters of interest pursuant to which it may provide $12.2 million in construction financing for the Company's Folsom, California and Kenmore, Washington communities. Effective October 31, 1996, the Company executed the loan documents for a $6,850,000 construction loan from U.S. Bank relative to the Company's Folsom community. On July 29, 1996, Key Bank delivered to the Company a letter of interest pursuant to which it may provide up to $6.5 million in construction financing for the Company's Roseville, California community. On August 2, 1996, Wells Fargo Bank delivered to the Company a letter of interest pursuant to which it may provide up to $6.5 million in construction financing for the Company's Eugene, Oregon community. On September 18, 1996, the Company signed a commitment from Health Care REIT, Inc. pursuant to which Health Care REIT, Inc. agrees to provide up to $25,000,000 of financing for the construction of as many as five new communities. Each of the pending financing transactions is subject to a number of conditions, including the negotiation and execution of definitive documents and the satisfactory completion of due diligence on the related properties, and there is no assurance that any of these financing transactions will be completed on the terms proposed, or at all. The Company anticipates capital expenditures for 1996 will include additional land acquisition costs, architectural fees, and other development costs related to at least 15 assisted living communities and construction costs related to at least seven new assisted living communities. The Company currently estimates that its plan to develop at least 15 additional assisted living communities by the end of 1998, including the communities described above that are under development, will likely require additional financing prior to construction of the last nine communities. Such additional financing is in addition to the financing described in the preceding paragraphs. Such financing may take the form of debt or equity, including a public or private debt or equity offering or conventional bank financing. The amount of such additional financing will be dependent upon the amount of security deposits required under, and other terms of, the sale/leaseback financing arrangements the Company expects to negotiate and the performance of the Company's newly developed communities and existing properties. If the Company is unable to obtain additional required financing, or if such financing is not available on acceptable terms, the Company believes that its plan to develop 15 new communities by the end of 1998 would likely be delayed or curtailed. Page 17 FORWARD-LOOKING STATEMENTS The information set forth in this report in the sections entitled "Overview" and "Liquidity and Capital Resources" includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and is subject to the safe harbor created by that section. The development of additional assisted living communities will involve a number of risks including, without limitation, the risk that the Company will be unable to locate suitable sites, risks relating to the inability to obtain, or delays in obtaining, necessary zoning, land use, building, occupancy and other required governmental permits and authorizations, risks that financing may not be available on satisfactory terms, environmental risks, risks that construction costs may exceed original estimates, risks that construction and lease-up may not be completed on schedule, risks that occupancy rates at a newly completed community may not be achieved or be sustained at expected levels, and risks relating to the competitive environment for development. Additional factors that could cause results to differ materially from those projected in the forward-looking statements include, without limitation, the ability of the Company to raise additional financing upon terms acceptable to the Company, increases in the costs associated with new construction, competition, acceptance of the Company's prototype community in new geographic markets, and the Company's ability to locate, train, and retain qualified community managers and support staff. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGENT ASSISTED LIVING, INC. By: STEVEN L. GISH Date: November 14, 1996 ----------------------------------- Steven L. Gish Chief Financial Officer Page 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF SEPTEMBER 30, 1996, AND THE RELATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS IN THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 4,530,627 0 141,434 24,750 0 4,723,927 12,780,801 162,641 18,739,706 1,553,897 5,974,387 10,758,703 0 0 (8,345) 18,739,706 9,715,818 9,845,411 6,010,159 9,607,148 0 0 388,037 140,856 50,700 90,156 0 0 0 90,156 .02 .02
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