-----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, QYZIUvmGp7Nbayg+qgWIxMUzwlMGAhkj8+WLXi22MIaHg1bHj7xwIWEnjRrjhNO/ wgZWaYgzTaFUoacXOR1dRA== 0000893877-97-000662.txt : 19971117 0000893877-97-000662.hdr.sgml : 19971117 ACCESSION NUMBER: 0000893877-97-000662 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-27108 FILM NUMBER: 97719653 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, 1997 _____ 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.) Suite 1000 121 SW Morrison St. Portland, Oregon 97204 (Address of principal 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 August 1, 1997 - 4,633,000 REGENT ASSISTED LIVING, INC. FORM 10-QSB September 30, 1997 INDEX Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 1996 and 1997 . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the three months and nine months ended September 30, 1996 and 1997 . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . 10
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 1997 1996 (Unaudited) -------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 8,650,817 $ 3,643,373 Investments 2,939,448 Accounts receivable 148,976 99,305 Prepaid expenses 126,148 295,509 Construction advances receivable 1,125,315 203,277 ------------ ------------ Total current assets 12,990,704 4,241,464 Property and equipment, net 17,383,668 48,699,241 Investment in joint venture 263,579 329,919 Restricted cash 1,646,485 2,376,436 Deferred income tax benefit 304,300 271,200 Other assets 588,948 670,628 ------------ ------------ Total assets $ 33,177,684 $ 56,588,888 ============ ============ LIABILITIES Current liabilities: Current portion of long-term debt $ 150,950 $ 182,614 Short term borrowings 1,532,205 Construction accounts payable 667,312 1,743,469 Accounts payable and other accrued expenses 1,453,668 570,357 Accrued payroll 335,155 376,069 Accrued interest 57,530 76,443 ------------ ------------ Total current liabilities 2,664,615 4,481,157 Long-term debt 9,981,235 32,495,996 Other liabilities 474,423 1,176,322 ------------ ------------ Total liabilities 13,120,273 38,153,475 ------------ ------------ Minority Interest 250,000 ------------ SHAREHOLDERS' EQUITY Preferred stock, no par value, 5,000,000 shares authorized; 1,666,667 shares issued and outstanding 9,349,841 9,349,841 Common stock, no par value, 25,000,000 shares authorized; 4,633,000 shares issued and outstanding 10,808,703 10,808,703 Accumulated deficit (101,133) (1,973,131) ------------ ------------ Total shareholders' equity 20,057,411 18,185,413 ------------ ------------ Total liabilities and shareholders' equity $ 33,177,684 $ 56,588,888 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 3
REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Unaudited) Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1997 September 30, 1996 September 30, 1997 ------------------ ------------------ ------------------ ------------------ Revenues: Rental and service $ 3,323,145 $ 3,542,710 $ 9,715,818 $ 10,082,807 Management fee 43,179 53,370 129,593 141,491 ------------ ------------ ------------ ------------ Total revenues 3,366,324 3,596,080 9,845,411 10,224,298 ------------ ------------ ------------ ------------ Operating expenses: Residence operating expenses 2,089,765 2,681,858 6,010,159 7,015,759 General and administrative 423,729 871,058 1,348,073 2,233,909 Lease expense 689,312 914,776 2,067,937 2,403,127 Depreciation and amortization 61,848 88,646 180,979 235,494 ------------ ------------ ------------ ------------ Total operating expenses 3,264,654 4,556,338 9,607,148 11,888,289 ------------ ------------ ------------ ------------ Operating income (loss) 101,670 (960,258) 238,263 (1,663,991) Interest income 73,365 83,290 277,346 305,881 Interest expense, net (129,456) (388,037) (101,228) Other income (expense), net 3,172 (4,764) 13,284 12,840 ------------ ------------ ------------ ------------ Income (loss) before income taxes 48,751 (881,732) 140,856 (1,446,498) Income tax (provision) benefit (15,700) (50,700) 24,500 ------------ ------------ ------------ ------------ Net income (loss) $ 33,051 ($ 881,732) $ 90,156 ($ 1,421,998) ============ ============ ============ ============ Earnings (loss) per common share $ 0.01 ($ 0.22) $ 0.02 ($ 0.40) ============ ============ ============ ============ Weighted average common shares outstanding 4,633,000 4,633,000 4,633,000 4,633,000 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 4
REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1997 ------------------ ------------------ Cash flows from operating activities: Net income (loss) $90,156 ($1,421,998) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 180,979 235,494 Amortization of deferred gain (7,320) Changes in other assets and liabilities: Accounts receivable (948) 49,671 Prepaid expenses 1,312 (107,361) Restricted cash 49,364 Deferred income taxes 33,100 Other assets (140,756) 19,795 Accounts payable and other accrued expenses 472,081 (16,534) Other liabilities 44,059 (20,781) ------------ ------------ Net cash provided by (used in) operating activities 696,247 (1,235,934) ------------ ------------ Cash flows from investing activities: Maturity of investments, net 1,952,542 2,939,448 Purchases of property and equipment (4,840,373) (31,660,739) Increase in construction related accounts payable 1,076,157 Investment in joint venture (163,591) (66,340) Deposits to replacement reserve account, net (5,482) ------------ ------------ Net cash used in investing activities (3,051,422) (27,716,956) ------------ ------------ Cash flows from financing activities: Contributions by minority partner 250,000 Prepayments and deposits for financing arrangements, net (62,250) (234,364) Construction advances 922,038 Restricted cash for financing arrangements, net (584,700) (724,469) Short term borrowings 1,532,205 Proceeds from issuance of long-term debt 22,664,466 Payments on long-term debt (53,200) (118,041) Deferred gain from financing arrangements 730,000 Preferred stock issuance costs (600,159) Preferred stock dividends (476,230) ------------ ------------ Net cash provided by (used in) financing activities (700,150) 23,945,446 ------------ ------------ Net decrease in cash and cash equivalents (3,055,325) (5,007,444) Cash and cash equivalents, beginning of period 7,585,952 8,650,817 ------------ ------------ Cash and cash equivalents, end of period $4,530,627 $3,643,373 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 5 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Operations and Summary of Significant Accounting 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. 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. Walter C. Bowen, the Chairman of the Board, Chief Executive Officer, President, and majority shareholder of the Company. The Company realized net proceeds of approximately $10.8 million from these transactions. On December 16, 1996, the Company completed the sale of 1,283,785 shares of Series A Preferred Stock and 382,882 shares of Series B Preferred Stock for the aggregate price of $10 million. The results of operations for the nine months ended September 30, 1996 reflect the operations of three assisted living communities (Regency Park, Sterling Park and Sunshine Villa) and the property management services provided to one community (Park Place). The results of operations for the nine months ended September 30, 1997, additionally reflect the operation of two new assisted living communities (Willow Park and West Wind) and the property management services provided to one additional community (Sun Oak). As of November 12, 1997, the Company had also commenced operations at its new assisted living community in San Antonio, Texas, was awaiting final licensure of its new community in Folsom, California, and had an additional 24 assisted living and stand alone Alzheimer's care communities in various stages of development. 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 3. Page 6 Basis of Presentation The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation. REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. Operations and Summary of Significant Accounting Policies, Continued: The accompanying unaudited condensed consolidated financial statements as of September 30, 1997, and for the three month and nine month periods ended September 30, 1997 and 1996, have been prepared in conformity with generally accepted accounting principles. The financial information as of December 31, 1996, is derived from the Company's Form 10-KSB for the year ended December 31, 1996. 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 consolidated financial statements for the year ended December 31, 1996, included in the Company's Form 10-KSB for the year ended December 31, 1996. Operating results for the three months and nine months ended September 30, 1997, are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 1997, or any portion thereof. Page 7 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 2. Property and Equipment: Property and equipment are stated at cost and consist of the following: December 31, September 30, 1996 1997 ------------ ------------- Land $ 1,100,000 $ 1,100,000 Buildings and improvements 6,520,556 6,746,263 Furniture and equipment 530,540 878,929 Construction in progress 9,456,006 40,425,089 ----------- ----------- 17,607,102 49,150,281 Less accumulated depreciation 223,434 451,040 ----------- ----------- Total property and equipment, net $17,383,668 $48,699,241 =========== =========== Land, buildings, and certain furniture and equipment serve as collateral for long-term debt. 3. 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. 4. Earnings (Loss) Per Common Share: The computation of fully diluted earnings (loss) per share for each of the periods was antidilutive; as such, no presentation of fully diluted earnings (loss) per share has been included in the condensed consolidated statements of operations. Earnings (loss) attributable to common stock includes a deduction of preferred stock dividends declared, which totaled $150,000 and $450,000 for the three and nine month periods ended September 30, 1997, respectively. Page 8 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. Accounting Pronouncements: The Financial Accounting Standards Board (FASB) has issued several accounting pronouncements that the Company will be required to adopt in future fiscal reporting periods. FASB Statement No. 128 "Earnings per Share" establishes new guidelines for the calculation of and disclosures regarding earnings per share. The Company will adopt the provisions of Statement No. 128 during the first quarter of 1998 and at that time will be required to present basic and diluted earnings per share and to restate all prior periods. There will be no impact on the calculation of basic earnings per share for the three months and nine months ended September 30, 1997 and 1996. Diluted earnings per share is not expected to differ materially from basic earnings per share. The Company will adopt FASB Statement No. 129 "Disclosure of Information About Capital Structure" during the first quarter of 1998. The Company does not expect that adoption of the disclosure requirements of this pronouncement will have a material impact on its financial statements. FASB Statement No. 130 "Reporting Comprehensive Income," which the Company will adopt during the first quarter of 1998, establishes standards for reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in shareholders' equity except those resulting from investments by or distributions to shareholders. Such changes are generally not significant to the Company; and the adoption of Statement No. 130, including the required comparative presentation for prior periods, is not expected to have a material impact on its financial statements. Page 9 ITEM 2. Management's Discussion and Analysis or Plan of Operation. Overview The Company The Company reported a net loss of $881,732, or $0.22 per share, on revenue of $3,596,080 for the three months ended September 30, 1997. For the nine months ended September 30, 1997, the Company reported a net loss of $1,446,498, or $0.40 per share, on revenue of $10,224,298. During the nine moth period ending September 30, 1997, the Company operated the following five communities pursuant to long-term leases and two communities pursuant to management contracts: Leased Communities: No. of Date Name Location Beds Opened - ---- -------- ------ ------ Regency Park Portland, Oregon 142 1987 Sterling Park Redmond, Washington 192 1990 Sunshine Villa Santa Cruz, California 126 1990 Willow Park Boise, Idaho 134 May, 1997 West Wind Boise, Idaho 48 July, 1997 Managed Communities: No. of Date Name Location Beds Opened - ---- -------- ------ ------ Park Place Portland, Oregon 112 1990 Sun Oak Citrus Heights, California 50 May, 1997 As of November 12, 1997, the Company had also commenced operations of its new 137-bed community in San Antonio, Texas (Hamilton House) pursuant to a long-term lease. The Company's new 122-bed community in Folsom, California (Willow Creek), which it owns, is awaiting licensure and the Company plans to open it in late November 1997. Furthermore, the Company is under construction on the following ten new communities: Expected Projected Quarter Leased or Location No. of Beds Opening Owned -------- ----------- ------- ----- Clovis, California 129 4th-97 Leased Rio Rancho, New Mexico 114 4th-97 Owned* Eugene, Oregon 125 4th-97 Owned Bakersfield, California 131 1st-98 Owned Vacaville, California 127 1st-98 Owned Tucson, Arizona 136 1st-98 Owned Roseville, California 108 1st-98 Owned Henderson, Nevada 134 1st-98 Owned Austin, Texas 136 2nd-98 Owned Kenmore, Washington 96 2nd-98 Owned** Page 10 * A limited liability company in which the Company owns a 90 percent interest owns this community. The Company has entered into an agreement to purchase the remaining ten percent interest and anticipates that this transaction will close November 14, 1997. ** A limited liability company in which the Company owns a 50 percent interest will own the Company's community in Kenmore. The Company will manage the community. Fourteen additional new communities were under varying stages of development as of November 12, 1997. If all 24 communities are developed, operations of the Company will increase by approximately 2,500 beds to a total of approximately 3,300. The Company continues to pursue its primary strategy of developing new communities and is therefore engaged in negotiations to acquire several additional sites and is pursuing joint venture opportunities with parties who control parcels of land in strategic markets. All costs associated with the development of these communities have been capitalized as "Construction in Progress" as disclosed in Note 2 to the condensed consolidated financial statements. Furthermore, continuing its efforts to pursue strategic acquisitions, the Company is engaged in discussions with several parties relative to purchasing currently operating communities in its targeted regions. The Company currently plans to open fifteen new "Regent" prototypical assisted living communities and five "Regent Court" stand alone Alzheimer's care communities by December 31, 1998. The foregoing schedule of projected openings differs from the Company's previously announced schedule, due primarily to construction delays experienced by the Company at several of its sites, although most delays have been limited to one to two months. In addition, the Company is experiencing a backlog of license applications in some jurisdictions that may result in a delay of obtaining the necessary operating licenses and permits. The Company believes that it will be able to obtain the necessary operating licenses and permits for all of its planned new communities. In connection with the sale by the Company of its Class A and Class B Preferred Stock, the Company agreed to open at least ten new communities and at least 1,000 new units by December 31, 1997. If the Company does not achieve this development goal, the price at which the preferred stock is convertible into the Company's common stock will be decreased from $6.00 per share to $5.50 per share, resulting in the issuance of an additional 151,515 shares of common stock upon conversion of all of the preferred stock. The current holder of the Company's issued and outstanding preferred stock, Prudential Private Equity Investors III, L.P., also holds a warrant that entitles it to purchase up to 200,000 shares of the Company's common stock at a price of $5.50 if the development goal is not achieved. The Company does not currently expect to satisfy the development goal of opening ten new communities with at least 1,000 units in 1997 through development of new communities. However, as stated above, the Company is continuing to pursue strategic acquisition opportunities and is engaged in discussions with several parties concerning the same. Although it is not certain that it will do so, if the Company acquires some or all of the communities currently under evaluation, it is likely that the Company would satisfy the foregoing development goal. Operating results for the three month and nine month periods ended September 30, 1997, are not necessarily indicative of future financial performance as the Company intends to expand its operating base of communities. Page 11 Three Months Ended September 30, 1997, Compared to Three Months Ended September 30, 1996 Revenues. For the three month period ended September 30, 1997, revenues were $3,596,080 compared to $3,366,324 in the three month period ended September 30, 1996. The Company operated three communities and managed a fourth in the three month period ended September 30, 1996, whereas the Company began operating its fourth community in May 1997 and its fifth in July 1997, and began managing a second community in May 1997. The increase in revenue of $229,756 or 6.8 percent, includes $367,964 of revenue from newly opened communities and a decrease in revenue of $148,398 at the Company's three stabilized communities. Overall average occupancy at the three stabilized communities declined to 91.0 percent for the three month period ended September 30, 1997, from 95.7 percent for the same period in 1996. The Company continues to face increasing competition but this has had the greatest impact in the market in which the Company operates its largest community, thereby having a greater impact on the Company's overall occupancy rate. Residence Operating Expenses. Residence operating expenses were $2,681,858 for the three month period ended September 30, 1997, and $2,089,765 for the same period in 1996, an increase of $592,093. The current period includes $559,764 of start-up and pre-opening costs related to eleven of the Company's newly developed communities. Residence operating expenses, excluding the effect of the new communities, totaled 62.7 percent and 62.9 percent of rental and service revenues for the three month periods ended September 30, 1997 and 1996, respectively. General and Administrative Expenses. General and administrative expenses were $871,058 for the three month period ended September 30, 1997, compared to $423,729 for the three month period ended September 30, 1996. The increase of $447,329 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. Lease Expense. Lease expense for the Company's leased communities was $914,776 for the three month period ended September 30, 1997, and was $689,312 for the same period for 1996. The increase of $225,464 includes $61,954 for West Wind and $181,326 for Willow Park. Depreciation and Amortization. Depreciation and amortization expense was $88,646 for the three month period ended September 30, 1997, compared to $61,848 for the three month period ended September 30, 1996. Interest Income. Interest income increased in the three month period ended September 30, 1997, to $83,290, from $73,365 for the same period in 1996. All investments of cash and cash equivalents are in high quality, short term securities placed with institutions with high credit ratings. Interest Expense. The Company reported no interest expense for the three months ended September 30, 1997, compared to $129,456 for the three month period ended September 30, 1996. The Company capitalized $523,390 of interest charges incurred during the three months ended September 30, 1997. The capitalized interest offsets substantially higher interest costs incurred by the Company in the current period arising from increased borrowing for construction purposes and in connection with the Sunshine Villa sale/leaseback financing. Page 12 Net Income (loss). Net operating results decreased to a loss of $881,732 during the three month period ended September 30, 1997, from net income of $33,051 for the same period in 1996. The current period loss is indicative of the Company's expansion efforts and is expected to continue until the income from stabilized communities exceeds the initial operating losses generated from new communities. The decrease in net results is primarily due to an increase in general and administrative expenses (as discussed above), an increase in lease expense (as discussed above), a decrease in residence operating profits (rental and service revenue less residence operating expenses) of $372,528, offset by an decrease in interest expense of $129,456. Nine months Ended September 30, 1997 Compared to Nine months Ended September 30, 1996 Revenues. For the nine month period ended September 30, 1997, revenues increased by $378,887, or 3.8%, to $10,224,298, compared to $9,845,411 in the nine month period ended September 30, 1996. The increase in revenue includes $393,116 of revenue from newly opened communities and a decrease in revenue of $26,127 at the Company's three stabilized communities. Overall average occupancy at the three stabilized communities decreased slightly to 93.4 percent for the nine month period ended September 30, 1997, from 94.8 percent for the same period in 1996. Residence Operating Expenses. Residence operating expenses were $7,015,759 for the nine month period ended September 30, 1997, and $6,010,159 for the same period in 1996. The increase of $1,005,600 is due primarily to the combined impact of slightly higher than expected operating costs for 1997 with lower than expected operating costs for 1996. In addition, the current period includes $804,892 of start-up and pre-opening costs related to eleven of the Company's new communities. Residence operating expenses, excluding the effect of the new communities, totaled 62.7 percent and 61.9 percent of rental and service revenues for the nine month periods ended September 30, 1997 and 1996, respectively. General and Administrative Expenses. General and administrative expenses were $2,233,909 for the nine month period ended September 30, 1997, compared to $1,348,073 for the nine month period ended September 30, 1996. The increase of $885,836 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. Lease Expense. Lease expense for the Company's leased communities was $2,403,127 for the nine month period ended September 30, 1997, and was $2,067,937 for the same period for 1996. The increase of $335,190 includes $61,954 for West Wind and $259,107 for Willow Park. Depreciation and Amortization. Depreciation and amortization expense was $235,494 for the nine month period ended September 30, 1997, compared to $180,979 for the nine month period ended September 30, 1996. Interest Income. Interest income increased in the nine month period ended September 30, 1997, to $305,881, from $277,346 for the same period in 1996, an increase of $28,535. Interest Expense. Interest expense decreased in the nine month period ended September 30, 1997, to $101,228, from $388,037 for the nine month period ended September 30, 1997. The Company capitalized $895,582 of interest charges incurred during the nine months ended September 30, 1997. Page 13 Net Income (loss). Net operating results decreased to a loss of $1,421,998 during the nine month period ended September 30, 1997, from net income of $90,156 for the same period in 1996. The decrease in net results is primarily due to an increase in general and administrative expenses (as discussed above), an increase in lease expense (as discussed above), a decrease in residence operating profits (rental and service revenue less residence operating expenses) of $638,611, offset by an decrease in interest expense of $286,809. Liquidity and Capital Resources At September 30, 1997, the Company had a working capital deficit of approximately $240,000 compared to approximately $10.3 million of working capital at December 31, 1996. The decrease of approximately $10.6 million is primarily related to expenditures for development activities. Current liabilities include approximately $3.3 million of short-term borrowings and development related payables for which the Company intends to obtain long-term financing. During the remainder of 1997, the Company intends to utilize current working capital sources to develop and construct the Company's prototypical Regent and Regent Court communities. Net cash used in operating activities totaled $1,235,934 for the nine month period ended September 30, 1997, which resulted primarily from a net loss of $1,421,998. Net cash used in investing activities totaled $27,716,956 for the nine month period ended September 30, 1997, comprised primarily of $30,650,922 used in development activities offset by $2,939,448 provided from the maturity of investments. During the period, the Company incurred construction costs in twelve locations and conducted preliminary development activities related to fifteen sites. At September 30, 1997, the aggregate purchase price for the Company's binding options related to eight parcels of land was approximately $6.5 million. 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 or Alzheimer's care communities at these sites. Net cash provided by financing activities totaled $23,945,446 during the nine month period ended September 30, 1997, consisting of construction and equipment financing proceeds totaling $22,664,466, short-term borrowings of $1,532,205, net reimbursements and development fees from REIT's totaling $730,000, offset by increases in restricted cash of $724,469, payment of preferred stock issuance costs of $600,159, and payment of preferred stock dividends of $476,230. As of the end of the third quarter of 1997, the Company had completed the following construction loans: Amount Community Lender - ------ --------- ------ $ 6,850,000 Folsom, California US National Bank of Oregon $ 5,935,000 Kenmore, Washington US National Bank of Oregon $ 7,600,000 Vacaville, California US National Bank of Oregon $ 7,200,000 Bakersfield, California Guaranty Federal Bank, FSB $ 7,700,000 Austin, Texas Guaranty Federal Bank, FSB $ 7,375,500 Rio Rancho, New Mexico Guaranty Federal Bank, FSB $ 6,255,000 Eugene, Oregon Wells Fargo $ 6,450,000 Roseville, California Key Bank $ 7,115,000 Tucson, Arizona Bank United of Texas, FSB $ 7,000,000 Henderson, Nevada Bank United of Texas, FSB Page 14 The Company has also received commitments or expressions of intent to provide the following construction financing: Amount Community Lender - ------ --------- ------ $15,000,000 Multiple locations * US National Bank of Oregon * This loan facility can be used for the construction of up to five Regent Court stand-alone Alzheimer's care communities. The Company has completed a total of five transactions with two real estate investment trusts pursuant to which the Company sold its Sunshine Villa community and obtained approximately $26.1 million of lease financing for its San Antonio, Clovis, and two Boise communities. Additional project financing of up to $174.5 million has been agreed to, in principal terms, between the Company and Meditrust, a healthcare real estate investment trust. The financing is divided into three facilities. The first provides up to $100 million in sale/leaseback financing for communities currently under construction and for acquisition of new communities. The second provides an additional $70 million in financing for future development and acquisition activities. The third is a $4.5 million line of credit available primarily for development related expenditures, including site acquisition. As of November 12, 1997, the outstanding balance on the line of credit totaled $2,232,205. 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 1997 will include additional land acquisition costs, architectural fees, and other development costs related to at least fourteen assisted living and Alzheimer's care communities and construction costs related to at least fifteen new assisted living and Alzheimer's care communities. The Company's plan to open at least fifteen "Regent" and five Regent Court communities between December 1995 and December 31, 1998, of which two Regent communities have opened, a third is awaiting licensure and ten more are under construction and are expected to open by the second quarter of 1998. The Company will likely require additional financing prior to construction of the two remaining Regent communities and the five Regent Court communities. Such financing may take the form of debt or equity, including a public or private debt or equity offering by either the Company or with respect solely to one or more new communities, or conventional bank financing, or the use of sale/leaseback financing from real estate investment trusts. 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, the performance of the Company's newly developed communities and existing properties, and the extent to which the Company engages in development activities for projects in addition to the 24 communities currently under varying stages of development or construction. 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 these 24 new communities by the second quarter of 1998 would likely be delayed or curtailed. Page 15 Forward-Looking Statements The information set forth in this report in the sections entitled "Overview" and "Liquidity and Capital Resources" regarding the Company's acquisition of sites for development, the Company's development, construction, financing, and opening of new assisted living communities, and the Company's plans to develop, construct, and operate new Regent Court communities constitute "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, and risks relating to the competitive environment for development. The foregoing risks could cause the Company to significantly delay or curtail its planned growth and could cause one or more of the Company's new communities to not be profitable. 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, and acceptance of the Company's prototype community in new geographic markets. The Company's growth strategy is subject to the risk that occupancy rates at newly-developed communities may not be achieved or sustained at expected levels, in which case the Company will experience greater than anticipated operating losses in connection with the opening of new communities and the Company's need for additional financing to meet its growth plans will likely increase. Furthermore, the Company's growth will place increasing pressure on the Company's management controls and require the Company to locate, train, assimilate, and retain additional community managers and support staff. There is no assurance that the Company will be able to successfully manage this growth. 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:/s/ STEVEN L. GISH Date: November 13, 1997 -------------------------------------------- Steven L. Gish Chief Financial Officer Page 16 EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF SEPTEMBER 30, 1997, AND THE RELATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS IN THE PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,643,373 0 329,582 27,000 0 4,241,464 49,150,281 451,040 56,588,888 4,481,157 32,495,996 10,808,703 0 9,349,841 (1,973,131) 56,588,888 10,082,807 10,224,298 7,015,759 11,888,289 0 0 101,228 (1,446,498) (24,500) (1,421,998) 0 0 0 (1,421,998) (.40) (.40)
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