-----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, V651f1s3Vp8c65i+8UjFejEwaNE4fkChkdNmW9UnSz9TjztgXHnEIWqYId4tZ9Xg orhxhyXmaxyQJ2+wQEZbIg== 0000893877-99-000539.txt : 19990817 0000893877-99-000539.hdr.sgml : 19990817 ACCESSION NUMBER: 0000893877-99-000539 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691626 BUSINESS ADDRESS: STREET 1: 121 SW MORRISON ST STREET 2: STE 1000 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032274000 MAIL ADDRESS: STREET 1: 121 SW MORRISON ST STREET 2: STE 1000 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 1934 For the Quarterly period ending June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 12, 1999 - 4,633,000 - -------------------------------------------------------------------------------- REGENT ASSISTED LIVING, INC. FORM 10-QSB June 30, 1999 INDEX ----- Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . 9 PART II- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .18 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .18 Page 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 1999 1998 (Unaudited) Current assets: Cash and cash equivalents $ 3,573,111 $ 4,483,048 Cash held in working capital escrow 911,741 734,408 Accounts receivable, net 403,640 287,483 Prepaid expenses 968,593 280,324 Construction advances receivable 217,918 481,819 ------------ ------------ Total current assets 6,075,003 6,267,082 Restricted cash 3,046,645 2,757,981 Property and equipment, net 51,652,170 54,191,324 Investment in and advances to joint venture 245,652 261,995 Other assets 2,557,840 2,795,374 ------------ ------------ Total assets $ 63,577,310 $ 66,273,756 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 414,168 $ 284,481 Construction accounts payable 396,703 608,585 Accounts payable and other accrued expenses 4,989,125 3,812,061 ------------ ------------ Total current liabilities 5,799,996 4,705,127 Long-term debt 40,199,695 40,704,567 Convertible subordinated notes 9,000,000 9,000,000 Deferred gains and development fees, net 7,006,451 6,022,773 Other liabilities 1,213,435 1,586,164 ------------ ------------ Total liabilities 63,219,577 62,018,631 ------------ ------------ Minority interest in consolidated subsidiary 108,295 - ------------ ------------ Commitments Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized; 1,666,667 shares issued and outstanding in 1999 and 1998 9,349,841 9,349,841 Common stock, no par value, 25,000,000 shares authorized; 4,633,000 shares issued and outstanding in 1999 and 1998 10,808,703 10,808,703 Accumulated deficit (19,909,106) (15,903,419) ------------ ------------ Total shareholders' equity 249,438 4,255,125 ------------ ------------ Total liabilities and shareholders' equity $ 63,577,310 $ 66,273,756 ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements.
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REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Unaudited) Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 Revenues: Rental and service $ 12,944,516 $ 6,641,931 $ 24,790,553 $ 10,858,511 Management fees 89,067 30,624 169,606 102,249 ------------- ------------- ------------- ------------- Total revenues 13,033,583 6,672,555 24,960,159 10,960,760 ------------- ------------- ------------- ------------- Operating expenses: Residence operating expenses 9,465,801 5,576,480 18,052,262 9,766,616 General and administrative 1,455,760 987,111 2,740,392 1,954,732 Lease expense 3,388,300 2,020,181 6,590,898 3,434,899 Depreciation and amortization 401,361 241,469 722,170 355,552 ------------- ------------- ------------- ------------- Total operating expenses 14,711,222 8,825,241 28,105,722 15,511,799 ------------- ------------- ------------- ------------- Operating loss (1,677,639) (2,152,686) (3,145,563) (4,551,039) Interest income 71,706 79,933 155,296 155,922 Interest expense (558,722) (430,597) (1,083,328) (495,012) Equity in losses of joint venture (27,027) (31,971) (113,343) (33,057) Other income (loss), net 457,008 11 451,269 (7,699) ------------- ------------- ------------- ------------- Loss before minority interest (1,734,674) (2,535,310) (3,735,669) (4,930,885) Minority interest 29,982 - 29,982 - ------------- ------------- ------------- ------------- Loss before income taxes (1,704,692) (2,535,310) (3,705,687) (4,930,885) Provision for income taxes - - - - ------------- ------------- ------------- ------------- Net loss (1,704,692) (2,535,310) (3,705,687) (4,930,885) Preferred stock dividends (150,000) (150,000) (300,000) (300,000) ------------- ------------- ------------- ------------- Net loss available to common shareholders $ (1,854,692) $ (2,685,310) $ (4,005,687) $ (5,230,885) ============= ============= ============= ============= Basic loss per common share $ (.40) $ (.58) $ (.86) $ (1.13) ============= ============= ============= ============= Diluted loss per common share $ (.40) $ (.58) $ (.86) $ (1.13) ============= ============= ============= ============= Weighted average common shares outstanding - basic 4,633,000 4,633,000 4,633,000 4,633,000 ============= ============= ============= ============= Weighted average common shares outstanding - diluted 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.
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REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended Six Months Ended June 30, 1999 June 30, 1998 Cash flows from operating activities: Net loss $ (3,705,687) $ (4,930,885) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 722,170 355,552 Gain on sale of assets (462,112) - Amortization of deferred gains and development fees (245,857) (144,821) Equity interest in joint venture 113,343 33,057 Minority interest (29,982) - Changes in other assets and liabilities: Cash held in working capital escrow 126,998 (53,480) Accounts receivable (116,157) (140,620) Prepaid expenses (723,269) (209,392) Other assets 372,728 (544,365) Accounts payable and other accrued expenses 1,177,064 513,906 Other liabilities (372,729) 546,865 ------------- ------------- Net cash used in operating activities (3,143,490) (4,574,183) ------------- ------------- Cash flows from investing activities: Purchases of property and equipment (10,406,072) (22,232,918) Increase (decrease) in construction accounts payable (211,882) 995,703 Investment in and advances to joint venture (97,000) (150,000) Proceeds from the sale of property and equipment 740,309 - Deposits to replacement reserve account, net 58,989 (22,254) ------------- ------------- Net cash used in investing activities (9,915,656) (21,409,469) ------------- ------------- Cash flows from financing activities: Short-term borrowings - (4,500,000) Proceeds from issuance of long-term debt 8,216,966 15,079,724 Payments on long-term debt (7,300,703) (31,426,443) Construction (advances) payments 385,988 (270,142) Payments and deposits for lease financing arrangements, net (229,199) (456,381) Restricted cash for lease financing arrangements, net (347,653) 30,704 Deferred development fees from lease financing arrangements 243,419 190,000 Proceeds from lease financing arrangements 11,342,114 43,021,271 Proceeds from issuance of convertible subordinated notes - 7,000,000 Contributions by minority interest 138,277 - Preferred stock dividends (300,000) (300,000) ------------- ------------- Net cash provided by financing activities 12,149,209 28,368,733 ------------- ------------- Net increase (decrease) in cash and cash equivalents (909,937) 2,385,081 Cash and cash equivalents, beginning of period 4,483,048 1,805,096 ------------- ------------- Cash and cash equivalents, end of period $ 3,573,111 $ 4,190,177 ============= ============= 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 including stand-alone Alzheimer's 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. As of June 30, 1999, the Company operated 27 assisted living communities in nine western states. Of the 27 communities, one is owned in a joint venture and accounted for under the equity method, and two are operated under management contracts. In addition, the Company had two communities awaiting licensure, three communities under construction and ten under development. During the six months ended June 30, 1999, the Company commenced operations at two new stand-alone Alzheimer's care communities (Regent Court), one in each calendar quarter. As of June 30, 1998, the Company operated 19 assisted living communities in eight states, including one under a management contract. During the six month period ended June 30, 1998, the Company commenced operations at seven new internally developed communities, and completed the lease-acquisition of four communities, one of which was managed prior to conversion to a lease. As of August 12, 1999, the Company had also commenced operations at its new internally developed 115-bed assisted living community in Scottsdale, Arizona and its 48-bed Regent Court community in Kent, Washington. Basis of Presentation The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Page 6 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 June 30, 1999, and for the three month and six month periods ended June 30, 1999 and 1998, have been prepared in conformity with generally accepted accounting principles. The financial information as of December 31, 1998, is derived from the Company's Form 10-KSB for the year ended December 31, 1998. 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 condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1998, included in the Company's Form 10-KSB for the year ended December 31, 1998. Operating results for the three month and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending December 31, 1999. 2. Property and Equipment: Property and equipment are stated at cost and consist of the following:
June 30, December 31, 1999 1998 Land $ 3,766,383 $ 3,057,756 Buildings and improvements 25,984,437 29,747,219 Furniture and equipment 3,382,882 3,452,579 Construction in progress 20,454,509 19,375,174 ------------ ------------ 53,588,211 55,632,728 Less accumulated depreciation and amortization 1,936,041 1,441,404 ------------ ------------ Total property and equipment, net $ 51,652,170 $ 54,191,324 ============ ============
Land, buildings, and certain furniture and equipment serve as collateral for long-term debt. Page 7 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. Administrative Services Agreement: Pursuant to the terms of an Administrative Services Agreement, the Company provides executive assistance, accounting and financial management services, legal and administrative assistance, insurance, management information services, and other management services as required by Bowen Property Management Co., Bowen Financial Services Corp., Bowen Development Company and Bowen Condominium Marketing, Inc., all of which are Oregon corporations that are wholly owned or controlled by Mr. Bowen, the Company's Chairman, President, and Chief Executive Officer. 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: Basic earnings per share (EPS) and diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per Share. Basic EPS is calculated using income (loss) attributable to common shares (after deducting preferred dividends) divided by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated using income (loss) attributable to common shares (after deducting preferred dividends and considering the effects of dilutive common equivalent shares) divided by the weighted average number of common shares and dilutive common shares outstanding for the period. Basic and diluted earnings (loss) per common share includes a deduction of preferred stock dividends declared, which totaled $150,000 and $300,000 for the three month and six month periods ended June 30, 1999 and 1998, respectively. Page 8 ITEM 2. Management's Discussion and Analysis or Plan of Operation. Overview The Company The Company reported revenue of $13.0 million and a net loss of $1.7 million for the three month period ended June 30, 1999. For the six month period ended June 30, 1999, the Company reported revenue of $25.0 million and a net loss of $3.7 million. After deducting preferred stock dividends, net loss per share available to common shareholders on a diluted basis was $.40 and $.86 for the three month and six month periods, respectively. Current Communities. The table below sets forth certain information regarding the Company's communities at June 30, 1999.
Operations Community Location Commenced Units(1) Beds(2) Interest - --------- -------- --------- -------- ------- -------- Oregon Park Place Portland 1986 112 112 Lease (3) Regency Park Portland 1987 122 141 Lease Regent Court Clackamas 1999 24 48 Lease Sheldon Park Eugene 1998 108 124 Lease Washington Northshore House Kenmore 1998 85 98 Manage (4) Sterling Park Redmond 1990 162 192 Lease California Laurel Springs Bakersfield 1998 113 127 Own Orchard Park Clovis 1998 112 128 Lease Regent Court Modesto 1999 24 48 Own (5) Summerfield House Vacaville 1998 109 126 Own Sun Oak Citrus Heights 1997 40 50 Manage Sunnyside Court Fremont 1998 40 78 Lease Sunshine Villa Santa Cruz 1990 106 126 Lease (6) The Palms Roseville 1998 93 108 Lease Villa Serra Salinas 1998 150 150 Manage Willow Creek Folsom 1997 104 117 Lease Idaho West Wind Boise 1997 48 52 Own (7) Willow Park Boise 1997 117 134 Lease Nevada Mira Loma Henderson 1998 115 133 Lease New Mexico Sandia Springs Rio Rancho 1998 109 126 Lease Texas Parmer Woods Austin 1998 117 137 Lease (8) Hamilton House San Antonio 1997 116 135 Lease Page 9 Operations Community Location Commenced Units(1) Beds(2) Interest - --------- -------- --------- -------- ------- -------- Arizona Canyon Crest Tucson 1998 117 137 Lease Regent Court Scottsdale 1998 24 48 Lease Wyoming Aspen Wind Cheyenne 1998 77 77 Lease Meadow Wind Casper 1998 53 53 Lease Spring Wind Laramie 1998 53 53 Lease Totals 2,450 2,858 ===== ===== (1) A "unit" is a single- or double-occupancy studio, one or two bedroom apartment. (2) "Beds" reflects the actual number of beds used by the Company for census purposes, which in no event is a number greater than the maximum number of licensed beds permitted under the community's license. (3) The Company completed a lease-acquisition of Park Place during the second quarter of 1998. The Company previously managed this community. (4) The Company owns a 50 percent interest in a joint venture, which owns this community. (5) In April 1999, the Company sold a 45 percent co-tenancy interest in this community. (6) This community was sold in a prior period pursuant to a sale-leaseback transaction and is accounted for as a capital lease. (7) The Company purchased West Wind in June 1999. Previously, this community was operated pursuant to a lease arrangement. (8) The Company completed a sale-leaseback transaction of its Austin community in February 1999.
During the third quarter of 1999, the Company commenced operations at its 115-bed assisted living community in Scottsdale, Arizona and 48-bed Regent Court community in Kent, Washington. The Company owns a 10 percent interest in a joint venture, which owns the Kent community. As of August 12, 1999, the Company had commenced construction on the following three new communities:
Scheduled Community Location Opening Units Beds Interest - --------- -------- ---------------- -------- ------- -------- Oregon Regent Court Corvallis 1st quarter 2000 24 48 Own California Villa de Palma West Covina 2nd quarter 2000 130 142 Lease Arizona Citrus Park Mesa 3rd quarter 2000 112 132 Lease --- --- Totals 266 322 === ===
Page 10 As of August 12, 1999, ten additional new communities were under varying stages of development. If all ten communities are developed, total operations of the Company will increase by approximately 960 beds to a total of approximately 4,300 beds. 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. Operating results for the three month and six month periods ended June 30, 1999, are not necessarily indicative of future financial performance as the Company intends to continue expanding its operating base of communities. Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 Revenues. For the three month period ended June 30, 1999, revenues totaled $13.0 million compared to $6.7 million in the three month period ended June 30, 1998, an increase of $6.3 million or 95.3 percent. During the second quarter of 1999, the Company operated 27 communities comprised of five stabilized communities, 19 newly developed or acquired communities, and three communities operated pursuant to management contracts, of which one is owned in a joint venture and accounted for under the equity method. The Company operated 19 communities during the second quarter of 1998, comprised of five stabilized communities, including one acquired in May 1998 which was managed prior to conversion to a lease, 13 newly developed or acquired communities, and one operated pursuant to a management contract. A community is considered "stabilized" for reporting purposes after it first attains occupancy of 95.0 percent and prior to that time is considered "newly developed." During the second quarter of 1999, revenues from "Same Residences," the twelve communities that the Company operated at the beginning of both periods, comprised of four stabilized and eight newly developed or acquired communities, increased by $2.7 million over the second quarter of 1998. Revenues from the remaining eleven newly developed or acquired communities in operation during the second quarter of 1999, compared to revenues from the remaining five newly developed or acquired communities in operation during the second quarter of 1998, increased by $3.3 million. In addition, revenues for the comparable periods increased $0.3 million from the one stabilized community the Company acquired in May 1998. Occupancy at the twelve Same Residences was 81.4 percent for the three month period ended June 30, 1999, compared to 54.4 percent for the same period in 1998. Occupancy at the Company's five stabilized communities was 94.9 percent for the three month period ended June 30, 1999. Residence Operating Expenses. Residence operating expenses were $9.5 million for the three month period ended June 30, 1999, and $5.6 million for the same period in 1998, an increase of $3.9 million or 69.7 percent. Residence operating expenses from Same Residences during the second quarter of 1999 increased by $1.4 million over the second quarter of 1998. This increase was primarily attributable to the increased level of operations at the eight newly developed or acquired communities operated at the beginning of both periods. In addition, residence operating expenses for the current period include $3.2 million of start-up operating expenses and pre-opening costs related to twelve newly developed or acquired communities, whereas, the prior period included $0.9 million of start-up operating expenses and pre-opening costs related to seven communities. Also, operating expenses increased $0.2 million from the stabilized community acquired in May of 1998. Residence operating expenses from same residences totaled 68.0 percent and 75.7 percent of rental and service revenues for the three month periods ended June 30, 1999 and 1998, respectively. Residence operating expenses for all stabilized communities totaled 64.2 percent and 64.0 percent of rental and service revenues for the three month periods ended June 30, 1999 and 1998, respectively. Page 11 General and Administrative Expenses. General and administrative expenses were $1.5 million for the three month period ended June 30, 1999, compared to $1.0 million for the three month period ended June 30, 1998. The increase of $0.5 million is due primarily to the increase in operations related to the implementation of the Company's plan for growth. Lease Expense. Lease expense for the Company's leased communities was $3.4 million for the three month period ended June 30, 1999, compared to $2.0 million for the same period in 1998. The increase of $1.4 million relates primarily to the opening and sale-leaseback of newly developed communities and the lease-acquisition of several additional communities. Depreciation and Amortization. Depreciation and amortization expense was $0.4 million for the three month period ended June 30, 1999, compared to $0.2 million for the three month period ended June 30, 1998. The increase of $0.2 million relates primarily to the opening of newly developed communities. Interest Income. Interest income is earned from the Company's investment of cash and cash equivalents in high quality, short term securities placed with institutions with high credit ratings. Interest Expense. Interest expense increased for the three month period ended June 30, 1999, to $0.6 million from $0.4 million for the three month period ended June 30, 1998. The Company capitalized $0.5 million and $0.7 million of interest charges incurred during the three months ended June 30, 1999, and 1998, respectively. Capitalized interest decreased due to a reduction in development and construction activity during the current quarter as compared to the same period a year ago. Equity in Losses of Joint Venture. Equity in losses of joint venture resulted from the operations of the Company's 50 percent owned Kenmore, Washington community, which opened in the third quarter of 1998. Other Income (Loss), Net. In the second quarter of 1999, the Company sold a 45 percent co-tenancy interest in its Modesto community. The Company recognized a $0.5 million gain as a result of the sale. Net Income (Loss). Net operating results increased by $0.8 million during the three month period ended June 30, 1999, compared to the same period in 1998. The Company reported a loss of $1.7 million for the second quarter of 1999, whereas the Company reported a loss of $2.5 million for the second quarter of 1998. The increase in net results is primarily due to an increase in residence operating profits (rental and service revenue less residence operating expenses) of $2.4 million and an increase in other income of $0.5 million offset by increases in general and administrative expenses, lease expense, depreciation, and interest expense as discussed above. Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Revenues. For the six month period ended June 30, 1999, revenues totaled $25.0 million compared to $11.0 million in the six month period ended June 30, 1998, an increase of $14.0 million or 127.7 percent. During the first six months of 1999, the Company operated 27 communities comprised of five stabilized communities, 19 newly developed or acquired communities, and three communities operated pursuant to management contracts, of which one is owned in a joint venture and accounted for under the equity method. The Company operated 19 communities during the first six months of 1998, comprised of five stabilized communities, including one acquired in May 1998 which was managed prior to conversion to a lease, 13 newly developed or acquired communities, and one operated pursuant to a management contract. Page 12 During the first six months of 1999, revenues from Same Residences, the six communities that the Company operated at the beginning of both periods and comprised of four stabilized and two newly developed communities, increased by $1.6 million over the same period in 1998. Of this increase, $1.4 million was from the two newly developed communities. Revenues from the remaining 17 newly developed or acquired communities in operation during the first six months of 1999, compared to revenues from the remaining eleven newly developed communities in operation during the first six months of 1998, increased by $11.2 million. In addition, revenues for the comparable periods increased $1.1 million from the one stabilized community the Company acquired in May 1998. Occupancy at the six Same Residences was 87.9 percent for the six month period ended June 30, 1999, compared to 73.0 percent for the same period in 1998. Occupancy at the Company's five stabilized communities was 95.0 percent for the six month period ended June 30, 1999. Residence Operating Expenses. Residence operating expenses were $18.1 million for the six month period ended June 30, 1999, and $9.8 million for the same period in 1998, an increase of $8.3 million or 84.8 percent. Residence operating expenses from Same Residences during the first six months of 1999 increased by $0.7 million over the first six months of 1998. This increase was primarily attributable to the increased level of operations at the two newly developed communities operated at the beginning of both periods. In addition, residence operating expenses for the current period include $10.7 million of start-up operating expenses and pre-opening costs related to 18 newly developed or acquired communities, whereas, the prior period included $3.9 million of start-up operating expenses and pre-opening costs related to 13 communities. Also, operating expenses increased $0.7 million from the stabilized community acquired in May of 1998. Residence operating expenses from Same Residences totaled 64.7 percent and 68.3 percent of rental and service revenues for the six month periods ended June 30, 1999 and 1998, respectively. Residence operating expenses for all stabilized communities totaled 63.3 percent and 64.4 percent of rental and service revenues for the six month periods ended June 30, 1999, and 1998, respectively. General and Administrative Expenses. General and administrative expenses were $2.7 million for the six month period ended June 30, 1999, compared to $2.0 million for the six month period ended June 30, 1998. The increase of $0.7 million is due primarily to the increase in operations related to the implementation of the Company's strategy for growth. Lease Expense. Lease expense for the Company's leased communities was $6.6 million for the six month period ended June 30, 1999, compared to $3.4 million for the same period in 1998. The increase of $3.2 million relates primarily to the opening and sale-leaseback of newly developed communities and the lease-acquisition of several additional communities. Depreciation and Amortization. Depreciation and amortization expense was $0.7 million for the six month period ended June 30, 1999, compared to $0.4 million for the six month period ended June 30, 1998. The increase of $0.3 million relates primarily to the opening of newly developed communities. Interest Expense. Interest expense increased for the six month period ended June 30, 1999, to $1.1 million from $0.5 million for the six month period ended June 30, 1998. Interest expense related to the operation of newly opened communities increased $0.2 million in the current period as compared to the same period in the prior year. In addition, the Company incurred an additional $0.2 million of interest in the six month period ended June 30, 1999, related to convertible subordinated notes that were issued after the first quarter of 1998. The Company capitalized $0.9 million and $1.8 million of interest charges incurred during the six months ended June 30, 1999, and 1998, respectively. Capitalized interest decreased due to a reduction in development and construction activity during the current six month period as compared to the same period a year ago. Page 13 Net Income (Loss). Net operating results increased by $1.2 million during the six month period ended June 30, 1999, compared to the same period in 1998. The Company reported a loss of $3.7 million for the six month period ended June 30, 1999, whereas the Company reported a loss of $4.9 million for the six month period ended June 30, 1998. The increase in net results is primarily due to an increase in residence operating profits (rental and service revenue less residence operating expenses) of $5.6 million and an increase in other income of $0.5 million offset by an increase in general and administrative expenses, an increase in lease expense, an increase in depreciation expense, and an increase in interest expense as discussed above. Liquidity and Capital Resources At June 30, 1999, the Company had $0.3 million of working capital, compared to working capital of $1.6 million at December 31, 1998, a decrease of $1.3 million. The Company's growth in operating capacity resulted in an increase in net current liabilities which reduced working capital. Cash and cash equivalents decreased by $0.9 million (as described below), however, cash held in working capital escrow increased by $0.2 million. Net cash used in operating activities totaled $3.1 million for the six month period ended June 30, 1999, which resulted primarily from a net loss of $3.7 million, adjusted $0.1 million for non-cash items (depreciation, amortization and gain on sale of assets), offset by an increase in net current liabilities of $0.5 million. Net cash used in investing activities totaled $9.9 million for the six month period ended June 30, 1999, consisting primarily of land acquisition, development, and construction costs offset by the proceeds of the sale of a 45 percent interest in a community of $0.7 million. At June 30, 1999, the aggregate purchase price for two parcels of land for which the Company had purchase options was approximately $1.8 million. The Company has paid initial deposits relating to these sites and is in the process of completing the demographic analysis and other preliminary due diligence for purposes of developing assisted living communities at these sites. Net cash provided by financing activities totaled $12.1 million during the six month period ended June 30, 1999, consisting of property and equipment financing proceeds totaling $8.2 million, net proceeds from lease-financing arrangements totaling $11.4 million, offset by repayment of long-term debt of $7.3 million, and payment of preferred stock dividends of $0.3 million. During June 1999, the Company entered into a $10.1 million arrangement with a REIT pursuant to which the Company is constructing its Mesa, Arizona community. The sale of the land has been recorded as a capital lease. Upon completion, the Company will lease the community pursuant to a long-term lease arrangement. The Company generated $1.5 million of cash available for general working capital requirements as a result of the sale. During July 1999, the Company closed a $3.4 million loan for the construction of the Corvallis community. The Company has sufficient financing to complete this community and to fund its anticipated initial operating deficit during 2000. Under two transactions involving the Company's Chairman, President and Chief Executive Officer, the Company has agreed to terms of a sale/manage-back of its 115-bed Scottsdale, Arizona community and the reduction of certain long-term debt. As a result of these transactions, the Company will reduce outstanding debt by $8.8 million and generate approximately $1.1 million of cash available for general working capital requirements. These transactions are expected to close in August 1999. Page 14 During the remainder of 1999, the Company intends to utilize current working capital resources primarily for operating requirements. At June 30, 1999, the Company had capitalized costs totaling approximately $20.1 million related to communities under construction or development, encumbered by $10.4 million in outstanding debt. The Company intends to finance substantially all of the remaining costs of developing each new community through additional sale-leaseback transactions with real estate investment trusts ("REIT"), joint venture arrangements, as well as conventional financing with commercial banks and other financial institutions. The Company anticipates capital expenditures for 1999 may include certain additional land acquisition costs, architectural fees, and other development costs related to at least ten assisted living communities. The Company anticipates commencing construction on as many as five communities during 1999. The total cost to develop and construct the five communities, including the estimated initial operating deficits, will likely be between $42 million to $47 million. A substantial portion of these costs may be incurred during 1999. The Company is currently discussing with commercial banks and REITs the terms of potential financing with which the Company will construct new communities currently under development. 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. Provided that the Company can obtain financing upon acceptable terms, the Company estimates that it has the necessary equity capital invested in seven of these ten communities in order to complete construction and to fund the initial operating deficits. The Company may require additional equity capital to complete the final three communities. The Company may enter into additional arrangements with one or more unrelated parties regarding the joint development and ownership of one or more of the Company's communities currently under construction or development in order to further leverage the Company's growth. Furthermore, the Company may utilize various forms of financing that would permit a community to be sold to or initially developed by a third party who would incur the initial operating deficits and permit the Company to manage the community for a customary fee. The Company, under such financing methods, would likely have the option to either purchase the community or enter into a long-term lease at such time as the Company deems appropriate. The Company has not obtained any commitments for this form of financing. If the Company was unable to obtain additional required financing, or if such financing is not available on acceptable terms, the Company expects that its plan to commence construction of up to ten additional communities by the end of 1999 would likely be delayed or curtailed. Furthermore, if the Company expands its growth plan, development activities do not result in the construction of a community on a site, the Company experiences a decline in the operations of its current communities or the Company does not achieve and sustain anticipated occupancy levels at its new communities, then the Company may require additional financing to complete its growth plan. Certain of the Company's operating lease agreements contain restrictive covenants. As of June 30, 1999, the Company was in compliance with the covenants for all lease agreements. The Company does not presently intend to pay dividends to holders of its Common Stock and intends to retain future earnings to finance the development of assisted living communities and expand its business. Page 15 Year 2000 Disclosure "Year 2000 issues" relate to the result of computer programs having been written using two digits rather than four to define the applicable year. Computer programs and electronic devices that utilize date sensitive software or information may recognize a date using the "00" as the year 1900 rather than the year 2000. This recognition could result in a system failure or miscalculations causing disruptions of operations or the inability of suppliers of material services and products to continue supporting the Company's operations. The Company has assessed its readiness in regard to Year 2000 issues. The Company believes that all material hardware and software utilized in its operations and, specifically, in its accounting systems, is Year 2000 compliant or that Year 2000 compliant versions are available to the Company for installation during the normal course of replacing or updating such systems prior to November 30, 1999. The financial impact of any change is not anticipated to be material to the financial position, cash flows or results of the Company's operations. The Company believes it has adequate alternatives to counteract potential Year 2000 issues that may arise with its internally utilized software and hardware if the assurances of relevant vendors are incorrect. The Company has received assurances from several utility suppliers and banks that their systems are Year 2000 compliant. Nonetheless, the Company believes the primary risks from Year 2000 issues to its operations and prospects are the potential inability of utility companies to continue supplying utilities to the Company's communities. The Company does not have a contingency plan in effect at this time to guard against such events. The Company is in the process of obtaining Year 2000 compliance letters and reports from suppliers of material services and products. To date, no such supplier has indicated an inability to continue supplying material products and services to the Company after January 1, 2000, although most are in the process of evaluating and updating their internal systems and cannot yet assure the Company that their systems are Year 2000 compliant. Nonetheless, the Company does not expect that Year 2000 issues will have a material adverse effect upon the Company's operations or prospects. However, there can be no assurances that the systems of other companies on which the Company's operations or systems rely will be timely remediated or that a failure by another company to remediate its systems in a timely manner would not have a material adverse effect on the Company. Page 16 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 manage this growth successfully. Page 17 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Company held its 1999 annual meeting of shareholders at 11:00 a.m., PDT, on May 25, 1999, on the 30th Floor of the U.S. Bancorp Tower, 111 S.W. Fifth Avenue, Portland, Oregon. The only matter submitted to a vote of the shareholders was the election of three directors. Proxies were solicited pursuant to Regulation 14A of the Exchange Act. The following persons were elected by the following vote as directors for the stated terms: Class III Term Expiring in 2002 FOR ABSTAIN - ------------------------------- --------- ------- Walter C. Bowen 4,648,541 2,000 Marvin S. Hausman 4,648,541 2,000 Gary R. Maffei 4,648,541 2,000 Item 6. Exhibits and Reports on Form 8-K. Exhibits: 27 Financial Data Schedule Reports on Form 8-K None 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: August 13, 1999 ------------------------------ Steven L. Gish Chief Financial Officer Page 18 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION - ----------- ------------------- 27. Financial Data Schedule Page 19 EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF JUNE 30, 1999, AND THE RELATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS IN THE PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 3,573,111 0 658,558 37,000 0 6,075,003 53,588,211 1,936,041 63,577,310 5,799,996 49,199,695 10,808,703 0 9,349,841 (19,909,106) 63,577,310 24,790,553 24,960,159 18,052,262 28,105,722 0 0 1,083,328 (3,705,687) 0 (3,705,687) 0 0 0 (3,705,687) (.86) (.86)
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