-----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, CGdsBoenbGkmD0Ez1ULgBuQUV4/Qi7xYaWVj9wWZiiIHsA7R40BbTTl+gNrbIAOA 7E9PRnZeDpPdwmV0p0ngIg== /in/edgar/work/20000815/0001025894-00-000235/0001025894-00-000235.txt : 20000922 0001025894-00-000235.hdr.sgml : 20000921 ACCESSION NUMBER: 0001025894-00-000235 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENT ASSISTED LIVING INC CENTRAL INDEX KEY: 0001000693 STANDARD INDUSTRIAL CLASSIFICATION: [8051 ] IRS NUMBER: 931171049 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27108 FILM NUMBER: 702024 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 10-Q 1 0001.txt QUARTERLY REPORT ---------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended June 30, 2000 [__] 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.) 121 SW Morrison St., Suite 1000 Portland, Oregon 97204 (Address of principal executive offices) (Zip Code) 503-227-4000 (Registrant's telephone number, including area code) Indicate 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 [ ] --- --- As of August 14, 2000, there were 4,507,600 shares of the Registrant's Common Stock, no par value, outstanding ---------------------------------------------------- REGENT ASSISTED LIVING, INC. FORM 10-Q June 30, 2000 INDEX ----- Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2000 and 1999. . . . . .. . . . 4 Condensed Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2000 and 1999. . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . 21 PART II - OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 22 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 22 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 23 Signature 24 Page 2
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2000 1999 (Unaudited) Current assets: Cash and cash equivalents $ 3,102,695 $ 4,537,839 Cash held in working capital escrow 180,175 404,598 Accounts receivable, net 555,090 723,081 Prepaid expenses 824,168 739,569 Construction advances receivable 240,908 235,706 Land held for sale 2,835,000 2,860,000 --------------- --------------- Total current assets 7,738,036 9,500,793 Restricted cash 3,122,735 2,916,182 Property and equipment, net 49,886,825 46,900,983 Investment in and advances to joint ventures 743,350 383,114 Other assets 3,193,964 2,985,291 --------------- --------------- Total assets $ 64,684,910 $ 62,686,363 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 2,343,835 $ 2,266,919 Construction accounts payable 466,037 463,136 Accounts payable and other accrued expenses 6,058,336 5,343,587 --------------- --------------- Total current liabilities 8,868,208 8,073,642 Long-term debt 36,293,223 32,275,189 Convertible subordinated notes 9,000,000 9,000,000 Deposits under sales contract 10,356,905 10,194,342 Deferred gains and development fees, net 6,450,600 6,714,156 Other liabilities 1,376,176 1,387,250 --------------- --------------- Total liabilities 72,345,112 67,644,579 --------------- --------------- Minority interests in consolidated subsidiaries 281,875 352,389 --------------- --------------- Commitments Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized; 1,666,667 shares issued and outstanding in 2000 and 1999 9,349,841 9,349,841 Common stock, no par value, 25,000,000 shares authorized; 4,507,600 shares issued and outstanding in 2000 and 1999 10,619,349 10,619,349 Accumulated deficit (27,911,267) (25,279,795) --------------- --------------- Total shareholders' equity (7,942,077) (5,310,605) --------------- --------------- Total liabilities and shareholders' equity $ 64,684,910 $ 62,686,363 =============== =============== 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 Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 Revenues: Rental and service $ 15,744,615 $ 12,944,516 $ 31,066,009 $ 24,790,553 Management fees 194,809 89,067 396,255 169,606 ------------ ------------ ------------ ------------ Total revenues 15,939,424 13,033,583 31,462,264 24,960,159 ------------ ------------ ------------ ------------ Operating expenses: Residence operating expenses 10,803,385 9,465,801 21,145,884 18,052,262 General and administrative 1,831,163 1,455,760 3,283,984 2,740,392 Lease expense 3,461,380 3,388,300 6,902,444 6,590,898 Depreciation and amortization 414,144 401,361 826,399 722,170 ------------ ------------ ------------ ------------ Total operating expenses 16,510,072 14,711,222 32,158,711 28,105,722 ------------ ------------ ------------ ------------ Operating loss (570,648) (1,677,639) (696,447) (3,145,563) Interest income 112,315 71,706 226,194 155,296 Interest expense (875,020) (558,722) (1,732,622) (1,083,328) Equity in losses of joint venture (73,819) (27,027) (168,414) (113,343) Other income (loss), net 255 457,008 (5,697) 451,269 ------------ ------------ ------------ ------------ Loss before minority interest (1,406,917) (1,734,674) (2,376,986) (3,735,669) Minority interest 37,431 29,982 70,514 29,982 ------------ ------------ ------------ ------------ Loss before income taxes (1,369,486) (1,704,692) (2,306,472) (3,705,687) Provision for income taxes - - - - ------------ ------------ ------------ ------------ Net loss (1,369,486) (1,704,692) (2,306,472) (3,705,687) Preferred stock dividends (175,000) (150,000) (325,000) (300,000) ------------ ------------ ------------ ------------ Net loss available to common shareholders $ (1,544,486) $ (1,854,692) $ (2,631,472) $ (4,005,687) ============ ============ ============ ============ Basic loss per common share $ (.34) $ (.40) $ (.58) $ (.86) ============ ============ ============ ============ Diluted loss per common share $ (.34) $ (.40) $ (.58) $ (.86) ============ ============ ============ ============ Weighted average common shares outstanding - basic 4,507,600 4,633,000 4,507,600 4,633,000 ============ ============ ============ ============ Weighted average common shares outstanding - diluted 4,507,600 4,633,000 4,507,600 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) Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 Cash flows from operating activities: Net loss $ (2,306,472) $ (3,705,687) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 826,399 722,170 Loss (gain) on sale of assets 104 (462,112) Amortization of deferred gains and development fees (263,556) (245,857) Equity interest in joint ventures 168,414 113,343 Minority interests (70,514) (29,982) Changes in other assets and liabilities: Cash held in working capital escrow 224,423 126,998 Accounts receivable 221,414 (116,157) Prepaid expenses (84,599) (723,269) Other assets 11,074 372,728 Accounts payable and other accrued expenses 389,749 1,177,064 Other liabilities (11,074) (372,729) ------------- ------------- Net cash used in operating activities (894,638) (3,143,490) ------------- ------------- Cash flows from investing activities: Purchases of property and equipment (4,412,835) (10,406,072) Increase (decrease) in construction accounts payable 2,901 (211,882) Investment in and advances to joint venture - (97,000) Proceeds from the sale of property and equipment 25,000 740,309 Deposits to replacement reserve account, net (35,739) 58,989 ------------- ------------- Net cash used in investing activities (4,420,673) (9,915,656) ------------- ------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 4,318,900 8,216,966 Payments on long-term debt (223,950) (7,300,703) Construction (advances) payments (5,202) 385,988 Payments and deposits for financing arrangements, net (201,330) (229,199) Restricted cash for financing arrangements, net (170,814) (347,653) Deferred development fees from lease financing arrangements - 243,419 Proceeds from lease financing arrangements - 11,342,114 Proceeds from sales contract 162,563 - Contributions by minority interest - 138,277 Preferred stock dividends - (300,000) ------------- ------------- Net cash provided by financing activities 3,880,167 12,149,209 ------------- ------------- Net decrease in cash and cash equivalents (1,435,144) (909,937) Cash and cash equivalents, beginning of period 4,537,839 4,483,048 ------------- ------------- Cash and cash equivalents, end of period $ 3,102,695 $ 3,573,111 ============ ============ Supplemental disclosure of non-cash investing and financing activities during the six months ended June 30, 2000: Transfer of property and equipment with a cost of $653,423 in exchange for investment in joint venture of $600,000 and receivable from joint venture of $53,423. Receivable in joint venture of $71,350 for developer fee. Preferred stock dividends accrued $325,000. 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, 2000, the Company operated 31 assisted living communities in nine western states. Of the 31 communities, three are owned in joint ventures and accounted for under the equity method, and four are operated under management contracts. As of June 30, 1999, the Company operated 27 assisted living communities in nine western states including one owned in a joint venture and accounted for under the equity method and two operated under management contracts. 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. The accompanying unaudited condensed consolidated financial statements as of June 30, 2000, and for the three and six month periods ended June 30, 2000 and 1999, have been prepared in conformity with accounting principles generally accepted in the United States. The financial information as of December 31, 1999, is derived from the Company's Form 10-K for the year ended December 31, 1999. Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying condensed consolidated 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 Page 6 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. Operations and Summary of Significant Accounting Policies (continued) conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1999, included in the Company's Form 10-K for the year ended December 31, 1999. Operating results for the three and six month periods ended June 30, 2000, are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending December 31, 2000. 2. Property and Equipment: Property and equipment are stated at cost and consist of the following: June 30, December 31, 2000 1999 ---- ---- Land $ 5,364,716 $ 5,364,716 Buildings and improvements 33,524,320 33,332,546 Furniture and equipment 4,390,026 4,289,447 Construction in progress 10,035,641 6,572,177 ------------- ------------- 53,314,703 49,558,886 Less accumulated depreciation and amortization (3,427,878) (2,657,903) ------------- ------------- Property and equipment, net $ 49,886,825 $ 46,900,983 ============= ============= 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. Earnings (Loss) Per Common Share: Basic earnings per share (EPS) and diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standards (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 $175,000 and $325,000 for the three month and six month periods ended June 30, 2000, and $150,000 and $300,000 for the three month and six month periods ended June 30, 1999. 4. Recent Accounting Pronouncements In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB 101) and further amended it to defer the effective date. This pronouncement summarizes certain of the SEC Staff's views on applying generally accepted accounting principles to revenue recognition. The Company is required to adopt the provisions of SAB 101 no later than December 31, 2000. The Company does not expect the adoption of SAB 101 to have a material impact on its financial statements. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44) which provides interpretive guidance on several implementation issues related to Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." The Company is required to adopt the provisions of FIN 44 in the third quarter of 2000. The Company does not expect the adoption of FIN 44 to have a material impact on its financial statements. Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company The Company reported revenue of $15.9 million and a net loss of $1.4 million for the quarter ended June 30, 2000. For the six month period ended June 30, 2000, the Company reported revenue of $31.5 million and a net loss of $2.3 million. After deducting preferred stock dividends, net loss per share available to common shareholders on a diluted basis was $.34 and $.58 for the three and six month periods, respectively. Current Communities. The table below sets forth certain information regarding the Company's communities at June 30, 2000: Regent Operations Community Location Commenced Units(1) Beds(2) Interest - --------- -------- ---------- ----- ---- -------- Oregon Park Place Portland 1986 112 112 Lease Regency Park Portland 1987 122 136 Lease Regent Court Clackamas 1999 24 48 Lease Regent Court Corvallis 2000 24 48 Manage(3) Sheldon Park Eugene 1998 105 117 Lease Washington Northshore House Kenmore 1998 85 92 Manage(4) Regent Court Kent 1999 24 48 Manage(5) Sterling Park Redmond 1990 154 175 Lease California Laurel Springs Bakersfield 1998 111 124 Own Orchard Park Clovis 1998 112 124 Lease Regent Court Modesto 1999 24 48 Own(6) Summerfield House Vacaville 1998 109 122 Own Sun Oak Citrus Heights 1997 40 50 Manage Sunnyside Court Fremont 1998 39 45 Lease Sunshine Villa Santa Cruz 1990 106 124 Lease(7) The Altenheim Oakland 2000 136 140 Manage The Palms Roseville 1998 93 104 Lease Villa Serra Salinas 1998 150 150 Manage Willow Creek Folsom 1997 98 113 Lease Page 9 Regent Operations Community Location Commenced Units(1) Beds(2) Interest - --------- -------- ---------- ----- ---- -------- Idaho West Wind Boise 1997 48 51 Own(8) Willow Park Boise 1997 106 120 Lease Nevada Mira Loma Henderson 1998 113 126 Lease New Mexico Sandia Springs Rio Rancho 1998 107 120 Lease Texas Hamilton House San Antonio 1997 111 123 Lease Parmer Woods Austin 1998 114 130 Lease(9) Arizona Canyon Crest Tucson 1998 116 132 Lease Desert Flower Scottsdale 1999 102 108 Manage(10) Regent Court Scottsdale 1998 24 44 Lease Wyoming Aspen Wind Cheyenne 1998 77 77 Lease Meadow Wind Casper 1998 51 51 Lease Spring Wind Laramie 1998 53 53 Lease --- --- Totals: 2,690 3,055 ===== ===== As of August 14, 2000, construction had commenced on the following five communities: Community Location Scheduled Opening Units(1) Beds(2) Interest - --------- -------- ----------------- ----- ---- -------- California Regent Assisted Merced 1st quarter 2001 72 83 Own(11) Living West Covina West Covina 4th quarter 2000 130 142 Lease Gardens Arizona Citrus Park Mesa 4th quarter 2000 111 127 Lease Page 10 Community Location Scheduled Opening Units(1) Beds(2) Interest - --------- -------- ----------------- ----- ---- -------- Utah Regent Assisted South Ogden 1st quarter 2001 104 113 Own Living Regent Assisted Salt Lake City 3rd quarter 2001 107 116 Manage(12) Living --- --- 524 581 === === (1) A "unit" is a single- or double-occupancy studio or 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 owns a 40 percent interest in a joint venture which owns the Corvallis community. (4) The Company owns a 50 percent interest in a joint venture which owns the Kenmore community. (5) The Company owns a 10 percent interest in a joint venture which owns the Kent community. (6) The Company owns a 55 percent co-tenancy interest in the Modesto community. (7) The Company sold the Santa Cruz community in a prior period pursuant to a sale-leaseback transaction and is accounted for as a capital lease. (8) The Company purchased West Wind in June 1999. Previously, this community was operated pursuant to a lease arrangement. (9) The Company completed a sale-leaseback transaction of its Austin community in February 1999. (10) The Company's Chairman and Chief Executive Officer purchased Desert Flower in September 1999 pursuant to a sale-manageback transaction accounted for under the deposit method. Page 11 (11) The Company owns a 75 percent interest in a joint venture which owns the Merced community. (12) The Company owns a 50 percent interest in a joint venture which owns the Salt Lake City community. As of August 14, 2000, the Company has entered into an agreement to manage a 73-bed community being developed by a third party and has three additional new communities in varying stages of development. If all three communities are developed, total operations of the Company will increase by approximately 295 beds to a total of approximately 4,000 beds. The Company continues to pursue its primary strategy of developing new communities and is therefore engaged in negotiations to acquire additional sites and is pursuing joint venture opportunities with parties who control parcels of land in strategic markets. There is no assurance that the Company will be able to develop successfully any of the sites it has acquired or will in the future acquire. Page 12 Results of Operations The following table sets forth, for the periods indicated, the percentage of total revenues represented by certain items included in the Company's condensed consolidated financial statements.
Percentage of Revenues Percentage of Revenues Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues 100.0 % 100.0 % 100.0 % 100.0 % Expenses: Residence operating expenses 67.8 72.6 67.2 72.3 General and administrative expenses 11.5 11.2 10.4 11.0 Lease expense 21.7 26.0 22.0 26.4 Depreciation and amortization 2.6 3.1 2.6 2.9 -------- -------- -------- -------- Total operating expense 103.6 112.9 102.2 112.6 Operating loss (3.6) (12.9) (2.2) (12.6) Other income (expense): Interest income 0.7 0.6 0.7 0.6 Interest expense, net (5.4) (4.2) (5.5) (4.3) Equity in losses of joint ventures (0.5) (0.2) (0.5) (0.4) Other income, net - 3.5 - 1.8 -------- -------- -------- -------- Loss before minority interests (8.8) (13.2) (7.5) (14.9) Minority interests 0.2 0.2 0.2 0.1 -------- -------- -------- -------- Loss before income taxes (8.6) (13.0) (7.3) (14.8) Provision for income taxes - - - - -------- -------- -------- -------- Net loss (8.6) (13.0) (7.3) (14.8) Preferred stock dividends (1.1) (1.2) (1.1) (1.2) -------- -------- -------- -------- Net loss available to common shareholders (9.7)% (14.2)% (8.4)% (16.0)% ======== ======== ======== ========
Page 13 Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues. For the three month period ended June 30, 2000, revenues totaled $15.9 million compared to $13.0 million in the three month period ended June 30, 1999, an increase of $2.9 million or 22.3 percent. During the second quarter of 2000, the Company operated 31 communities comprised of eight stabilized communities, 16 newly developed communities, and seven communities operated pursuant to management contracts, three of which are owned in joint ventures and accounted for under the equity method. The Company operated 27 communities during the second quarter of 1999, comprised of five stabilized communities, 19 newly developed 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. 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 three months ended June 30, 2000, rental and service revenues from "Same Residences", the 23 communities that the Company operated at the beginning of both periods, comprised of eight stabilized and 15 newly developed communities, increased by $2.6 million over the three months ended June 30, 1999. Of this increase, $0.7 million was from the eight stabilized communities and $1.9 million was from the 15 newly developed communities. Revenues from one additional newly developed community that opened in April 1999 increased by $0.2 million during the second quarter of 2000. Overall average occupancy at the Company's eight stabilized communities was 94.7 percent for the three month period ended June 30, 2000, compared to 94.9 percent at the Company's five stabilized communities for the same period in 1999. Residence Operating Expenses. Residence operating expenses were $10.8 million for the three month period ended June 30, 2000, and $9.5 million for the same period in 1999, an increase of $1.3 million or 14.1 percent. Residence operating expenses from the 23 Same Residences increased by $1.4 million over the second quarter of 1999. Of this increase, $0.2 million was from the eight stabilized communities and $1.2 million was from the 15 newly developed communities. Residence operating expenses for all other newly developed communities for the three month period ended June 30, 2000, include $0.2 million of start-up operating expenses and pre-opening costs, whereas such expenses totaled $0.3 million in 1999. Residence operating expenses from Same Residences totaled 67.1 percent and 70.9 percent of rental and service revenue for the three month periods ended June 30, 2000 and 1999, respectively. General and Administrative Expenses. General and administrative expenses were $1.8 million for the three month period ended June 30, 2000, compared to $1.5 million for the three month period ended June 30, 1999. The increase is due to an increase in operations related to the implementation of the Company's plan for growth and a non-recurring charge of $0.2 million related to the termination of an employment contract. Page 14 Lease Expense. Lease expense for the Company's leased communities was $3.5 million for the three month period ended June 30, 2000, compared to $3.4 million for the same period in 1999. The increase of $0.1 million relates to annual lease escalation clauses and the opening of two newly developed leased communities offset by the acquisition of a previously leased community. Depreciation and Amortization. Depreciation and amortization expense was $0.4 million for the three month periods ended June 30, 2000 and June 30, 1999. 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, 2000, to $0.9 million from $0.6 million for the three month period ended June 30, 1999. Interest expense related to the operation of communities increased $0.1 million in the current period as compared to the same period in the prior year. The Company capitalized $0.2 million of interest charges during the three months ended June 30, 2000, whereas the Company capitalized $0.5 million of interest charges during the three months ended June 30, 1999. Equity in Losses of Joint Ventures. Equity in losses of joint ventures resulted from the operations of the Company's 50 percent owned Kenmore, Washington community; the 10 percent owned Kent, Washington community; and the 40 percent owned Corvallis, Oregon community. Other Income (Loss), Net. In the second quarter of 1999, the Company sold a 45 percent co-tenancy interest in its Modesto, California community. The Company recognized a $0.5 million gain as a result of the sale. Net Income (Loss). Net operating results increased by $0.3 million during the three month period ended June 30, 2000, compared to the same period in 1999. The Company reported a loss of $1.4 million for the second quarter of 2000, whereas the Company reported a loss of $1.7 million for the second quarter of 1999. The increase in net results is primarily due to an increase in residence operating profits (rental and service revenue less residence operating expenses) of $1.5 million, offset by increases in general and administrative expenses, lease expense, interest expense and equity in losses of joint venture, and a decrease in other income all as discussed above. Page 15 Six Months ended June 30, 2000 Compared to Six Months ended June 30, 1999 Revenues. For the six month period ended June 30, 2000, revenues totaled $31.5 million compared to $25.0 million in the six month period ended June 30, 1999, an increase of $6.5 million or 26.0 percent. During the first six months of 2000, the Company operated 31 communities comprised of seven stabilized communities, 17 newly developed communities, and seven communities operated pursuant to management contracts, three of which are owned in joint ventures and accounted for under the equity method. The Company operated 27 communities during the first six months of 1999, comprised of five stabilized communities, 19 newly developed communities, and three communities operated pursuant to management contracts, including one owned in a joint venture and accounted for under the equity method. During the six months ended June 30, 2000, rental and service revenues from Same Residences, the 22 communities that the Company operated at the beginning of both periods, comprised of seven stabilized and 15 newly developed communities, increased by $5.6 million over the six months ended June 30, 1999. Of this increase, $0.8 million was from the seven stabilized communities and $4.8 million was from the 15 newly developed communities. Revenues from two additional newly developed communities, one which opened in February 1999 and the other in April 1999, increased by $0.7 million. Average occupancy at the 22 Same Residences was 82.9 percent for the six month period ended June 30, 2000, compared to 75.3 percent for the same period in 1999. Overall average occupancy at the Company's seven stabilized communities was 95.3 percent for the six month period ended June 30, 2000, compared to 95.0 percent at the Company's five stabilized communities for the same period in 1999. Residence Operating Expenses. Residence operating expenses were $21.1 million for the six month period ended June 30, 2000, and $18.0 million for the same period in 1999, an increase of $3.1 million or 17.1 percent. Residence operating expenses from the 22 Same Residences increased by $3.0 million over the first six months of 1999. Of this increase, $0.4 million was from the seven stabilized communities and $2.6 million was from the 15 newly developed communities. Residence operating expenses for all other newly developed communities for the six month period ended June 30, 2000 include $0.9 million of start-up operating expenses and pre-opening costs, whereas such expenses totaled $0.7 million in 1999. Residence operating expenses from Same Residences totaled 65.3 percent and 70.0 percent of rental and service revenue for the six month periods ended June 30, 2000 and 1999, respectively. General and Administrative Expenses. General and administrative expenses were $3.3 million for the six month period ended June 30, 2000, compared to $2.7 million for the six month period ended June 30, 1999. The increase 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 $6.9 million for the six month period ended June 30, 2000, compared to $6.6 million for the same period in 1999. The increase of $0.3 million relates to annual lease escalation clauses, the opening of two newly developed leased communities and the sale-leaseback of one newly developed community offset by the acquisition of a previously leased community. Page 16 Depreciation and Amortization. Depreciation and amortization expense was $0.8 million for the six month period ended June 30, 2000, compared to $0.7 million for the six month period ended June 30, 1999. The increase 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 six month period ended June 30, 2000, to $1.7 million from $1.1 million for the six month period ended June 30, 1999. Interest expense related to the operation of communities increased $0.2 million in the current period as compared to the same period in the prior year. The Company capitalized $0.3 million of interest charges during the six months ended June 30, 2000, whereas the Company capitalized $0.9 million of interest charges during the six months ended June 30, 1999. Equity in Losses of Joint Ventures. Equity in losses of joint ventures resulted from the operations of the Company's 50 percent owned Kenmore, Washington community; the 10 percent owned Kent, Washington community; and the 40 percent owned Corvallis, Oregon community. Net Income (Loss). Net operating results increased by $1.4 million during the six month period ended June 30, 2000, compared to the same period in 1999. The Company reported a loss of $2.3 million for the six month period ended June 30, 2000, whereas the Company reported a loss of $3.7 million for the six month period ended June 30, 1999. The increase in net results is primarily due to an increase in residence operating profits (rental and service revenue less residence operating expenses) of $3.2 million, offset by increases in general and administrative expenses, lease expense, depreciation, interest expense and equity in losses of joint venture, all as discussed above. Liquidity and Capital Resources At June 30, 2000, the Company had a $1.1 million working capital deficit, compared to working capital of $1.4 million at December 31, 1999. The decrease relates primarily to a decrease in cash and cash equivalents of $1.4 million (as described below) and an increase in net current liabilities of $0.9 million. Net cash used in operating activities totaled $0.9 million for the six month period ended June 30, 2000, resulting primarily from a net loss of $2.3 million, adjusted $0.7 million for non-cash items (depreciation, amortization, equity interest in joint ventures and minority interests), and an increase in net current liabilities of $0.9 million offset by an increase in dividends payable of $0.3 million, and the release of $0.2 million of cash held in working capital escrow. Page 17 Net cash used in investing activities totaled $4.4 million for the six month period ended June 30, 2000, consisting primarily of development and construction costs. Net cash provided by financing activities totaled $3.9 million during the six month period ended June 30, 2000, consisting of property and equipment financing proceeds totaling $4.3 million, and proceeds of $0.2 million from a sale-manageback arrangement with the Company's Chairman and Chief Executive Officer, offset by repayment of long-term debt of $0.2 million, an increase in restricted cash for financing arrangements of $0.2 million and a net increase in payments and deposits for financing arrangements of $0.2 million. During January 2000, the Company obtained an $8.8 million loan, the proceeds of which will be used to construct and fund initial operations at the Company's 113-bed South Ogden, Utah community. As of June 30, 2000, the Company has drawn down approximately $1.7 million on this loan. Also during January 2000, the Company entered into a joint venture arrangement with an independent third party for the purpose of developing a 116-bed assisted living community in Salt Lake City, Utah. The Company's initial capital contribution for its 50 percent joint venture interest totaled $1.1 million, comprised of $600,000 of incurred development costs and a $500,000 development fee. The joint venture partner contributed $1.1 million in cash, which was utilized to acquire the land for the project. At June 30, 2000, the Company has capitalized costs totaling approximately $10.0 million related to communities under construction or development, encumbered by $5.9 million in outstanding debt. The Company intends to finance substantially all of the remaining cost of developing each new community through joint venture arrangements, as well as conventional financing with commercial banks and other financial institutions. The Company anticipates completing construction and commencing operations at the Mesa community in the fourth quarter of 2000. The total project cost, including the estimated initial operating deficit, is being financed through a lease arrangement with a REIT. The Company has two additional communities under construction that are anticipated to commence operations in 2001. The Company has obtained financing necessary to complete these communities. Additionally, the Company has entered into a long-term lease for the West Covina assisted living community being constructed by an unrelated third party and expects to commence operation at this community during the fourth quarter of 2000. During the remainder of 2000, the Company expects to meet its working capital requirements through cash generated from operating results, debt refinancing and restructuring, and possibly through issuing additional equity and/or debt instruments. The Company plans to achieve improved operating performance primarily through increased resident census. Page 18 The Company anticipates capital expenditures for 2000 will include additional architectural fees and other development and construction costs related to at least three assisted living communities. During 2000, the Company anticipates commencing construction on at least one of these communities. The total cost to develop and construct the three communities, including the estimated initial operating deficits, will likely be between $25.0 million to $28.0 million. A nominal portion of these costs will be incurred during 2000. The Company is currently discussing with commercial banks and other financing sources 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 one of these three communities in order to complete construction and to fund the initial operating deficits. Additional equity capital will be required prior to commencing construction on the remaining two communities. To finance additional growth, 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. 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 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 operating lease agreements contain restrictive covenants. As of June 30, 2000, the Company was in compliance with the covenants of all lease agreements except at least one covenant relating to five of the Company's communities. The Company has entered into an agreement to purchase two of the communities and is currently negotiating the terms of the financing necessary to complete the transactions. There is no certainty that financing will ultimately be available upon acceptable terms. The Company believes the ultimate resolution of this matter for each of the five leases will not have a material adverse impact on the Company's financial position, results of operations, or cash flows. Page 19 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. Subsequent Events In July, 2000, the Company obtained an $8.0 million loan, the proceeds of which will be used to construct and fund initial operations at the Company's 116-bed Salt Lake City, Utah community. On August 1, 2000, the Company completed an $8.8 million permanent financing transaction for its Vacaville, California community. As a result of the transaction, the Company repaid construction debt in the amount of $7.5 million and generated approximately $1.1 million of cash available for general working capital requirements. 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, the Company's plans to develop, construct and operate new communities, and the Company's ability to generate sufficient working capital to meet its operating needs 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. The Company's ability to generate working capital sufficient to meet its operating needs is subject to a number of risks. One such risk is the ability of the Company to increase resident census and generate additional revenue. This can be negatively impacted by increased competition and regulation, instability in community staffing, and the effectiveness of the Company's marketing and care programs. Additional risks include whether the Company can successfully negotiate changes to current obligations to improve their terms, replace maturing obligations with more favorable terms, and restructure other obligations. Page 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's earnings are affected by changes in interest rates as a result of its variable rate indebtedness. The Company manages this risk by obtaining fixed rate borrowings when possible. At June 30, 2000, the Company's variable rate borrowings totaled $11.7 million. If market interest rates average one percent more in 2000 than in 1999, the Company's interest expense would increase and income before taxes would decrease by $117,000. These amounts are determined by considering the impact of hypothetical interest rate on the Company's outstanding variable rate borrowings as of June 30, 2000, and does not consider changes in the actual level of borrowings which may occur subsequent to June 30, 2000. This analysis also does not consider the effects of the reduced level of overall economic activity that could exist in such an environment nor does it consider likely actions that management could take with respect to the Company's financial structure to mitigate the exposure to such a change. Page 21 PART II - OTHER INFORMATION Item 1. Legal Proceedings A discussion of the Company's material legal proceeding appears in Item 3 of the Company's Annual Report on Form 10-K filed for the year ended December 31, 1999. Item 3. Defaults Upon Senior Securities The Company has not paid the first and second quarterly dividends which were accrued with respect to its preferred stock. A total of $325,000 was in arrears at June 30, 2000. The first quarter dividend rate was 6 percent. For each subsequent quarter in which the dividend is not paid, the dividend rate increases by one percent to a maximum of 12 percent or a specific prime rate plus 300 basis points. Item 4. Submission of Matters to a Vote of Security Holders. The Company held its 2000 annual meeting of shareholders at 11:00 a.m., PDT, on May 23, 2000, on the 31st Floor of the U.S. Bancorp Tower, 111 S.W. Fifth Avenue, Portland, Oregon. The only matters submitted to a vote of the shareholders were the election of two directors and to increase the number of shares of the Company's Common Stock that may be issued pursuant to the Company's 1995 Stock Incentive Plan from 600,000 to 800,000. 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: Votes Against Votes For or Withheld Abstentions Non-Votes --------- ------------- ----------- --------- Class I (three year term): Dana J. O'Brien 3,296,451 0 103,000 0 Steven L. Gish 3,296,451 0 103,000 0 The proposal to increase the number of shares of the Company's Common Stock that may be issued pursuant to the Company's 1995 Stock Incentive Plan from 600,000 to 800,000 was approved by the following vote: Votes Against Votes For or Withheld Abstentions Non-Votes --------- ------------- ----------- --------- 3,236,618 162,833 0 0 Page 22 Item 6. Exhibits and Reports on Form 8-K. Exhibits: 27 Financial Data Schedule. Reports on Form 8-K There were no reports on Form 8-K for the period ended June 30, 2000 Page 23 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: August 14, 2000 Steven L. Gish Chief Financial Officer EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JAN-1-2000 JUN-30-2000 3,102,695 0 832,998 37,000 0 7,738,036 53,314,703 3,427,878 64,684,910 8,868,208 45,293,223 0 9,349,841 10,619,349 (27,911,267) 64,684,910 31,066,009 31,462,264 21,145,884 32,158,711 0 0 1,732,622 (2,306,472) 0 (2,306,472) 0 0 0 (2,306,472) (.58) (.58)
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