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