UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the Quarterly period ending September 30, 1997
_____ TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the Transition period from ____ to ____
Commission file number 0-27108
REGENT ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1171049
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 1000
121 SW Morrison St.
Portland, Oregon 97204
(Address of principal executive offices)
503-227-4000
(Registrant's telephone number, including area code)
Indicated by check mark whether Registrant (1) has filed all reports to be filed
by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No __
Shares of Registrant's Common Stock, No par value,
outstanding at August 1, 1997 - 4,633,000
<PAGE>
REGENT ASSISTED LIVING, INC.
FORM 10-QSB
September 30, 1997
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1996
and September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 1996 and 1997 . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the three months
and nine months ended September 30, 1996 and 1997 . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . 10
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
December 31, 1997
1996 (Unaudited)
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,650,817 $ 3,643,373
Investments 2,939,448
Accounts receivable 148,976 99,305
Prepaid expenses 126,148 295,509
Construction advances receivable 1,125,315 203,277
------------ ------------
Total current assets 12,990,704 4,241,464
Property and equipment, net 17,383,668 48,699,241
Investment in joint venture 263,579 329,919
Restricted cash 1,646,485 2,376,436
Deferred income tax benefit 304,300 271,200
Other assets 588,948 670,628
------------ ------------
Total assets $ 33,177,684 $ 56,588,888
============ ============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 150,950 $ 182,614
Short term borrowings 1,532,205
Construction accounts payable 667,312 1,743,469
Accounts payable and other accrued expenses 1,453,668 570,357
Accrued payroll 335,155 376,069
Accrued interest 57,530 76,443
------------ ------------
Total current liabilities 2,664,615 4,481,157
Long-term debt 9,981,235 32,495,996
Other liabilities 474,423 1,176,322
------------ ------------
Total liabilities 13,120,273 38,153,475
------------ ------------
Minority Interest 250,000
------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized;
1,666,667 shares issued and outstanding 9,349,841 9,349,841
Common stock, no par value, 25,000,000 shares authorized;
4,633,000 shares issued and outstanding 10,808,703 10,808,703
Accumulated deficit (101,133) (1,973,131)
------------ ------------
Total shareholders' equity 20,057,411 18,185,413
------------ ------------
Total liabilities and shareholders' equity $ 33,177,684 $ 56,588,888
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
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<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental and service $ 3,323,145 $ 3,542,710 $ 9,715,818 $ 10,082,807
Management fee 43,179 53,370 129,593 141,491
------------ ------------ ------------ ------------
Total revenues 3,366,324 3,596,080 9,845,411 10,224,298
------------ ------------ ------------ ------------
Operating expenses:
Residence operating expenses 2,089,765 2,681,858 6,010,159 7,015,759
General and administrative 423,729 871,058 1,348,073 2,233,909
Lease expense 689,312 914,776 2,067,937 2,403,127
Depreciation and amortization 61,848 88,646 180,979 235,494
------------ ------------ ------------ ------------
Total operating expenses 3,264,654 4,556,338 9,607,148 11,888,289
------------ ------------ ------------ ------------
Operating income (loss) 101,670 (960,258) 238,263 (1,663,991)
Interest income 73,365 83,290 277,346 305,881
Interest expense, net (129,456) (388,037) (101,228)
Other income (expense), net 3,172 (4,764) 13,284 12,840
------------ ------------ ------------ ------------
Income (loss) before income taxes 48,751 (881,732) 140,856 (1,446,498)
Income tax (provision) benefit (15,700) (50,700) 24,500
------------ ------------ ------------ ------------
Net income (loss) $ 33,051 ($ 881,732) $ 90,156 ($ 1,421,998)
============ ============ ============ ============
Earnings (loss) per common share $ 0.01 ($ 0.22) $ 0.02 ($ 0.40)
============ ============ ============ ============
Weighted average common shares
outstanding 4,633,000 4,633,000 4,633,000 4,633,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
<PAGE>
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $90,156 ($1,421,998)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 180,979 235,494
Amortization of deferred gain (7,320)
Changes in other assets and liabilities:
Accounts receivable (948) 49,671
Prepaid expenses 1,312 (107,361)
Restricted cash 49,364
Deferred income taxes 33,100
Other assets (140,756) 19,795
Accounts payable and other accrued expenses 472,081 (16,534)
Other liabilities 44,059 (20,781)
------------ ------------
Net cash provided by (used in) operating activities 696,247 (1,235,934)
------------ ------------
Cash flows from investing activities:
Maturity of investments, net 1,952,542 2,939,448
Purchases of property and equipment (4,840,373) (31,660,739)
Increase in construction related accounts payable 1,076,157
Investment in joint venture (163,591) (66,340)
Deposits to replacement reserve account, net (5,482)
------------ ------------
Net cash used in investing activities (3,051,422) (27,716,956)
------------ ------------
Cash flows from financing activities:
Contributions by minority partner 250,000
Prepayments and deposits for financing arrangements, net (62,250) (234,364)
Construction advances 922,038
Restricted cash for financing arrangements, net (584,700) (724,469)
Short term borrowings 1,532,205
Proceeds from issuance of long-term debt 22,664,466
Payments on long-term debt (53,200) (118,041)
Deferred gain from financing arrangements 730,000
Preferred stock issuance costs (600,159)
Preferred stock dividends (476,230)
------------ ------------
Net cash provided by (used in) financing activities (700,150) 23,945,446
------------ ------------
Net decrease in cash and cash equivalents (3,055,325) (5,007,444)
Cash and cash equivalents, beginning of period 7,585,952 8,650,817
------------ ------------
Cash and cash equivalents, end of period $4,530,627 $3,643,373
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies:
The Company
Regent Assisted Living, Inc. ("the Company") is an owner, operator, and
developer of private-pay assisted living communities. Assisted living is
part of a spectrum of long-term care services that provide a combination of
housing, personal services, and health care designed to respond to elderly
individuals who require assistance with activities of daily living in a
manner that promotes maximum independence.
On December 26, 1995, the Company sold 1,400,000 shares of common stock to
the public at a price of $7.50 per share in an initial public offering (the
Offering). Concurrently, the Company sold an additional 233,000 shares at a
price of $7.50 per share to Mr. Walter C. Bowen, the Chairman of the Board,
Chief Executive Officer, President, and majority shareholder of the
Company. The Company realized net proceeds of approximately $10.8 million
from these transactions.
On December 16, 1996, the Company completed the sale of 1,283,785 shares of
Series A Preferred Stock and 382,882 shares of Series B Preferred Stock for
the aggregate price of $10 million.
The results of operations for the nine months ended September 30, 1996
reflect the operations of three assisted living communities (Regency Park,
Sterling Park and Sunshine Villa) and the property management services
provided to one community (Park Place). The results of operations for the
nine months ended September 30, 1997, additionally reflect the operation of
two new assisted living communities (Willow Park and West Wind) and the
property management services provided to one additional community (Sun
Oak). As of November 12, 1997, the Company had also commenced operations at
its new assisted living community in San Antonio, Texas, was awaiting final
licensure of its new community in Folsom, California, and had an additional
24 assisted living and stand alone Alzheimer's care communities in various
stages of development.
The Company also provides management and administrative services for Bowen
Property Management Co., Bowen Financial Services Corp., Bowen Development
Company, and Bowen Condominium Marketing, Inc. (collectively, the Bowen
Companies), all of which are Oregon corporations and are wholly owned by
Mr. Bowen. These services are provided pursuant to the terms of an
Administrative Services Agreement described in Note 3.
Page 6
<PAGE>
Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its majority owned subsidiary. All significant inter-company
accounts and transactions have been eliminated in consolidation.
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
1. Operations and Summary of Significant Accounting Policies, Continued:
The accompanying unaudited condensed consolidated financial statements as
of September 30, 1997, and for the three month and nine month periods ended
September 30, 1997 and 1996, have been prepared in conformity with
generally accepted accounting principles. The financial information as of
December 31, 1996, is derived from the Company's Form 10-KSB for the year
ended December 31, 1996. Certain information or footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying financial
statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. The accompanying financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended December 31, 1996, included in the Company's Form 10-KSB
for the year ended December 31, 1996.
Operating results for the three months and nine months ended September 30,
1997, are not necessarily indicative of the results that may be expected
for the entire fiscal year ending December 31, 1997, or any portion
thereof.
Page 7
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
2. Property and Equipment:
Property and equipment are stated at cost and consist of the following:
December 31, September 30,
1996 1997
------------ -------------
Land $ 1,100,000 $ 1,100,000
Buildings and improvements 6,520,556 6,746,263
Furniture and equipment 530,540 878,929
Construction in progress 9,456,006 40,425,089
----------- -----------
17,607,102 49,150,281
Less accumulated depreciation 223,434 451,040
----------- -----------
Total property and equipment, net $17,383,668 $48,699,241
=========== ===========
Land, buildings, and certain furniture and equipment serve as collateral
for long-term debt.
3. Administrative Services Agreement:
The Company has entered into an agreement with the Bowen Companies, all of
which are Oregon corporations controlled by Mr. Bowen, whereby the Company
will provide each of the Bowen Companies executive assistance, accounting
and financial management services, legal and administrative assistance,
insurance, management information services, and other management services
as required by the Bowen Companies. Under the terms of the agreement, the
Company will be reimbursed at its cost on a monthly basis for all services
provided.
4. Earnings (Loss) Per Common Share:
The computation of fully diluted earnings (loss) per share for each of the
periods was antidilutive; as such, no presentation of fully diluted
earnings (loss) per share has been included in the condensed consolidated
statements of operations. Earnings (loss) attributable to common stock
includes a deduction of preferred stock dividends declared, which totaled
$150,000 and $450,000 for the three and nine month periods ended September
30, 1997, respectively.
Page 8
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
5. Accounting Pronouncements:
The Financial Accounting Standards Board (FASB) has issued several
accounting pronouncements that the Company will be required to adopt in
future fiscal reporting periods.
FASB Statement No. 128 "Earnings per Share" establishes new guidelines for
the calculation of and disclosures regarding earnings per share. The
Company will adopt the provisions of Statement No. 128 during the first
quarter of 1998 and at that time will be required to present basic and
diluted earnings per share and to restate all prior periods. There will be
no impact on the calculation of basic earnings per share for the three
months and nine months ended September 30, 1997 and 1996. Diluted earnings
per share is not expected to differ materially from basic earnings per
share.
The Company will adopt FASB Statement No. 129 "Disclosure of Information
About Capital Structure" during the first quarter of 1998. The Company does
not expect that adoption of the disclosure requirements of this
pronouncement will have a material impact on its financial statements.
FASB Statement No. 130 "Reporting Comprehensive Income," which the Company
will adopt during the first quarter of 1998, establishes standards for
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all changes
in shareholders' equity except those resulting from investments by or
distributions to shareholders. Such changes are generally not significant
to the Company; and the adoption of Statement No. 130, including the
required comparative presentation for prior periods, is not expected to
have a material impact on its financial statements.
Page 9
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company
The Company reported a net loss of $881,732, or $0.22 per share, on revenue of
$3,596,080 for the three months ended September 30, 1997. For the nine months
ended September 30, 1997, the Company reported a net loss of $1,446,498, or
$0.40 per share, on revenue of $10,224,298.
During the nine moth period ending September 30, 1997, the Company operated the
following five communities pursuant to long-term leases and two communities
pursuant to management contracts:
Leased Communities:
No. of Date
Name Location Beds Opened
- ---- -------- ------ ------
Regency Park Portland, Oregon 142 1987
Sterling Park Redmond, Washington 192 1990
Sunshine Villa Santa Cruz, California 126 1990
Willow Park Boise, Idaho 134 May, 1997
West Wind Boise, Idaho 48 July, 1997
Managed Communities:
No. of Date
Name Location Beds Opened
- ---- -------- ------ ------
Park Place Portland, Oregon 112 1990
Sun Oak Citrus Heights, California 50 May, 1997
As of November 12, 1997, the Company had also commenced operations of its new
137-bed community in San Antonio, Texas (Hamilton House) pursuant to a long-term
lease. The Company's new 122-bed community in Folsom, California (Willow Creek),
which it owns, is awaiting licensure and the Company plans to open it in late
November 1997. Furthermore, the Company is under construction on the following
ten new communities:
Expected
Projected Quarter Leased or
Location No. of Beds Opening Owned
-------- ----------- ------- -----
Clovis, California 129 4th-97 Leased
Rio Rancho, New Mexico 114 4th-97 Owned*
Eugene, Oregon 125 4th-97 Owned
Bakersfield, California 131 1st-98 Owned
Vacaville, California 127 1st-98 Owned
Tucson, Arizona 136 1st-98 Owned
Roseville, California 108 1st-98 Owned
Henderson, Nevada 134 1st-98 Owned
Austin, Texas 136 2nd-98 Owned
Kenmore, Washington 96 2nd-98 Owned**
Page 10
<PAGE>
* A limited liability company in which the Company owns a 90 percent interest
owns this community. The Company has entered into an agreement to purchase
the remaining ten percent interest and anticipates that this transaction
will close November 14, 1997.
** A limited liability company in which the Company owns a 50 percent interest
will own the Company's community in Kenmore. The Company will manage the
community.
Fourteen additional new communities were under varying stages of development as
of November 12, 1997. If all 24 communities are developed, operations of the
Company will increase by approximately 2,500 beds to a total of approximately
3,300. The Company continues to pursue its primary strategy of developing new
communities and is therefore engaged in negotiations to acquire several
additional sites and is pursuing joint venture opportunities with parties who
control parcels of land in strategic markets. All costs associated with the
development of these communities have been capitalized as "Construction in
Progress" as disclosed in Note 2 to the condensed consolidated financial
statements. Furthermore, continuing its efforts to pursue strategic
acquisitions, the Company is engaged in discussions with several parties
relative to purchasing currently operating communities in its targeted regions.
The Company currently plans to open fifteen new "Regent" prototypical assisted
living communities and five "Regent Court" stand alone Alzheimer's care
communities by December 31, 1998. The foregoing schedule of projected openings
differs from the Company's previously announced schedule, due primarily to
construction delays experienced by the Company at several of its sites, although
most delays have been limited to one to two months. In addition, the Company is
experiencing a backlog of license applications in some jurisdictions that may
result in a delay of obtaining the necessary operating licenses and permits. The
Company believes that it will be able to obtain the necessary operating licenses
and permits for all of its planned new communities.
In connection with the sale by the Company of its Class A and Class B Preferred
Stock, the Company agreed to open at least ten new communities and at least
1,000 new units by December 31, 1997. If the Company does not achieve this
development goal, the price at which the preferred stock is convertible into the
Company's common stock will be decreased from $6.00 per share to $5.50 per
share, resulting in the issuance of an additional 151,515 shares of common stock
upon conversion of all of the preferred stock. The current holder of the
Company's issued and outstanding preferred stock, Prudential Private Equity
Investors III, L.P., also holds a warrant that entitles it to purchase up to
200,000 shares of the Company's common stock at a price of $5.50 if the
development goal is not achieved.
The Company does not currently expect to satisfy the development goal of opening
ten new communities with at least 1,000 units in 1997 through development of new
communities. However, as stated above, the Company is continuing to pursue
strategic acquisition opportunities and is engaged in discussions with several
parties concerning the same. Although it is not certain that it will do so, if
the Company acquires some or all of the communities currently under evaluation,
it is likely that the Company would satisfy the foregoing development goal.
Operating results for the three month and nine month periods ended September 30,
1997, are not necessarily indicative of future financial performance as the
Company intends to expand its operating base of communities.
Page 11
<PAGE>
Three Months Ended September 30, 1997, Compared to Three Months Ended
September 30, 1996
Revenues. For the three month period ended September 30, 1997, revenues were
$3,596,080 compared to $3,366,324 in the three month period ended September 30,
1996. The Company operated three communities and managed a fourth in the three
month period ended September 30, 1996, whereas the Company began operating its
fourth community in May 1997 and its fifth in July 1997, and began managing a
second community in May 1997. The increase in revenue of $229,756 or 6.8
percent, includes $367,964 of revenue from newly opened communities and a
decrease in revenue of $148,398 at the Company's three stabilized communities.
Overall average occupancy at the three stabilized communities declined to 91.0
percent for the three month period ended September 30, 1997, from 95.7 percent
for the same period in 1996. The Company continues to face increasing
competition but this has had the greatest impact in the market in which the
Company operates its largest community, thereby having a greater impact on the
Company's overall occupancy rate.
Residence Operating Expenses. Residence operating expenses were $2,681,858 for
the three month period ended September 30, 1997, and $2,089,765 for the same
period in 1996, an increase of $592,093. The current period includes $559,764 of
start-up and pre-opening costs related to eleven of the Company's newly
developed communities. Residence operating expenses, excluding the effect of the
new communities, totaled 62.7 percent and 62.9 percent of rental and service
revenues for the three month periods ended September 30, 1997 and 1996,
respectively.
General and Administrative Expenses. General and administrative expenses were
$871,058 for the three month period ended September 30, 1997, compared to
$423,729 for the three month period ended September 30, 1996. The increase of
$447,329 is due primarily to the increase in development activities by the
Company, including payroll and related costs primarily resulting from staffing
increases related to the implementation of the Company's strategy for rapid
growth.
Lease Expense. Lease expense for the Company's leased communities was $914,776
for the three month period ended September 30, 1997, and was $689,312 for the
same period for 1996. The increase of $225,464 includes $61,954 for West Wind
and $181,326 for Willow Park.
Depreciation and Amortization. Depreciation and amortization expense was $88,646
for the three month period ended September 30, 1997, compared to $61,848 for the
three month period ended September 30, 1996.
Interest Income. Interest income increased in the three month period ended
September 30, 1997, to $83,290, from $73,365 for the same period in 1996. All
investments of cash and cash equivalents are in high quality, short term
securities placed with institutions with high credit ratings.
Interest Expense. The Company reported no interest expense for the three months
ended September 30, 1997, compared to $129,456 for the three month period ended
September 30, 1996. The Company capitalized $523,390 of interest charges
incurred during the three months ended September 30, 1997. The capitalized
interest offsets substantially higher interest costs incurred by the Company in
the current period arising from increased borrowing for construction purposes
and in connection with the Sunshine Villa sale/leaseback financing.
Page 12
<PAGE>
Net Income (loss). Net operating results decreased to a loss of $881,732 during
the three month period ended September 30, 1997, from net income of $33,051 for
the same period in 1996. The current period loss is indicative of the Company's
expansion efforts and is expected to continue until the income from stabilized
communities exceeds the initial operating losses generated from new communities.
The decrease in net results is primarily due to an increase in general and
administrative expenses (as discussed above), an increase in lease expense (as
discussed above), a decrease in residence operating profits (rental and service
revenue less residence operating expenses) of $372,528, offset by an decrease in
interest expense of $129,456.
Nine months Ended September 30, 1997 Compared to Nine months Ended September 30,
1996
Revenues. For the nine month period ended September 30, 1997, revenues increased
by $378,887, or 3.8%, to $10,224,298, compared to $9,845,411 in the nine month
period ended September 30, 1996. The increase in revenue includes $393,116 of
revenue from newly opened communities and a decrease in revenue of $26,127 at
the Company's three stabilized communities. Overall average occupancy at the
three stabilized communities decreased slightly to 93.4 percent for the nine
month period ended September 30, 1997, from 94.8 percent for the same period in
1996.
Residence Operating Expenses. Residence operating expenses were $7,015,759 for
the nine month period ended September 30, 1997, and $6,010,159 for the same
period in 1996. The increase of $1,005,600 is due primarily to the combined
impact of slightly higher than expected operating costs for 1997 with lower than
expected operating costs for 1996. In addition, the current period includes
$804,892 of start-up and pre-opening costs related to eleven of the Company's
new communities. Residence operating expenses, excluding the effect of the new
communities, totaled 62.7 percent and 61.9 percent of rental and service
revenues for the nine month periods ended September 30, 1997 and 1996,
respectively.
General and Administrative Expenses. General and administrative expenses were
$2,233,909 for the nine month period ended September 30, 1997, compared to
$1,348,073 for the nine month period ended September 30, 1996. The increase of
$885,836 is due primarily to the increase in development activities by the
Company, including payroll and related costs primarily resulting from staffing
increases related to the implementation of the Company's strategy for rapid
growth.
Lease Expense. Lease expense for the Company's leased communities was $2,403,127
for the nine month period ended September 30, 1997, and was $2,067,937 for the
same period for 1996. The increase of $335,190 includes $61,954 for West Wind
and $259,107 for Willow Park.
Depreciation and Amortization. Depreciation and amortization expense was
$235,494 for the nine month period ended September 30, 1997, compared to
$180,979 for the nine month period ended September 30, 1996.
Interest Income. Interest income increased in the nine month period ended
September 30, 1997, to $305,881, from $277,346 for the same period in 1996, an
increase of $28,535.
Interest Expense. Interest expense decreased in the nine month period ended
September 30, 1997, to $101,228, from $388,037 for the nine month period ended
September 30, 1997. The Company capitalized $895,582 of interest charges
incurred during the nine months ended September 30, 1997.
Page 13
<PAGE>
Net Income (loss). Net operating results decreased to a loss of $1,421,998
during the nine month period ended September 30, 1997, from net income of
$90,156 for the same period in 1996. The decrease in net results is primarily
due to an increase in general and administrative expenses (as discussed above),
an increase in lease expense (as discussed above), a decrease in residence
operating profits (rental and service revenue less residence operating expenses)
of $638,611, offset by an decrease in interest expense of $286,809.
Liquidity and Capital Resources
At September 30, 1997, the Company had a working capital deficit of
approximately $240,000 compared to approximately $10.3 million of working
capital at December 31, 1996. The decrease of approximately $10.6 million is
primarily related to expenditures for development activities. Current
liabilities include approximately $3.3 million of short-term borrowings and
development related payables for which the Company intends to obtain long-term
financing. During the remainder of 1997, the Company intends to utilize current
working capital sources to develop and construct the Company's prototypical
Regent and Regent Court communities.
Net cash used in operating activities totaled $1,235,934 for the nine month
period ended September 30, 1997, which resulted primarily from a net loss of
$1,421,998.
Net cash used in investing activities totaled $27,716,956 for the nine month
period ended September 30, 1997, comprised primarily of $30,650,922 used in
development activities offset by $2,939,448 provided from the maturity of
investments. During the period, the Company incurred construction costs in
twelve locations and conducted preliminary development activities related to
fifteen sites. At September 30, 1997, the aggregate purchase price for the
Company's binding options related to eight parcels of land was approximately
$6.5 million. The Company has paid initial deposits relating to these sites and
has also completed the demographic analysis and other preliminary due diligence
for purposes of developing assisted living communities or Alzheimer's care
communities at these sites.
Net cash provided by financing activities totaled $23,945,446 during the nine
month period ended September 30, 1997, consisting of construction and equipment
financing proceeds totaling $22,664,466, short-term borrowings of $1,532,205,
net reimbursements and development fees from REIT's totaling $730,000, offset by
increases in restricted cash of $724,469, payment of preferred stock issuance
costs of $600,159, and payment of preferred stock dividends of $476,230.
As of the end of the third quarter of 1997, the Company had completed the
following construction loans:
Amount Community Lender
- ------ --------- ------
$ 6,850,000 Folsom, California US National Bank of Oregon
$ 5,935,000 Kenmore, Washington US National Bank of Oregon
$ 7,600,000 Vacaville, California US National Bank of Oregon
$ 7,200,000 Bakersfield, California Guaranty Federal Bank, FSB
$ 7,700,000 Austin, Texas Guaranty Federal Bank, FSB
$ 7,375,500 Rio Rancho, New Mexico Guaranty Federal Bank, FSB
$ 6,255,000 Eugene, Oregon Wells Fargo
$ 6,450,000 Roseville, California Key Bank
$ 7,115,000 Tucson, Arizona Bank United of Texas, FSB
$ 7,000,000 Henderson, Nevada Bank United of Texas, FSB
Page 14
<PAGE>
The Company has also received commitments or expressions of intent to provide
the following construction financing:
Amount Community Lender
- ------ --------- ------
$15,000,000 Multiple locations * US National Bank of Oregon
* This loan facility can be used for the construction of up to five Regent
Court stand-alone Alzheimer's care communities.
The Company has completed a total of five transactions with two real estate
investment trusts pursuant to which the Company sold its Sunshine Villa
community and obtained approximately $26.1 million of lease financing for its
San Antonio, Clovis, and two Boise communities.
Additional project financing of up to $174.5 million has been agreed to, in
principal terms, between the Company and Meditrust, a healthcare real estate
investment trust. The financing is divided into three facilities. The first
provides up to $100 million in sale/leaseback financing for communities
currently under construction and for acquisition of new communities. The second
provides an additional $70 million in financing for future development and
acquisition activities. The third is a $4.5 million line of credit available
primarily for development related expenditures, including site acquisition. As
of November 12, 1997, the outstanding balance on the line of credit totaled
$2,232,205.
Each of the pending financing transactions is subject to a number of conditions,
including the negotiation and execution of definitive documents and the
satisfactory completion of due diligence on the related properties, and there is
no assurance that any of these financing transactions will be completed on the
terms proposed, or at all.
The Company anticipates capital expenditures for 1997 will include additional
land acquisition costs, architectural fees, and other development costs related
to at least fourteen assisted living and Alzheimer's care communities and
construction costs related to at least fifteen new assisted living and
Alzheimer's care communities. The Company's plan to open at least fifteen
"Regent" and five Regent Court communities between December 1995 and December
31, 1998, of which two Regent communities have opened, a third is awaiting
licensure and ten more are under construction and are expected to open by the
second quarter of 1998. The Company will likely require additional financing
prior to construction of the two remaining Regent communities and the five
Regent Court communities. Such financing may take the form of debt or equity,
including a public or private debt or equity offering by either the Company or
with respect solely to one or more new communities, or conventional bank
financing, or the use of sale/leaseback financing from real estate investment
trusts. The amount of such additional financing will be dependent upon the
amount of security deposits required under, and other terms of, the
sale/leaseback financing arrangements the Company expects to negotiate, the
performance of the Company's newly developed communities and existing
properties, and the extent to which the Company engages in development
activities for projects in addition to the 24 communities currently under
varying stages of development or construction. If the Company is unable to
obtain additional required financing, or if such financing is not available on
acceptable terms, the Company believes that its plan to develop these 24 new
communities by the second quarter of 1998 would likely be delayed or curtailed.
Page 15
<PAGE>
Forward-Looking Statements
The information set forth in this report in the sections entitled "Overview" and
"Liquidity and Capital Resources" regarding the Company's acquisition of sites
for development, the Company's development, construction, financing, and opening
of new assisted living communities, and the Company's plans to develop,
construct, and operate new Regent Court communities constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
is subject to the safe harbor created by that section. The development of
additional assisted living communities will involve a number of risks including,
without limitation, the risk that the Company will be unable to locate suitable
sites, risks relating to the inability to obtain, or delays in obtaining,
necessary zoning, land use, building, occupancy, and other required governmental
permits and authorizations, risks that financing may not be available on
satisfactory terms, environmental risks, risks that construction costs may
exceed original estimates, risks that construction and lease-up may not be
completed on schedule, and risks relating to the competitive environment for
development. The foregoing risks could cause the Company to significantly delay
or curtail its planned growth and could cause one or more of the Company's new
communities to not be profitable. Additional factors that could cause results to
differ materially from those projected in the forward-looking statements
include, without limitation, the ability of the Company to raise additional
financing upon terms acceptable to the Company, increases in the costs
associated with new construction, competition, and acceptance of the Company's
prototype community in new geographic markets. The Company's growth strategy is
subject to the risk that occupancy rates at newly-developed communities may not
be achieved or sustained at expected levels, in which case the Company will
experience greater than anticipated operating losses in connection with the
opening of new communities and the Company's need for additional financing to
meet its growth plans will likely increase. Furthermore, the Company's growth
will place increasing pressure on the Company's management controls and require
the Company to locate, train, assimilate, and retain additional community
managers and support staff. There is no assurance that the Company will be able
to successfully manage this growth.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGENT ASSISTED LIVING, INC.
By:/s/ STEVEN L. GISH Date: November 13, 1997
--------------------------------------------
Steven L. Gish
Chief Financial Officer
Page 16
<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,
1997, AND THE RELATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS IN THE PERIOD
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,643,373
<SECURITIES> 0
<RECEIVABLES> 329,582
<ALLOWANCES> 27,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,241,464
<PP&E> 49,150,281
<DEPRECIATION> 451,040
<TOTAL-ASSETS> 56,588,888
<CURRENT-LIABILITIES> 4,481,157
<BONDS> 32,495,996
10,808,703
0
<COMMON> 9,349,841
<OTHER-SE> (1,973,131)
<TOTAL-LIABILITY-AND-EQUITY> 56,588,888
<SALES> 10,082,807
<TOTAL-REVENUES> 10,224,298
<CGS> 7,015,759
<TOTAL-COSTS> 11,888,289
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,228
<INCOME-PRETAX> (1,446,498)
<INCOME-TAX> (24,500)
<INCOME-CONTINUING> (1,421,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,421,998)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
