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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-QSB/A
Amendment No. 1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ending June 30, 1998
--- TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____ to ____
Commission file number 0-27108
REGENT ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1171049
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 1000
121 SW Morrison St.
Portland, Oregon 97204
(Address of 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 August 1, 1997 - 4,633,000
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<PAGE>
REGENT ASSISTED LIVING, INC.
FORM 10-QSB
June 30, 1998
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation . . . 1
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company
The Company reported a net loss of $2,535,310, or $0.58 per diluted share, on
revenues of $6,672,555 for the three months ended June 30, 1998. For the six
months ended June 30, 1998, the Company reported a net loss of $4,930,885, or
$1.13 per diluted share, on revenues of $10,960,760.
Current Communities. The table below sets forth certain information
regarding the Company's communities at June 30, 1998.
<TABLE>
<CAPTION>
Operations
Community Location Commenced Units(1) Beds(2) Interest
- --------- -------- ---------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Oregon
Park Place Portland 1986 112 112 Lease(3)
Regency Park Portland 1987 122 142 Lease
Sheldon Park Eugene 1998 108 124 Lease
Washington
Sterling Park Redmond 1990 162 192 Lease
California
Laurel Springs Bakersfield 1998 113 130 Own
Orchard Park Clovis 1998 112 128 Lease
Summerfield House Vacaville 1998 109 126 Own
Sun Oak Citrus Heights 1997 40 50 Manage
Sunnyside Court Fremont 1998 40 80 Lease
Sunshine Villa Santa Cruz 1990 106 126 Lease
The Palms Roseville 1998 93 108 Lease
Willow Creek Folsom 1997 104 119 Lease
Idaho
West Wind Boise 1997 48 52 Lease
Willow Park Boise 1997 117 134 Lease
New Mexico
Sandia Springs Rio Rancho 1998 109 126 Lease
Texas
Hamilton House San Antonio 1997 116 136 Lease
Arizona
Canyon Crest Tucson 1998 117 137 Lease
Wyoming
Aspen Wind Cheyenne 1998 77 77 Lease
Meadow Wind Casper 1998 53 53 Lease
Totals 1,858 2,152
===== =====
(1) A "unit" is a studio or a one or two bedroom apartment.
</TABLE>
Page 1
<PAGE>
(2) "Beds" reflects the actual number of beds used by the Company for census
purposes, which in no event is a number greater than the maximum number of
licensed beds permitted under the community's license.
(3) The Company completed a lease-acquisition of Park Place during the second
quarter of 1998. The Company had managed the Community prior to this
transaction.
As of August 7, 1998, the Company had also commenced operations of communities
in the following locations:
<TABLE>
<CAPTION>
Location No. of Units No. of Beds Interest
-------- ------------ ----------- --------
<S> <C> <C> <C>
Henderson, Nevada 115 133 Owned
Laramie, Wyoming 53 53 Leased
Salinas, California 150 150 Managed
</TABLE>
As of August 7, 1998, the Company had completed construction of a new 85-unit,
98-bed community in Kenmore, Washington. The Company will manage this community
and is in the process of obtaining an operating license. A limited liability
company in which the Company owns a 50 percent interest owns this community.
Also, as of August 7, 1998, the Company had commenced construction on the
following new communities:
<TABLE>
<CAPTION>
Projected Expected Quarter
Location No. of Beds Opening Interest
-------- ----------- ---------------- --------
<S> <C> <C> <C>
Austin, Texas 137 3rd-98 Owned
Scottsdale, Arizona 48 4th-98 Leased
Modesto, California 48 1st-99 Owned
Clackamas, Oregon 48 2nd-99 Owned
Corvallis, Oregon 48 2nd-99 Owned
Kent, Washington 48 2nd-99 Owned
Scottsdale, Arizona 115 2nd-99 Owned
Mesa, Arizona 132 3rd-99 Owned
</TABLE>
The Company is engaged in various stages of development on 14 additional new
communities. If these 14 communities are completed, then, together with the
communities currently under construction, total operations of the Company will
increase by approximately 2,000 beds to a total of approximately 4,600 beds. The
Company continues to pursue its primary strategy of developing new communities
and is therefore engaged in negotiations to acquire several additional sites and
is pursuing joint venture opportunities with parties who control parcels of land
in strategic markets. All costs associated with the development of these
communities have been capitalized as "Construction in Progress" as disclosed in
Note 2 to the condensed consolidated financial statements.
Operating results for the three month and six month periods ended June 30, 1998,
are not necessarily indicative of future financial performance as the Company
intends to expand its operating base of communities.
Page 2
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues. For the three month period ended June 30, 1998, revenues were
$6,672,555 compared to $3,247,949 in the three month period ended June 30, 1997.
The Company operated eighteen communities, one of which was managed for a
portion of the period, and managed one additional community in the second
quarter of 1998. The Company operated four communities and managed two in the
second quarter of 1997. The increase in revenue of $3,424,606, or 105.4 percent,
includes $3,309,235 of revenue from newly opened and acquired communities and an
increase in revenue of $128,945 at the Company's three stabilized communities.
Overall average occupancy at the three stabilized communities increased to 93.7
percent for the three month period ended June 30, 1998, whereas occupancy was
93.2 percent for the same period in 1997.
Residence Operating Expenses. Residence operating expenses were $5,576,480 for
the three month period ended June 30, 1998, and $2,197,624 for the same period
in 1997, an increase of $3,378,856. The current period includes $2,965,437 of
start-up and pre-opening costs related to fifteen of the Company's newly
developed communities and $485,199 of residence operating expenses related to
the acquisition of two stabilized communities, whereas the 1997 period included
$214,827 of start-up and pre-opening costs related to three newly developed
communities. Residence operating expenses for all stabilized communities totaled
64.0 percent and 62.4 percent of rental and service revenues for the three month
periods ended June 30, 1998 and 1997, respectively.
General and Administrative Expenses. General and administrative expenses were
$987,111 for the three month period ended June 30, 1998, compared to $650,647
for the three month period ended June 30, 1997. The increase of $336,464 is due
primarily to an increase in development activities and operations, including
payroll, travel, and other overhead related costs related to the implementation
of the Company's strategy for rapid growth.
Lease Expense. Lease expense for the Company's leased communities was $2,020,181
for the three month period ended June 30, 1998, and was $782,151 for the same
period in 1997. The increase of $1,238,030 relates primarily to the opening of
nine newly developed communities and the acquisition of five communities since
the end of the second quarter of 1997.
Depreciation and Amortization. Depreciation and amortization expense was
$241,469 for the three month period ended June 30, 1998, compared to $78,063 for
the three month period ended June 30, 1997. The increase of $163,406 relates
primarily to the capitalization of buildings, furniture and equipment for two
newly developed communities, the purchase of vans for newly developed
communities and the purchase of furniture and equipment for the Company's
headquarters, all in connection with the implementation of the Company's growth
plan.
Interest Income. Interest income increased slightly in the three month period
ended June 30, 1998, to $79,933, from $73,812 for the same period in 1997.
Interest income resulted from the investment of cash and cash equivalents in
high quality, short term securities placed with institutions with high credit
ratings.
Interest Expense. Interest expense was $430,597 for the three month period ended
June 30, 1998. The Company reported no interest expense for the three months
ended June 30, 1997. The Company capitalized $723,736 and $258,771 of interest
charges incurred during the three months ended June 30, 1998 and 1997,
respectively. The capitalized interest offsets substantially higher interest
costs incurred by the Company in the current period arising from increased
borrowing for construction purposes and interest related to the convertible
subordinated notes.
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<PAGE>
Net Income (Loss). Net operating results decreased to a loss of $2,535,310
during the three month period ended June 30, 1998, from a loss of $374,383 for
the same period in 1997. 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), an increase in interest expense
(as discussed above), an increase in depreciation expense (as discussed above),
offset by an increase in residence operating profits (rental and service revenue
less residence operating expenses) of $59,325.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues. For the six month period ended June 30, 1998, revenues increased by
$4,332,542, or 65.4%, to $10,960,760, compared to $6,628,218 in the six month
period ended June 30, 1997. The increase in revenue is related primarily to
newly developed and acquired communities. Overall average occupancy at the three
stabilized communities decreased to 91.8 percent for the six month period ended
June 30, 1998 from 94.7 percent for the same period in 1997.
Residence Operating Expenses. Residence operating expenses were $9,766,616 for
the six month period ended June 30, 1998, and $4,333,901 for the same period in
1997. The increase of $5,432,715 is due primarily to $4,941,034 of start-up and
pre-opening costs related to fifteen of the Company's new communities and
$642,824 related to the acquisition of two stabilized communities, whereas the
1997 period included $245,128 of start-up and pre-opening costs related to three
newly developed communities. Residence operating expenses for all stabilized
communities totaled 64.4 percent and 62.8 percent of rental and service revenues
for the six month periods ended June 30, 1998 and 1997, respectively.
General and Administrative Expenses. General and administrative expenses were
$1,954,732 for the six month period ended June 30, 1998, compared to $1,362,851
for the six month period ended June 30, 1997. The increase of $591,881 is due
primarily to an increase in development activities and operations related to the
implementation of the Company's strategy for rapid growth.
Lease Expense. Lease expense for the Company's leased communities was $3,434,899
for the six month period ended June 30, 1998, and was $1,488,351 for the same
period in 1997. The increase of $1,946,548 relates primarily to the newly
developed and acquired communities.
Depreciation and Amortization. Depreciation and amortization expense was
$355,552 for the six month period ended June 30, 1998, compared to $146,848 for
the six month period ended June 30, 1997. The increase of $208,704 primarily
relates to the capitalization of buildings, furniture and equipment for two
newly developed communities, the purchase of vans for the Company's newly
developed communities and the purchase of furniture and equipment for the
Company's headquarters, all in connection with the implementation of the
Company's growth plan.
Interest Income. Interest income decreased in the six month period ended June
30, 1998, to $155,922, from $222,591 for the same period in 1997, a decrease of
$66,669.
Interest Expense. Interest expense increased in the six month period ended June
30, 1998, to $495,012 from $101,228 for the six month period ended June 30,
1997. The Company capitalized $1,815,925 and $372,192 of interest charges
incurred during the six months ended June 30, 1998 and 1997, respectively.
Page 4
<PAGE>
Net Income (Loss). Net operating results decreased to a loss of $4,930,885
during the six month period ended June 30, 1998, from a loss of $540,266 for the
same period in 1997. 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), an increase in depreciation expense (as
discussed above), an increase in interest expense (as discussed above), and a
decrease in residence operating profits (rental and service revenue less
residence operating expenses) of $1,114,301.
Liquidity and Capital Resources
At June 30, 1998, the Company had approximately $1.7 million of working capital
compared to a working capital deficit of approximately $4.3 million at December
31, 1997, an increase of $6.0 million of which $7.0 million resulted from the
utilization of proceeds from the issuance by the Company of convertible
subordinated notes, as described below, to repay short-term borrowings, offset
primarily by expenditures related to development activities.
Net cash used in operating activities totaled $4,520,703 for the six month
period ended June 30, 1998, which resulted primarily from a net loss, adjusted
for depreciation and amortization, of $4,575,333.
Net cash used in investing activities totaled $21,409,469 for the six month
period ended June 30, 1998, substantially all of which was used for land
acquisition, development and construction costs. At June 30, 1998, the aggregate
purchase price for the Company's options related to nine parcels of land was
approximately $7.3 million. The Company has paid initial deposits relating to
these sites and is in the process of completing the demographic analysis and
other preliminary due diligence necessary to develop assisted living communities
at these sites.
Net cash provided by financing activities totaled $28,368,733 during the six
month period ended June 30, 1998, consisting of construction and equipment
financing proceeds totaling $15,079,724, net proceeds from six financing
transactions totaled $43,021,271, proceeds from issuance of convertible
subordinated notes of $7,000,000, offset by repayment of short-term borrowings
of $4,500,000, repayment of long-term debt of $31,426,443, prepayments and
deposits for financing arrangements of $456,381, and payment of preferred stock
dividends of $300,000.
During the remainder of 1998, the Company intends to utilize current working
capital resources 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 real estate
investment trusts ("REIT"), joint venture arrangements, as well as conventional
financing with commercial banks and other financial institutions.
The Company has two current construction loans and an agreement with a REIT to
provide construction funding for the Austin and two Scottsdale communities
currently under construction. The Company has received a letter of intent from a
commercial bank to provide construction financing for the Kent, Clackamas,
Modesto, and Corvallis communities and the Company is currently discussing with
several commercial banks the terms of potential loans 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
Page 5
<PAGE>
related properties, and there is no assurance that any of these financing
transactions will be completed on the terms proposed, or at all.
On March 30, 1998, the Company completed a private placement pursuant to which
parties purchased an aggregate of $4.5 million of convertible subordinated notes
of the Company and agreed to purchase up to an additional aggregate amount of $6
million of convertible subordinated notes. As of August 7, 1998, a total of $7.0
million of convertible subordinated notes have been issued under this facility.
The notes bear interest at 7.5 percent per annum and are convertible into the
Company's common stock at an effective price of $7.50 per share. Interest on the
notes is payable quarterly and all principal and unpaid interest on the notes is
due March 31, 2008. The Company intends to utilize the proceeds to finance the
Company's continued rapid expansion of internally developed communities, to
repay short-term borrowings, and for general working capital purposes. The
Company currently may issue up to an additional $3.5 million of notes under the
terms of this facility.
The Company anticipates capital expenditures for the remainder of 1998 will
include additional land acquisition costs, architectural fees, and other
development costs related to at least 13 assisted living communities and
construction costs related to at least 15 new assisted living communities. The
Company's growth plan for the remainder of 1998 anticipates the completion of
construction of its internally developed Regent community in Austin, Texas and
one new Regent Court community in Scottsdale, Arizona. The Company has obtained
all financing necessary to complete its development plan for 1998.
The Company currently anticipates completing construction on nine new Regent
communities and five new Regent Court communities in 1999. The total cost to
develop and construct the 14 communities planned for 1999, including the
estimated initial operating deficits, will likely be between $80-90 million. A
portion of these costs will be incurred during 1998. The Company anticipates
that it will be able to obtain the financing, upon acceptable terms, necessary
to complete the 14 communities planned for 1999 although it has not obtained any
commitments for such financing other than a letter of intent to provide
financing for four Regent Court communities. Provided that the Company can
obtain financing upon acceptable terms, the Company estimates that it has the
necessary equity capital to complete construction and to fund the initial
operating deficits of the 14 communities planned for 1999.
The Company may enter into additional arrangements with one or more unrelated
parties regarding the joint development and ownership of one or more of the
Company's communities currently under construction or development in order to
further leverage the Company's growth. Furthermore, the Company may utilize
various forms of financing that would permit a community to be sold to or
initially be 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 were unable to obtain additional required financing, or if such
financing is not available on acceptable terms, the Company expects that its
plan to develop an additional nine Regent Communities and five Regent Court
communities by the end of 1999 would likely be delayed or curtailed.
Furthermore, if the Company expands its growth plan, development activities do
not result in the construction of a community on the 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
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<PAGE>
additional financing to complete its growth plan.
Forward-Looking Statements
The information set forth in this report in the sections entitled "Overview" and
"Liquidity and Capital Resources" regarding the Company's acquisition of sites
for development, the Company's development, construction, financing and opening
of new assisted living communities, and the Company's plans to develop,
construct and operate new Regent Court communities constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
is subject to the safe harbor created by that section. The development of
additional assisted living communities will involve a number of risks including,
without limitation, the risk that the Company will be unable to locate suitable
sites, risks relating to the inability to obtain, or delays in obtaining,
necessary zoning, land use, building, occupancy and other required governmental
permits and authorizations, risks that financing may not be available on
satisfactory terms, environmental risks, risks that construction costs may
exceed original estimates, risks that construction and lease-up may not be
completed on schedule, and risks relating to the competitive environment for
development. The foregoing risks could cause the Company to significantly delay
or curtail its planned growth and could cause one or more of the Company's new
communities to not be profitable. Additional factors that could cause results to
differ materially from those projected in the forward-looking statements
include, without limitation, the ability of the Company to raise additional
financing upon terms acceptable to the Company, increases in the costs
associated with new construction, competition, and acceptance of the Company's
prototype community in new geographic markets. The Company's growth strategy is
subject to the risk that occupancy rates at newly-developed communities may not
be achieved or sustained at expected levels, in which case, the Company will
experience greater than anticipated operating losses in connection with the
opening of new communities and the Company's need for additional financing to
meet its growth plans will likely increase. Furthermore, the Company's growth
will place increasing pressure on the Company's management controls and require
the Company to locate, train, assimilate, and retain additional community
managers and support staff. There is no assurance that the Company will be able
to manage this growth successfully.
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<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGENT ASSISTED LIVING, INC.
By: STEVEN L. GISH
------------------------------------ Date: August 13, 1998
Steven L. Gish
Chief Financial Officer
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