- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ending September 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 November 12, 1998 - 4,633,000
- --------------------------------------------------------------------------------
<PAGE>
REGENT ASSISTED LIVING, INC.
FORM 10-QSB
September 30, 1998
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 .........................................................3
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 1998 and 1997 .............................4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 .............................................5
Notes to Condensed Consolidated Financial Statements ..........................6
Item 2. Management's Discussion and Analysis or Plan of Operation ............9
PART II- OTHER INFORMATION
Item 5. Other Information ...................................................18
Item 6. Exhibits and Reports on Form 8-K ....................................18
Page 2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
1998 December 31,
(Unaudited) 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,896,252 $ 1,865,576
Accounts receivable 1,128,134 128,110
Prepaid expenses 270,156 249,708
Construction advances receivable 36,546 123,670
------------- -------------
Total current assets 5,331,088 2,367,064
Property and equipment, net 59,801,798 69,820,324
Investment in joint venture 378,463 401,460
Restricted cash 2,598,831 2,361,993
Other assets 2,294,692 752,932
------------- -------------
Total assets $ 70,404,872 $ 75,703,773
============= =============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 268,371 $ 218,881
Short-term borrowings - 4,500,000
Construction accounts payable 972,380 583,043
Accounts payable and other accrued expenses 1,821,072 685,136
Accrued payroll 941,493 502,568
Accrued interest 290,533 179,963
------------- -------------
Total current liabilities 4,293,849 6,669,591
Long-term debt 43,753,762 51,450,545
Convertible subordinated notes 9,000,000 -
Deferred gains and development fees, net 5,211,561 898,802
Other liabilities 1,295,085 517,578
------------- -------------
Total liabilities 63,554,257 59,536,516
------------- -------------
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 (13,307,929) (4,241,287)
------------- -------------
Total shareholders' equity 6,850,615 15,917,257
------------- -------------
Total liabilities and shareholders' equity $ 70,404,872 $ 75,703,773
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
Page 3
<PAGE>
<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, 1998 September 30, 1997 September 30, 1998 September 30, 1997
--------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental and service $8,864,178 $3,542,710 $19,722,689 $10,082,807
Management fee 42,867 53,370 145,116 141,491
--------------- --------------- -------------- ----------------
Total revenues 8,907,045 3,596,080 19,867,805 10,224,298
--------------- --------------- -------------- ----------------
Operating expenses:
Residence operating expenses 7,692,640 2,681,858 17,459,256 7,015,759
General and administrative 1,258,457 871,058 3,213,189 2,233,909
Lease expense 2,687,297 914,776 6,122,196 2,403,127
Depreciation and amortization 409,167 88,646 764,719 235,494
--------------- --------------- -------------- ----------------
Total operating expenses 12,047,561 4,556,338 27,559,360 11,888,289
--------------- --------------- -------------- ----------------
Operating income (loss) (3,140,516) (960,258) (7,691,555) (1,663,991)
Interest income 76,634 83,290 232,556 305,881
Interest expense, net (444,328) - (939,340) (101,228)
Equity interest in joint venture (170,503) - (203,560) -
Other income, net (7,044) (4,764) (14,743) 12,840
--------------- --------------- -------------- ----------------
Income (loss) before income taxes (3,685,757) (881,732) (8,616,642) (1,446,498)
Income tax benefit - - - 24,500
--------------- --------------- -------------- ----------------
Net income (loss) ($3,685,757) ($881,732) ($8,616,642) ($1,421,998)
=============== =============== ============== ================
Basic earnings (loss) per common share ($0.83) ($0.22) ($1.96) ($0.40)
=============== =============== ============== ================
Diluted earnings (loss) per common share ($0.83) ($0.22) ($1.96) ($0.40)
=============== =============== ============== ================
Weighted average common shares outstanding:
Basic 4,633,000 4,633,000 4,633,000 4,633,000
=============== =============== ============== ================
Diluted 4,633,000 4,633,000 4,633,000 4,633,000
=============== =============== ============== ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
Page 4
<PAGE>
Page 5
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($8,616,642) ($1,421,998)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 764,719 235,494
Amortization of deferred gains and development fees (229,866) (7,320)
Equity interest in joint venture 203,560 -
Non-cash operating expense 70,506 -
Changes in other assets and liabilities:
Accounts receivable (170,616) 49,671
Prepaid expenses (48,108) (107,361)
Deferred income taxes - 33,100
Other assets (699,007) 19,795
Accounts payable and other accrued expenses 1,685,431 (16,534)
Other liabilities 777,507 (20,781)
------------ ------------
Net cash used in operating activities (6,262,516) (1,235,934)
------------ ------------
Cash flows from investing activities:
Maturity of investments, net - 2,939,448
Purchases of property and equipment (30,419,542) (31,660,739)
Increase in construction related accounts payable 389,337 1,076,157
Investment in joint venture (118,563) (66,340)
Deposits to replacement reserve account, net (38,814) (5,482)
------------ ------------
Net cash used in investing activities (30,187,582) (27,716,956)
Cash flows from financing activities:
Repayment of short-term borrowings (4,500,000) 1,532,205
Proceeds from issuance of long-term debt 23,590,924 22,664,466
Payments on long-term debt (31,488,217) (118,041)
Construction advances 87,124 922,038
Prepayments and deposits for financing arrangements, net (762,524) (234,364)
Restricted cash for financing arrangements, net (198,024) (724,469)
Deferred fees from financing arrangements 180,219 730,000
Proceeds from financing arrangements 43,021,272 -
Proceeds from issuance of convertible subordinated notes 9,000,000 -
Contributions by minority partner - 250,000
Preferred stock issuance costs - (600,159)
Preferred stock dividends (450,000) (476,230)
------------ -----------
Net cash provided by financing activities 38,480,774 23,945,446
------------ -----------
Net increase (decrease) in cash and cash equivalents 2,030,676 (5,007,444)
Cash and cash equivalents, beginning of period 1,865,576 8,650,817
------------ -----------
Cash and cash equivalents, end of period $3,896,252 $3,643,373
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $3,117,091 $997,896
============ ===========
Supplemental disclosure of non-cash investing and financing activities:
Long-term debt incurred to acquire minority interest $250,000 -
============ ===========
Sale of property and equipment to joint venture $967,408 -
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
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 including stand-alone
Alzheimer's communities. Assisted living is part of a spectrum of long-term
care services that provide a combination of housing, personal services and
health care designed to respond to elderly individuals who require
assistance with activities of daily living in a manner that promotes
maximum independence.
The results of operations for the nine months ended September 30, 1998,
reflect the operations of fifteen new assisted living communities, one of
which was managed for a portion of the period; five stabilized assisted
living communities, one of which was managed for a portion of the period;
fees from the management of five communities (two which were converted to
leases); and pre-opening costs related to two additional newly developed
communities that had not yet commenced rental activities during the period.
The results of operations for the nine months ended September 30, 1997,
reflect the operations of one new and four stabilized assisted living
communities, fees from the management of two communities, and pre-opening
costs related to ten additional newly developed communities that had not
yet commenced rental activities during the period.
As of November 12, 1998, the Company had also commenced operations at its
new assisted living community in Austin, Texas; is awaiting licensure of
its new Regent Court stand-alone Alzheimer's community in Scottsdale,
Arizona; and had an additional 21 assisted living communities (including
four Alzheimer's communities) in various stages of construction and
development.
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.
Page 6
<PAGE>
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, 1998, and for the three month and nine month periods ended
September 30, 1998 and 1997, have been prepared in conformity with
generally accepted accounting principles. The financial information as of
December 31, 1997, is derived from the Company's Form 10-KSB for the year
ended December 31, 1997. 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, 1997, included in the Company's Form 10-KSB
for the year ended December 31, 1997.
Operating results for the three month and nine month periods ended
September 30, 1998, are not necessarily indicative of the results that may
be expected for the remainder of the fiscal year ending December 31, 1998.
2. Property and Equipment:
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Land $3,091,300 $ 1,730,810
Buildings and improvements 29,388,304 12,713,346
Furniture and equipment 2,903,639 1,512,868
Construction in progress 25,592,036 54,429,419
----------- ----------
60,975,279 70,386,443
Less accumulated depreciation
and amortization 1,173,481 566,119
----------- ----------
Total property and equipment, net $59,801,798 $69,820,324
=========== ===========
</TABLE>
Land, buildings and certain furniture and equipment serve as collateral for
long-term debt.
Page 7
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
3. Administrative Services Agreement:
Pursuant to the terms of an Administrative Services Agreement, the Company
provides executive assistance, accounting and financial management
services, legal and administrative assistance, insurance, management
information services, and other management services as required by Bowen
Property Management Co., Bowen Financial Services Corp., Bowen Development
Company and Bowen Condominium Marketing, Inc., all of which are Oregon
corporations that are wholly owned or controlled by Mr. Bowen, the
Company's Chairman, President, and Chief Executive Officer. Under the terms
of the agreement, the Company will be reimbursed at its cost on a monthly
basis for all services provided.
4. Earnings (Loss) Per Common Share:
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
Earnings Per Share (SFAS 128). Basic EPS is calculated using income (loss)
attributable to common shares (after deducting preferred dividends) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS is calculated using income (loss) attributable to common shares
(after deducting preferred dividends and considering the effects of
dilutive common equivalent shares) divided by the weighted average number
of common shares and dilutive common shares outstanding for the period.
Basic and diluted earnings (loss) per common share includes a deduction of
preferred stock dividends declared, which totaled $150,000 and $450,000 for
the three month and nine month periods ended September 30, 1998,
respectively.
5. Accounting Pronouncements:
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities
(SOP 98-5). This statement requires that the costs of start-up activities,
including organization costs, be expensed as incurred. SOP 98-5 is
effective for financial statements for fiscal years beginning after
December 15, 1998. Consistent with its past accounting practices, the
Company expenses all start up costs and thus the adoption of this statement
will have no impact on the Company's reported results.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities and is effective for all quarters of
fiscal years beginning after June 15, 1999. The adoption of this Statement
will have no impact on the Company's reported results.
Page 8
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company
The Company reported a net loss of $3,685,757, or $0.83 per diluted share, on
revenues of $8,907,045 for the three months ended September 30, 1998. For the
nine months ended September 30, 1998, the Company reported a net loss of
$8,616,642, or $1.96 per diluted share, on revenues of $19,867,805.
Current Communities. The table below sets forth certain information
regarding the Company's communities at September 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
Northshore House Kenmore 1998 85 98 Manage(4)
Sterling Park Redmond 1990 162 192 Lease
California
Laurel Springs Bakersfield 1998 113 127 Own
Orchard Park Clovis 1998 112 128 Lease
Summerfield House Vacaville 1998 109 126 Own
Sun Oak Citrus Heights 1997 40 50 Manage
Sunnyside Court Fremont 1998 40 78 Lease
Sunshine Villa Santa Cruz 1990 106 126 Lease
The Palms Roseville 1998 93 108 Lease
Villa Sera Salinas 1998 150 150 Manage
Willow Creek Folsom 1997 104 117 Lease
Idaho
West Wind Boise 1997 48 52 Lease
Willow Park Boise 1997 117 130 Lease
Nevada
Mira Loma Henderson 1998 115 133 Own
New Mexico
Sandia Springs Rio Rancho 1998 109 126 Lease
Texas
Hamilton House San Antonio 1997 116 135 Lease
Arizona
Canyon Crest Tucson 1998 117 137 Lease
Wyoming
Aspen Wind Cheyenne 1998 77 77 Lease
Meadow Wind Casper 1998 53 53 Lease
Spring Wind Laramie 1998 53 53 Lease
Totals 2,261 2,574
===== =====
</TABLE>
Page 9
<PAGE>
(1) A "unit" is a studio or a one or two bedroom apartment.
(2) "Beds" reflects the actual number of beds used by the Company for census
purposes, which in no event is a number greater than the maximum number of
licensed beds permitted under the community's license.
(3) The Company completed a lease-acquisition of Park Place during the second
quarter of 1998. The Company had managed the Community prior to this
transaction.
(4) A limited liability company in which the Company owns a 50 percent interest
owns this community.
As of November 12, 1998, the Company had also commenced operations at its
Austin, Texas community and is awaiting licensure of its Regent Court community
in Scottsdale, Arizona:
<TABLE>
<CAPTION>
Location No. of Units No. of Beds Interest
-------- ------------ ----------- --------
<S> <C> <C> <C>
Austin, Texas 117 137 Own
Scottsdale, Arizona 24 48 Lease
</TABLE>
Also, as of November 12, 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>
Modesto, California 48 1st-99 Own
Clackamas, Oregon 48 2nd-99 Own
Kent, Washington 48 2nd-99 Manage(1)
Scottsdale, Arizona 115 2nd-99 Own
Corvallis, Oregon 48 4th-99 Own
Mesa, Arizona 132 1st-00 Own
(1) A limited liability company in which the Company owns a 10 percent interest
owns this community.
</TABLE>
The Company is engaged in various stages of development on 15 additional new
communities. If these 15 communities are completed, then, together with the
communities currently under construction, total operations of the Company will
increase by approximately 1,900 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 nine month periods ended September 30,
1998, are not necessarily indicative of future financial performance as the
Company intends to expand its operating base of communities.
Page 10
<PAGE>
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Revenues. For the three month period ended September 30, 1998, revenues were
$8,907,045 compared to $3,596,080 in the three month period ended September 30,
1997. The Company operated twenty communities and managed two communities in the
third quarter of 1998. The Company operated five communities and managed two in
the third quarter of 1997. The increase in revenue of $5,310,965 or 147.7
percent, includes $5,094,471 of revenue from newly opened and acquired
communities and an increase in revenue of $226,997 at the Company's three
communities that had stabilized occupancy at the beginning of both periods.
Overall average occupancy at these three communities increased to 95.6 percent
for the three month period ended September 30, 1998, whereas occupancy was 91.0
percent for the same period in 1997. A community is considered "stabilized" for
reporting purposes after it first attains occupancy of 95.0 percent.
Residence Operating Expenses. Residence operating expenses were $7,692,640 for
the three month period ended September 30, 1998, and $2,681,858 for the same
period in 1997, an increase of $5,010,782. The current period includes
$4,858,937 of start-up and pre-opening costs related to seventeen of the
Company's newly developed communities and $668,446 of residence operating
expenses related to the acquisition of two stabilized communities, whereas the
1997 period included $559,764 of start-up and pre-opening costs related to
eleven newly developed communities and $130,124 of residence operating expenses
related to the acquisition of one stabilized community. Residence operating
expenses for the Company's five stabilized communities totaled 63.6 percent of
rental and service revenues for the three month period ended September 30, 1998,
and was 62.7 percent for the three month period ended September 30, 1997, for
four stabilized communities, one of which was acquired during the period.
General and Administrative Expenses. General and administrative expenses were
$1,258,457 for the three month period ended September 30, 1998, compared to
$871,058 for the three month period ended September 30, 1997. The increase of
$387,399 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 sixteen leased communities was
$2,687,297 for the three month period ended September 30, 1998, and was $914,776
for the Company's four communities leased during the same period in 1997. The
increase of $1,772,521 relates primarily to the opening of two newly developed
communities, the sale-leaseback of five newly developed communities and the
lease-acquisition of five communities, all of which have occurred since the end
of the third quarter of 1997.
Depreciation and Amortization. Depreciation and amortization expense was
$409,167 for the three month period ended September 30, 1998, compared to
$88,646 for the three month period ended September 30, 1997. The increase of
$320,521 relates primarily to the capitalization of buildings, furniture,
equipment and vans for newly developed communities.
Interest Income. Interest income decreased slightly in the three month period
ended September 30, 1998, to $76,634 from $83,290 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.
Page 11
<PAGE>
Interest Expense. Interest expense was $444,328 for the three month period ended
September 30, 1998. The Company reported no interest expense for the three
months ended September 30, 1997. The Company capitalized $531,471 and $523,390
of interest charges incurred during the three months ended September 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.
Equity Interest in Joint Venture. For the three month period ended September 30,
1998, the Company reported a loss of $170,503 which is the primary result of
start-up and pre-opening costs related to one community in which the Company
owns less than a majority ownership interest.
Net Income (Loss). Net operating results decreased to a loss of $3,685,757
during the three month period ended September 30, 1998, from a loss of $881,732
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 $310,686.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Revenues. For the nine month period ended September 30, 1998, revenues increased
by $9,643,507 or 94.3% to $19,867,805 compared to $10,224,298 in the nine month
period ended September 30, 1997. The increase in revenue is related primarily to
revenue from newly developed and acquired communities. Overall average occupancy
at the Company's three communities that had stabilized occupancy at the
beginning of both periods decreased to 93.1 percent for the nine month period
ended September 30, 1998 from 93.4 percent for the same period in 1997.
Residence Operating Expenses. Residence operating expenses were $17,459,256 for
the nine month period ended September 30, 1998, and $7,015,759 for the same
period in 1997, an increase of $10,443,497. The current period includes
$9,799,971 of start-up and pre-opening costs related to seventeen of the
Company's new communities and $1,311,271 of residence operating expenses related
to the acquisition of two stabilized communities, whereas the 1997 period
included $804,892 of start-up and pre-opening costs related to eleven newly
developed communities and $130,124 of residence operating expenses related to
the acquisition of one stabilized community. Residence operating expenses
totaled 64.1 percent of rental and service revenues for the nine month period
ended September 30, 1998 for the Company's five stabilized communities, one of
which was acquired during the period, and 62.7 percent for the nine month period
ended September 30, 1997, for four stabilized communities, one of which was
acquired during the period.
Page 12
<PAGE>
General and Administrative Expenses. General and administrative expenses were
$3,213,189 for the nine month period ended September 30, 1998, compared to
$2,233,909 for the nine month period ended September 30, 1997. The increase of
$979,280 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 $6,122,196
for the nine month period ended September 30, 1998, and was $2,403,127 for the
same period in 1997. The increase of $3,719,069 relates primarily to the opening
and sale-leaseback of newly developed communities and the lease-acquisition of
several additional communities.
Depreciation and Amortization. Depreciation and amortization expense was
$764,719 for the nine month period ended September 30, 1998, compared to
$235,494 for the nine month period ended September 30, 1997. The increase of
$529,225 primarily relates to the capitalization of buildings, furniture and
equipment and the purchase of vans for the Company's newly developed
communities.
Interest Income. Interest income decreased in the nine month period ended
September 30, 1998, to $232,556 from $305,881 for the same period in 1997, a
decrease of $73,325.
Interest Expense. Interest expense increased in the nine month period ended
September 30, 1998, to $939,340 from $101,228 for the nine month period ended
September 30, 1997. The Company capitalized $2,288,321 and $895,582 of interest
charges incurred during the nine months ended September 30, 1998 and 1997,
respectively.
Equity Interest in Joint Venture. For the nine month period ended September 30,
1998, the Company reported a loss of $203,560 which is the primary result of
start-up and pre-opening costs related to one community in which the Company
owns less than a majority ownership interest.
Net Income (Loss). Net operating results decreased to a loss of $8,616,642
during the nine month period ended September 30, 1998, from a loss of $1,421,998
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 $803,615.
Liquidity and Capital Resources
At September 30, 1998, the Company had approximately $1.0 million of working
capital compared to a working capital deficit of approximately $4.3 million at
December 31, 1997. The increase of $5.3 million is the result of $9 million in
proceeds from the issuance by the Company of convertible subordinated notes, as
described below, $10.7 million of net proceeds from financing arrangements,
offset by a $7.8 million net loss from operations adjusted for non-cash items
and $30.2 million of expenditures related to development activities offset by
$23.6 million in additional long term indebtedness.
Page 13
<PAGE>
Net cash used in operating activities totaled $6,262,516 for the nine month
period ended September 30, 1998, which resulted primarily from a net loss of
$8,616,642, adjusted for depreciation and amortization of $764,719, and an
increase in accounts payable and other accrued expenses of $1,685,431. The
increase in accounts payable and other accrued expenses is attributable to the
increase in the number of communities under operation.
Net cash used in investing activities totaled $30,187,582 for the nine month
period ended September 30, 1998, substantially all of which was used for land
acquisition, development and construction costs. At September 30, 1998, the
aggregate purchase price for the Company's options related to seven parcels of
land was approximately $5.5 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 $38,480,774 during the nine
month period ended September 30, 1998, consisting of construction and equipment
financing proceeds totaling $23,590,924, proceeds from financing arrangements
totaling $43,021,272, proceeds from issuance of convertible subordinated notes
of $9,000,000, offset by repayment of short-term borrowings of $4,500,000,
repayment of long-term debt of $31,488,217, prepayments and deposits for
financing arrangements of $762,524, and payment of preferred stock dividends of
$450,000.
During the remainder of 1998, the Company intends to utilize current working
capital resources to develop and construct assisted living communities including
stand-alone Alzheimer's care 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 an aggregate of $11.2 million in loans from which it will
construct the Scottsdale and Modesto communities. As of September 30, 1998,
approximately $6.9 million remains to be drawn on these loans to fund
construction activities and debt service reserves. The Company has signed a
letter of intent with a REIT pursuant to which the Company intends to sell its
Clackamas, Corvallis, Las Vegas and Mesa sites to the REIT, construct
communities on each site for the REIT, and lease the communities from the REIT
upon their completion. The same commitment provides for the sale-leaseback of
the Company's Henderson and Austin communities. The Company also is currently
discussing with commercial banks and REITs the terms of potential financing with
which the Company will construct new communities currently under development.
Each of the pending financing transactions is subject to a number of conditions,
including the negotiation and execution of definitive documents and the
satisfactory completion of due diligence on the related properties, and there is
no assurance that any of these financing transactions will be completed on the
terms proposed, or at all.
Page 14
<PAGE>
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 November 12, 1998, a total of
$9.0 million of convertible subordinated notes have been issued under this
facility. Subject to final documentation, the Company and the purchasers have
agreed that no additional notes will be issued. 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 anticipates capital expenditures for the remainder of 1998 will
include additional land acquisition costs, architectural fees, and other
development costs related to at least 19 assisted living communities and
construction costs related to at least six new assisted living communities.
The Company currently anticipates completing construction on three new Regent
communities and four new Regent Court communities in 1999. Previously, the
Company announced that it intended to complete construction on nine new Regent
communities and five new Regent Court communities in 1999. The Company has
revised its plan due to delays experienced with obtaining building permits and
other governmental approvals for some of its sites, and delays in closing
construction financing. The total cost to develop and construct the seven
communities planned for 1999, including the estimated initial operating
deficits, will be approximately $41 million. The Company has obtained financing,
or commitments for financing, necessary to complete five of these communities.
The Company anticipates that it will be able to obtain the financing, upon
acceptable terms, necessary to complete the remaining two communities planned
for 1999. 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 seven 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 five Regent Communities and four 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 additional financing to complete its
growth plan.
Page 15
<PAGE>
Year 2000 Disclosure
"Year 2000 issues" relate to the result of computer programs having been written
using two digits rather than four to define the applicable year. Computer
programs and electronic devices that utilize date sensitive software or
information may recognize a date using the "00" as the year 1900 rather than the
year 2000. This recognition could result in a system failure or miscalculations
causing disruptions of operations or the inability of suppliers of material
services and products to continue supporting the Company's operations.
The Company has assessed its readiness in regard to Year 2000 issues. The
Company believes that all material hardware and software utilized in its
operations and, specifically, in its accounting systems, is Year 2000 compliant
or that Year 2000 compliant versions are available to the Company for
installation during the normal course of replacing or updating such systems
prior to November 30, 1999. The financial impact of any change is not
anticipated to be material to the financial position or results of the Company's
operations.
The Company believes it has adequate alternatives to counteract potential Year
2000 issues that may arise with its internally utilized software and hardware if
the assurances of relevant vendors are incorrect. The Company believes the
primary risks from Year 2000 issues to its operations and prospects are the
potential inability of the Company's commercial banks to permit access to the
Company's accounts and of utility companies to continuing supplying utilities to
the Company's communities. The Company does not have a contingency plan in
effect at this time to guard against such events.
The Company is in the process of obtaining Year 2000 compliance letters and
reports from suppliers of material services and products. To date, no such
supplier has indicated an inability to continue supplying material products and
services to the Company after January 1, 2000, although most are in the process
of evaluating and updating their internal systems and cannot yet assure the
Company that their systems are Year 2000 compliant. Accordingly, the Company
does not expect that Year 2000 issues will have a material adverse effect upon
the Company's operations or prospects. However, there can be no assurances that
the systems of other companies on which the Company's operations or systems rely
will be timely remediated or that a failure by another company to remediate its
systems in a timely manner would not have a material adverse effect on the
Company.
Page 16
<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, 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, the extent to which the
Company's efforts to obtain financing are affected by current liquidity issues
that have adversely impacted national and international financial markets,
increases in the costs associated with new construction, competition, and
acceptance of the Company's prototype community in new geographic markets. The
Company's growth strategy is subject to the risk that occupancy rates at
newly-developed communities may not be achieved or sustained at expected levels,
in which case, the Company will experience greater than anticipated operating
losses in connection with the opening of new communities and the Company's need
for additional financing to meet its growth plans will likely increase.
Furthermore, the Company's growth will place increasing pressure on the
Company's management controls and require the Company to locate, train,
assimilate, and retain additional community managers and support staff. There is
no assurance that the Company will be able to manage this growth successfully.
Page 17
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information.
In accordance with amendments adopted on May 21, 1998 to Rule 14a-4 under the
Securities Exchange Act of 1934, if notice of a shareholder proposal to be
raised at the annual meeting of shareholders is received at the principal
executive offices of the Company after March 15, 1999 (45 days prior to the
month and date in 1999 corresponding to the date on which the Company mailed its
proxy materials for the 1998 annual meeting), proxy voting on that proposal when
and if raised at the 1999 annual meeting will be subject to the discretionary
voting authority of the designated proxy holders. Any shareholder proposal to be
considered for the inclusion in proxy materials for the Company's 1999 annual
meeting must be received at the principal executive offices of the Company no
later than December 2, 1998.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
27 Financial Data Schedule
Reports on Form 8-K
None
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGENT ASSISTED LIVING, INC.
By:------------------------------ Date: November 12, 1998
Steven L. Gish
Chief Financial Officer
Page 18
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF JUNE
30, 1998, AND THE RELATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS IN THE
PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,896,252
<SECURITIES> 0
<RECEIVABLES> 1,191,680
<ALLOWANCES> 27,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,331,088
<PP&E> 60,975,279
<DEPRECIATION> 1,173,481
<TOTAL-ASSETS> 70,404,872
<CURRENT-LIABILITIES> 4,293,849
<BONDS> 52,753,762
10,808,703
0
<COMMON> 9,349,841
<OTHER-SE> (13,307,929)
<TOTAL-LIABILITY-AND-EQUITY> 70,404,872
<SALES> 19,722,689
<TOTAL-REVENUES> 19,867,805
<CGS> 17,459,256
<TOTAL-COSTS> 27,559,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 939,340
<INCOME-PRETAX> (8,616,642)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,616,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,616,642)
<EPS-PRIMARY> (1.96)
<EPS-DILUTED> (1.96)
</TABLE>
