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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 June 30, 1999
[ ] 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 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 12, 1999 - 4,633,000
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<PAGE>
REGENT ASSISTED LIVING, INC.
FORM 10-QSB
June 30, 1999
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
and six months ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . 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 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .18
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,573,111 $ 4,483,048
Cash held in working capital escrow 911,741 734,408
Accounts receivable, net 403,640 287,483
Prepaid expenses 968,593 280,324
Construction advances receivable 217,918 481,819
------------ ------------
Total current assets 6,075,003 6,267,082
Restricted cash 3,046,645 2,757,981
Property and equipment, net 51,652,170 54,191,324
Investment in and advances to joint venture 245,652 261,995
Other assets 2,557,840 2,795,374
------------ ------------
Total assets $ 63,577,310 $ 66,273,756
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 414,168 $ 284,481
Construction accounts payable 396,703 608,585
Accounts payable and other accrued expenses 4,989,125 3,812,061
------------ ------------
Total current liabilities 5,799,996 4,705,127
Long-term debt 40,199,695 40,704,567
Convertible subordinated notes 9,000,000 9,000,000
Deferred gains and development fees, net 7,006,451 6,022,773
Other liabilities 1,213,435 1,586,164
------------ ------------
Total liabilities 63,219,577 62,018,631
------------ ------------
Minority interest in consolidated subsidiary 108,295 -
------------ ------------
Commitments
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized;
1,666,667 shares issued and outstanding in 1999 and 1998 9,349,841 9,349,841
Common stock, no par value, 25,000,000 shares authorized;
4,633,000 shares issued and outstanding in 1999 and 1998 10,808,703 10,808,703
Accumulated deficit (19,909,106) (15,903,419)
------------ ------------
Total shareholders' equity 249,438 4,255,125
------------ ------------
Total liabilities and shareholders' equity $ 63,577,310 $ 66,273,756
============ ============
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 Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Revenues:
Rental and service $ 12,944,516 $ 6,641,931 $ 24,790,553 $ 10,858,511
Management fees 89,067 30,624 169,606 102,249
------------- ------------- ------------- -------------
Total revenues 13,033,583 6,672,555 24,960,159 10,960,760
------------- ------------- ------------- -------------
Operating expenses:
Residence operating expenses 9,465,801 5,576,480 18,052,262 9,766,616
General and administrative 1,455,760 987,111 2,740,392 1,954,732
Lease expense 3,388,300 2,020,181 6,590,898 3,434,899
Depreciation and amortization 401,361 241,469 722,170 355,552
------------- ------------- ------------- -------------
Total operating expenses 14,711,222 8,825,241 28,105,722 15,511,799
------------- ------------- ------------- -------------
Operating loss (1,677,639) (2,152,686) (3,145,563) (4,551,039)
Interest income 71,706 79,933 155,296 155,922
Interest expense (558,722) (430,597) (1,083,328) (495,012)
Equity in losses of joint venture (27,027) (31,971) (113,343) (33,057)
Other income (loss), net 457,008 11 451,269 (7,699)
------------- ------------- ------------- -------------
Loss before minority interest (1,734,674) (2,535,310) (3,735,669) (4,930,885)
Minority interest 29,982 - 29,982 -
------------- ------------- ------------- -------------
Loss before income taxes (1,704,692) (2,535,310) (3,705,687) (4,930,885)
Provision for income taxes - - - -
------------- ------------- ------------- -------------
Net loss (1,704,692) (2,535,310) (3,705,687) (4,930,885)
Preferred stock dividends (150,000) (150,000) (300,000) (300,000)
------------- ------------- ------------- -------------
Net loss available to common shareholders $ (1,854,692) $ (2,685,310) $ (4,005,687) $ (5,230,885)
============= ============= ============= =============
Basic loss per common share $ (.40) $ (.58) $ (.86) $ (1.13)
============= ============= ============= =============
Diluted loss per common share $ (.40) $ (.58) $ (.86) $ (1.13)
============= ============= ============= =============
Weighted average common shares outstanding - basic 4,633,000 4,633,000 4,633,000 4,633,000
============= ============= ============= =============
Weighted average common shares outstanding - 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>
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,705,687) $ (4,930,885)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 722,170 355,552
Gain on sale of assets (462,112) -
Amortization of deferred gains and development fees (245,857) (144,821)
Equity interest in joint venture 113,343 33,057
Minority interest (29,982) -
Changes in other assets and liabilities:
Cash held in working capital escrow 126,998 (53,480)
Accounts receivable (116,157) (140,620)
Prepaid expenses (723,269) (209,392)
Other assets 372,728 (544,365)
Accounts payable and other accrued expenses 1,177,064 513,906
Other liabilities (372,729) 546,865
------------- -------------
Net cash used in operating activities (3,143,490) (4,574,183)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (10,406,072) (22,232,918)
Increase (decrease) in construction accounts payable (211,882) 995,703
Investment in and advances to joint venture (97,000) (150,000)
Proceeds from the sale of property and equipment 740,309 -
Deposits to replacement reserve account, net 58,989 (22,254)
------------- -------------
Net cash used in investing activities (9,915,656) (21,409,469)
------------- -------------
Cash flows from financing activities:
Short-term borrowings - (4,500,000)
Proceeds from issuance of long-term debt 8,216,966 15,079,724
Payments on long-term debt (7,300,703) (31,426,443)
Construction (advances) payments 385,988 (270,142)
Payments and deposits for lease financing arrangements, net (229,199) (456,381)
Restricted cash for lease financing arrangements, net (347,653) 30,704
Deferred development fees from lease financing arrangements 243,419 190,000
Proceeds from lease financing arrangements 11,342,114 43,021,271
Proceeds from issuance of convertible subordinated notes - 7,000,000
Contributions by minority interest 138,277 -
Preferred stock dividends (300,000) (300,000)
------------- -------------
Net cash provided by financing activities 12,149,209 28,368,733
------------- -------------
Net increase (decrease) in cash and cash equivalents (909,937) 2,385,081
Cash and cash equivalents, beginning of period 4,483,048 1,805,096
------------- -------------
Cash and cash equivalents, end of period $ 3,573,111 $ 4,190,177
============= =============
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.
As of June 30, 1999, the Company operated 27 assisted living communities in
nine western states. Of the 27 communities, one is owned in a joint venture
and accounted for under the equity method, and two are operated under
management contracts. In addition, the Company had two communities awaiting
licensure, three communities under construction and ten under development.
During the six months ended June 30, 1999, the Company commenced operations
at two new stand-alone Alzheimer's care communities (Regent Court), one in
each calendar quarter.
As of June 30, 1998, the Company operated 19 assisted living communities in
eight states, including one under a management contract. During the six
month period ended June 30, 1998, the Company commenced operations at seven
new internally developed communities, and completed the lease-acquisition
of four communities, one of which was managed prior to conversion to a
lease.
As of August 12, 1999, the Company had also commenced operations at its new
internally developed 115-bed assisted living community in Scottsdale,
Arizona and its 48-bed Regent Court community in Kent, Washington.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
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 June 30, 1999, and for the three month and six month periods ended June
30, 1999 and 1998, have been prepared in conformity with generally accepted
accounting principles. The financial information as of December 31, 1998,
is derived from the Company's Form 10-KSB for the year ended December 31,
1998. 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 condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended December 31, 1998, included in the Company's Form 10-KSB
for the year ended December 31, 1998.
Operating results for the three month and six month periods ended June 30,
1999, are not necessarily indicative of the results that may be expected
for the remainder of the fiscal year ending December 31, 1999.
2. Property and Equipment:
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
Land $ 3,766,383 $ 3,057,756
Buildings and improvements 25,984,437 29,747,219
Furniture and equipment 3,382,882 3,452,579
Construction in progress 20,454,509 19,375,174
------------ ------------
53,588,211 55,632,728
Less accumulated depreciation
and amortization 1,936,041 1,441,404
------------ ------------
Total property and equipment, net $ 51,652,170 $ 54,191,324
============ ============
</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 (SFAS) No.
128, Earnings Per Share. Basic EPS is calculated using income (loss)
attributable to common shares (after deducting preferred dividends) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS is calculated using income (loss) attributable to common shares
(after deducting preferred dividends and considering the effects of
dilutive common equivalent shares) divided by the weighted average number
of common shares and dilutive common shares outstanding for the period.
Basic and diluted earnings (loss) per common share includes a deduction of
preferred stock dividends declared, which totaled $150,000 and $300,000 for
the three month and six month periods ended June 30, 1999 and 1998,
respectively.
Page 8
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company
The Company reported revenue of $13.0 million and a net loss of $1.7 million for
the three month period ended June 30, 1999. For the six month period ended June
30, 1999, the Company reported revenue of $25.0 million and a net loss of $3.7
million. After deducting preferred stock dividends, net loss per share available
to common shareholders on a diluted basis was $.40 and $.86 for the three month
and six month periods, respectively.
Current Communities. The table below sets forth certain information
regarding the Company's communities at June 30, 1999.
<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 122 141 Lease
Regent Court Clackamas 1999 24 48 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
Regent Court Modesto 1999 24 48 Own (5)
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 (6)
The Palms Roseville 1998 93 108 Lease
Villa Serra Salinas 1998 150 150 Manage
Willow Creek Folsom 1997 104 117 Lease
Idaho
West Wind Boise 1997 48 52 Own (7)
Willow Park Boise 1997 117 134 Lease
Nevada
Mira Loma Henderson 1998 115 133 Lease
New Mexico
Sandia Springs Rio Rancho 1998 109 126 Lease
Texas
Parmer Woods Austin 1998 117 137 Lease (8)
Hamilton House San Antonio 1997 116 135 Lease
Page 9
<PAGE>
Operations
Community Location Commenced Units(1) Beds(2) Interest
- --------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Arizona
Canyon Crest Tucson 1998 117 137 Lease
Regent Court Scottsdale 1998 24 48 Lease
Wyoming
Aspen Wind Cheyenne 1998 77 77 Lease
Meadow Wind Casper 1998 53 53 Lease
Spring Wind Laramie 1998 53 53 Lease
Totals 2,450 2,858
===== =====
(1) A "unit" is a single- or double-occupancy studio, 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 previously managed this community.
(4) The Company owns a 50 percent interest in a joint venture, which owns this
community.
(5) In April 1999, the Company sold a 45 percent co-tenancy interest in this
community.
(6) This community was sold in a prior period pursuant to a sale-leaseback
transaction and is accounted for as a capital lease.
(7) The Company purchased West Wind in June 1999. Previously, this community
was operated pursuant to a lease arrangement.
(8) The Company completed a sale-leaseback transaction of its Austin community
in February 1999.
</TABLE>
During the third quarter of 1999, the Company commenced operations at its
115-bed assisted living community in Scottsdale, Arizona and 48-bed Regent Court
community in Kent, Washington. The Company owns a 10 percent interest in a joint
venture, which owns the Kent community.
As of August 12, 1999, the Company had commenced construction on the following
three new communities:
<TABLE>
<CAPTION>
Scheduled
Community Location Opening Units Beds Interest
- --------- -------- ---------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Oregon
Regent Court Corvallis 1st quarter 2000 24 48 Own
California
Villa de Palma West Covina 2nd quarter 2000 130 142 Lease
Arizona
Citrus Park Mesa 3rd quarter 2000 112 132 Lease
--- ---
Totals 266 322
=== ===
</TABLE>
Page 10
<PAGE>
As of August 12, 1999, ten additional new communities were under varying stages
of development. If all ten communities are developed, total operations of the
Company will increase by approximately 960 beds to a total of approximately
4,300 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, 1999,
are not necessarily indicative of future financial performance as the Company
intends to continue expanding its operating base of communities.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues. For the three month period ended June 30, 1999, revenues totaled $13.0
million compared to $6.7 million in the three month period ended June 30, 1998,
an increase of $6.3 million or 95.3 percent. During the second quarter of 1999,
the Company operated 27 communities comprised of five stabilized communities, 19
newly developed or acquired communities, and three communities operated pursuant
to management contracts, of which one is owned in a joint venture and accounted
for under the equity method. The Company operated 19 communities during the
second quarter of 1998, comprised of five stabilized communities, including one
acquired in May 1998 which was managed prior to conversion to a lease, 13 newly
developed or acquired communities, and one operated pursuant to a management
contract. A community is considered "stabilized" for reporting purposes after it
first attains occupancy of 95.0 percent and prior to that time is considered
"newly developed."
During the second quarter of 1999, revenues from "Same Residences," the twelve
communities that the Company operated at the beginning of both periods,
comprised of four stabilized and eight newly developed or acquired communities,
increased by $2.7 million over the second quarter of 1998. Revenues from the
remaining eleven newly developed or acquired communities in operation during the
second quarter of 1999, compared to revenues from the remaining five newly
developed or acquired communities in operation during the second quarter of
1998, increased by $3.3 million. In addition, revenues for the comparable
periods increased $0.3 million from the one stabilized community the Company
acquired in May 1998. Occupancy at the twelve Same Residences was 81.4 percent
for the three month period ended June 30, 1999, compared to 54.4 percent for the
same period in 1998. Occupancy at the Company's five stabilized communities was
94.9 percent for the three month period ended June 30, 1999.
Residence Operating Expenses. Residence operating expenses were $9.5 million for
the three month period ended June 30, 1999, and $5.6 million for the same period
in 1998, an increase of $3.9 million or 69.7 percent. Residence operating
expenses from Same Residences during the second quarter of 1999 increased by
$1.4 million over the second quarter of 1998. This increase was primarily
attributable to the increased level of operations at the eight newly developed
or acquired communities operated at the beginning of both periods. In addition,
residence operating expenses for the current period include $3.2 million of
start-up operating expenses and pre-opening costs related to twelve newly
developed or acquired communities, whereas, the prior period included $0.9
million of start-up operating expenses and pre-opening costs related to seven
communities. Also, operating expenses increased $0.2 million from the stabilized
community acquired in May of 1998. Residence operating expenses from same
residences totaled 68.0 percent and 75.7 percent of rental and service revenues
for the three month periods ended June 30, 1999 and 1998, respectively.
Residence operating expenses for all stabilized communities totaled 64.2 percent
and 64.0 percent of rental and service revenues for the three month periods
ended June 30, 1999 and 1998, respectively.
Page 11
<PAGE>
General and Administrative Expenses. General and administrative expenses were
$1.5 million for the three month period ended June 30, 1999, compared to $1.0
million for the three month period ended June 30, 1998. The increase of $0.5
million is due primarily to the increase in operations related to the
implementation of the Company's plan for growth.
Lease Expense. Lease expense for the Company's leased communities was $3.4
million for the three month period ended June 30, 1999, compared to $2.0 million
for the same period in 1998. The increase of $1.4 million 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 $0.4
million for the three month period ended June 30, 1999, compared to $0.2 million
for the three month period ended June 30, 1998. The increase of $0.2 million
relates primarily to the opening of newly developed communities.
Interest Income. Interest income is earned from the Company's investment of cash
and cash equivalents in high quality, short term securities placed with
institutions with high credit ratings.
Interest Expense. Interest expense increased for the three month period ended
June 30, 1999, to $0.6 million from $0.4 million for the three month period
ended June 30, 1998. The Company capitalized $0.5 million and $0.7 million of
interest charges incurred during the three months ended June 30, 1999, and 1998,
respectively. Capitalized interest decreased due to a reduction in development
and construction activity during the current quarter as compared to the same
period a year ago.
Equity in Losses of Joint Venture. Equity in losses of joint venture resulted
from the operations of the Company's 50 percent owned Kenmore, Washington
community, which opened in the third quarter of 1998.
Other Income (Loss), Net. In the second quarter of 1999, the Company sold a 45
percent co-tenancy interest in its Modesto community. The Company recognized a
$0.5 million gain as a result of the sale.
Net Income (Loss). Net operating results increased by $0.8 million during the
three month period ended June 30, 1999, compared to the same period in 1998. The
Company reported a loss of $1.7 million for the second quarter of 1999, whereas
the Company reported a loss of $2.5 million for the second quarter of 1998. The
increase in net results is primarily due to an increase in residence operating
profits (rental and service revenue less residence operating expenses) of $2.4
million and an increase in other income of $0.5 million offset by increases in
general and administrative expenses, lease expense, depreciation, and interest
expense as discussed above.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. For the six month period ended June 30, 1999, revenues totaled $25.0
million compared to $11.0 million in the six month period ended June 30, 1998,
an increase of $14.0 million or 127.7 percent. During the first six months of
1999, the Company operated 27 communities comprised of five stabilized
communities, 19 newly developed or acquired communities, and three communities
operated pursuant to management contracts, of which one is owned in a joint
venture and accounted for under the equity method. The Company operated 19
communities during the first six months of 1998, comprised of five stabilized
communities, including one acquired in May 1998 which was managed prior to
conversion to a lease, 13 newly developed or acquired communities, and one
operated pursuant to a management contract.
Page 12
<PAGE>
During the first six months of 1999, revenues from Same Residences, the six
communities that the Company operated at the beginning of both periods and
comprised of four stabilized and two newly developed communities, increased by
$1.6 million over the same period in 1998. Of this increase, $1.4 million was
from the two newly developed communities. Revenues from the remaining 17 newly
developed or acquired communities in operation during the first six months of
1999, compared to revenues from the remaining eleven newly developed communities
in operation during the first six months of 1998, increased by $11.2 million. In
addition, revenues for the comparable periods increased $1.1 million from the
one stabilized community the Company acquired in May 1998. Occupancy at the six
Same Residences was 87.9 percent for the six month period ended June 30, 1999,
compared to 73.0 percent for the same period in 1998. Occupancy at the Company's
five stabilized communities was 95.0 percent for the six month period ended June
30, 1999.
Residence Operating Expenses. Residence operating expenses were $18.1 million
for the six month period ended June 30, 1999, and $9.8 million for the same
period in 1998, an increase of $8.3 million or 84.8 percent. Residence operating
expenses from Same Residences during the first six months of 1999 increased by
$0.7 million over the first six months of 1998. This increase was primarily
attributable to the increased level of operations at the two newly developed
communities operated at the beginning of both periods. In addition, residence
operating expenses for the current period include $10.7 million of start-up
operating expenses and pre-opening costs related to 18 newly developed or
acquired communities, whereas, the prior period included $3.9 million of
start-up operating expenses and pre-opening costs related to 13 communities.
Also, operating expenses increased $0.7 million from the stabilized community
acquired in May of 1998. Residence operating expenses from Same Residences
totaled 64.7 percent and 68.3 percent of rental and service revenues for the six
month periods ended June 30, 1999 and 1998, respectively. Residence operating
expenses for all stabilized communities totaled 63.3 percent and 64.4 percent of
rental and service revenues for the six month periods ended June 30, 1999, and
1998, respectively.
General and Administrative Expenses. General and administrative expenses were
$2.7 million for the six month period ended June 30, 1999, compared to $2.0
million for the six month period ended June 30, 1998. The increase of $0.7
million is due primarily to the increase in operations related to the
implementation of the Company's strategy for growth.
Lease Expense. Lease expense for the Company's leased communities was $6.6
million for the six month period ended June 30, 1999, compared to $3.4 million
for the same period in 1998. The increase of $3.2 million 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 $0.7
million for the six month period ended June 30, 1999, compared to $0.4 million
for the six month period ended June 30, 1998. The increase of $0.3 million
relates primarily to the opening of newly developed communities.
Interest Expense. Interest expense increased for the six month period ended June
30, 1999, to $1.1 million from $0.5 million for the six month period ended June
30, 1998. Interest expense related to the operation of newly opened communities
increased $0.2 million in the current period as compared to the same period in
the prior year. In addition, the Company incurred an additional $0.2 million of
interest in the six month period ended June 30, 1999, related to convertible
subordinated notes that were issued after the first quarter of 1998. The Company
capitalized $0.9 million and $1.8 million of interest charges incurred during
the six months ended June 30, 1999, and 1998, respectively. Capitalized interest
decreased due to a reduction in development and construction activity during the
current six month period as compared to the same period a year ago.
Page 13
<PAGE>
Net Income (Loss). Net operating results increased by $1.2 million during the
six month period ended June 30, 1999, compared to the same period in 1998. The
Company reported a loss of $3.7 million for the six month period ended June 30,
1999, whereas the Company reported a loss of $4.9 million for the six month
period ended June 30, 1998. The increase in net results is primarily due to an
increase in residence operating profits (rental and service revenue less
residence operating expenses) of $5.6 million and an increase in other income of
$0.5 million offset by an increase in general and administrative expenses, an
increase in lease expense, an increase in depreciation expense, and an increase
in interest expense as discussed above.
Liquidity and Capital Resources
At June 30, 1999, the Company had $0.3 million of working capital, compared to
working capital of $1.6 million at December 31, 1998, a decrease of $1.3
million. The Company's growth in operating capacity resulted in an increase in
net current liabilities which reduced working capital. Cash and cash equivalents
decreased by $0.9 million (as described below), however, cash held in working
capital escrow increased by $0.2 million.
Net cash used in operating activities totaled $3.1 million for the six month
period ended June 30, 1999, which resulted primarily from a net loss of $3.7
million, adjusted $0.1 million for non-cash items (depreciation, amortization
and gain on sale of assets), offset by an increase in net current liabilities of
$0.5 million.
Net cash used in investing activities totaled $9.9 million for the six month
period ended June 30, 1999, consisting primarily of land acquisition,
development, and construction costs offset by the proceeds of the sale of a 45
percent interest in a community of $0.7 million. At June 30, 1999, the aggregate
purchase price for two parcels of land for which the Company had purchase
options was approximately $1.8 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 for purposes of developing assisted
living communities at these sites.
Net cash provided by financing activities totaled $12.1 million during the six
month period ended June 30, 1999, consisting of property and equipment financing
proceeds totaling $8.2 million, net proceeds from lease-financing arrangements
totaling $11.4 million, offset by repayment of long-term debt of $7.3 million,
and payment of preferred stock dividends of $0.3 million.
During June 1999, the Company entered into a $10.1 million arrangement with a
REIT pursuant to which the Company is constructing its Mesa, Arizona community.
The sale of the land has been recorded as a capital lease. Upon completion, the
Company will lease the community pursuant to a long-term lease arrangement. The
Company generated $1.5 million of cash available for general working capital
requirements as a result of the sale.
During July 1999, the Company closed a $3.4 million loan for the construction of
the Corvallis community. The Company has sufficient financing to complete this
community and to fund its anticipated initial operating deficit during 2000.
Under two transactions involving the Company's Chairman, President and Chief
Executive Officer, the Company has agreed to terms of a sale/manage-back of its
115-bed Scottsdale, Arizona community and the reduction of certain long-term
debt. As a result of these transactions, the Company will reduce outstanding
debt by $8.8 million and generate approximately $1.1 million of cash available
for general working capital requirements. These transactions are expected to
close in August 1999.
Page 14
<PAGE>
During the remainder of 1999, the Company intends to utilize current working
capital resources primarily for operating requirements. At June 30, 1999, the
Company had capitalized costs totaling approximately $20.1 million related to
communities under construction or development, encumbered by $10.4 million in
outstanding debt. The Company intends to finance substantially all of the
remaining costs 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 anticipates capital expenditures for 1999 may include certain
additional land acquisition costs, architectural fees, and other development
costs related to at least ten assisted living communities. The Company
anticipates commencing construction on as many as five communities during 1999.
The total cost to develop and construct the five communities, including the
estimated initial operating deficits, will likely be between $42 million to $47
million. A substantial portion of these costs may be incurred during 1999.
The Company 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. Provided that
the Company can obtain financing upon acceptable terms, the Company estimates
that it has the necessary equity capital invested in seven of these ten
communities in order to complete construction and to fund the initial operating
deficits. The Company may require additional equity capital to complete the
final three communities.
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 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 was unable to obtain additional required financing, or if such
financing is not available on acceptable terms, the Company expects that its
plan to commence construction of up to ten additional 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 a site, the Company experiences
a decline in the operations of its current communities or the Company does not
achieve and sustain anticipated occupancy levels at its new communities, then
the Company may require additional financing to complete its growth plan.
Certain of the Company's operating lease agreements contain restrictive
covenants. As of June 30, 1999, the Company was in compliance with the covenants
for all lease agreements.
The Company does not presently intend to pay dividends to holders of its Common
Stock and intends to retain future earnings to finance the development of
assisted living communities and expand its business.
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, cash flows 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 has received
assurances from several utility suppliers and banks that their systems are Year
2000 compliant. Nonetheless, the Company believes the primary risks from Year
2000 issues to its operations and prospects are the potential inability of
utility companies to continue 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. Nonetheless, 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, 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.
Page 17
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its 1999 annual meeting of shareholders at 11:00 a.m., PDT, on
May 25, 1999, on the 30th Floor of the U.S. Bancorp Tower, 111 S.W. Fifth
Avenue, Portland, Oregon.
The only matter submitted to a vote of the shareholders was the election of
three directors. Proxies were solicited pursuant to Regulation 14A of the
Exchange Act.
The following persons were elected by the following vote as directors for the
stated terms:
Class III Term Expiring in 2002 FOR ABSTAIN
- ------------------------------- --------- -------
Walter C. Bowen 4,648,541 2,000
Marvin S. Hausman 4,648,541 2,000
Gary R. Maffei 4,648,541 2,000
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: STEVEN L. GISH Date: August 13, 1999
------------------------------
Steven L. Gish
Chief Financial Officer
Page 18
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
27. Financial Data Schedule
Page 19
<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, 1999, AND THE RELATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS IN
THE PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,573,111
<SECURITIES> 0
<RECEIVABLES> 658,558
<ALLOWANCES> 37,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,075,003
<PP&E> 53,588,211
<DEPRECIATION> 1,936,041
<TOTAL-ASSETS> 63,577,310
<CURRENT-LIABILITIES> 5,799,996
<BONDS> 49,199,695
10,808,703
0
<COMMON> 9,349,841
<OTHER-SE> (19,909,106)
<TOTAL-LIABILITY-AND-EQUITY> 63,577,310
<SALES> 24,790,553
<TOTAL-REVENUES> 24,960,159
<CGS> 18,052,262
<TOTAL-COSTS> 28,105,722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,083,328
<INCOME-PRETAX> (3,705,687)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,705,687)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,705,687)
<EPS-BASIC> (.86)
<EPS-DILUTED> (.86)
</TABLE>
