----------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2000
[__] 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.)
121 SW Morrison St., Suite 1000
Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
503-227-4000
(Registrant's telephone number, including area code)
Indicate 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 [ ]
--- ---
As of November 14, 2000, there were 4,507,600 shares of the Registrant's Common
Stock, no par value, outstanding
----------------------------------------------------
<PAGE>
REGENT ASSISTED LIVING, INC.
FORM 10-Q
September 30, 2000
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended September 30, 2000 and 1999. . . . . . 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999. . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 22
Signature 23
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,888,427 $ 4,537,839
Cash held in working capital escrow 327,653 404,598
Accounts receivable, net 610,268 723,081
Prepaid expenses 1,325,559 739,569
Construction advances receivable 250,838 235,706
Land held for sale 4,860,000 2,860,000
---------------- --------------
Total current assets 10,262,745 9,500,793
Restricted cash 3,190,039 2,916,182
Property and equipment, net 49,809,058 46,900,983
Investment in and advances to joint ventures 667,204 383,114
Other assets 3,347,351 2,985,291
---------------- --------------
Total assets $ 67,276,397 $ 62,686,363
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,963,811 $ 2,266,919
Construction accounts payable 498,852 463,136
Accounts payable and other accrued expenses 6,935,757 5,343,587
---------------- --------------
Total current liabilities 11,398,420 8,073,642
Long-term debt 38,578,427 32,275,189
Convertible subordinated notes 9,000,000 9,000,000
Deposits under sales contract 10,346,567 10,194,342
Deferred gains and development fees, net 6,318,822 6,714,156
Other liabilities 1,428,553 1,387,250
---------------- --------------
Total liabilities 77,070,789 67,644,579
---------------- --------------
Minority interests in consolidated subsidiaries 266,183 352,389
---------------- --------------
Commitments
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized; 1,666,667 shares
issued and outstanding in 2000 and 1999 9,349,841 9,349,841
Common stock, no par value, 25,000,000 shares authorized; 4,507,600 shares
issued and outstanding in 2000 and 1999 10,619,349 10,619,349
Accumulated deficit (30,029,765) (25,279,795)
---------------- --------------
Total shareholders' equity (10,060,575) (5,310,605)
---------------- --------------
Total liabilities and shareholders' equity $ 67,276,397 $ 62,686,363
================ ==============
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, 2000 September 30, 1999 September 30, 2000 September 30, 1999
<S> <C> <C> <C> <C>
Revenues:
Rental and service $ 16,501,524 $ 14,095,095 $ 47,567,533 $ 38,885,648
Management fees 168,266 113,684 564,521 283,290
---------------- ---------------- ----------------- -----------------
Total revenues 16,669,790 14,208,779 48,132,054 39,168,938
---------------- ---------------- ----------------- -----------------
Operating expenses:
Residence operating expenses 11,520,298 10,249,489 32,666,182 28,301,751
General and administrative 2,126,141 1,358,490 5,410,125 4,098,882
Lease expense 3,455,777 3,403,353 10,358,221 9,994,251
Depreciation and amortization 432,258 394,085 1,258,657 1,116,255
---------------- ---------------- ----------------- -----------------
Total operating expenses 17,534,474 15,405,417 49,693,185 43,511,139
---------------- ---------------- ----------------- -----------------
Operating loss (864,684) (1,196,638) (1,561,131) (4,342,201)
Interest income 116,384 58,289 342,578 213,585
Interest expense (1,130,400) (771,866) (2,863,022) (1,855,194)
Equity in losses of joint ventures (76,146) (80,555) (244,560) (193,898)
Other income (loss), net 20,656 (6,140) 14,959 445,129
---------------- ---------------- ----------------- -----------------
Loss before minority interests (1,934,190) (1,996,910) (4,311,176) (5,732,579)
Minority interests 15,692 12,497 86,206 42,479
---------------- ---------------- ----------------- -----------------
Loss before income taxes (1,918,498) (1,984,413) (4,224,970) (5,690,100)
Provision for income taxes - - - -
---------------- ---------------- ----------------- -----------------
Net loss (1,918,498) (1,984,413) (4,224,970) (5,690,100)
Preferred stock dividends (200,000) (150,000) (525,000) (450,000)
---------------- ---------------- ----------------- -----------------
Net loss available to common shareholders $ (2,118,498) $ (2,134,413) $ (4,749,970) $ (6,140,100)
================ ================ ================= =================
Basic loss per common share $ (.47) $ (.46) $ (1.05) $ (1.33)
================ ================ ================= =================
Diluted loss per common share $ (.47) $ (.46) $ (1.05) $ (1.33)
================ ================ ================= =================
Weighted average common shares outstanding - basic 4,507,600 4,633,000 4,507,600 4,633,000
================ ================ ================= =================
Weighted average common shares outstanding - diluted 4,507,600 4,633,000 4,507,600 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)
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,224,970) $ (5,690,100)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,258,657 1,116,255
Loss (gain) on sale of assets 104 (462,112)
Adjustment on land held for sale to fair value 632,620 -
Amortization of deferred gains and development fees (395,334) (378,122)
Equity interest in joint ventures 244,560 193,898
Minority interests (86,206) (42,479)
Changes in other assets and liabilities:
Cash held in working capital escrow 76,945 781,820
Accounts receivable 166,236 (63,052)
Prepaid expenses (585,990) (1,182,823)
Other assets (41,303) 260,642
Accounts payable and other accrued expenses 1,067,170 1,633,422
Other liabilities 41,303 (260,642)
----------------- -------------------
Net cash used in operating activities (1,846,208) (4,093,293)
----------------- -------------------
Cash flows from investing activities:
Purchases of property and equipment (7,467,580) (11,902,040)
Increase (decrease) in construction accounts payable 35,716 (69,974)
Investment in and advances to joint venture - (67,000)
Proceeds from the sale of property and equipment 100,000 740,309
Deposits to replacement reserve account, net (60,817) 34,244
----------------- -------------------
Net cash used in investing activities (7,392,681) (11,264,461)
----------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 15,885,994 19,401,685
Payments on long-term debt (7,885,864) (14,587,818)
Construction (advances) payments (15,132) 373,788
Payments and deposits for financing arrangements, net (334,706) (458,143)
Restricted cash for financing arrangements, net (213,040) (383,812)
Deferred development fees from lease financing arrangements - 243,419
Proceeds from lease financing arrangements - 10,766,814
Proceeds from sales contract 152,225 1,214,325
Contributions by minority interest - 138,277
Preferred stock dividends - (450,000)
----------------- -------------------
Net cash provided by financing activities 7,589,477 16,258,535
----------------- -------------------
Net (decrease) increase in cash and cash equivalents (1,649,412) 900,781
Cash and cash equivalents, beginning of period 4,537,839 4,483,048
----------------- -------------------
Cash and cash equivalents, end of period $ 2,888,427 $ 5,383,829
================= ===================
</TABLE>
Supplemental disclosure of non-cash investing and financing activities during
the nine months ended September 30, 2000: Transfer of property and equipment
with a cost of $653,423 in exchange for investment in joint venture of
$600,000 and receivable from joint venture of $53,423.
Receivable in joint venture of $71,350 for developer fee.
Preferred stock dividends accrued $525,000.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies
The Company
-----------
Regent Assisted Living, Inc. ("the Company") is an owner, operator, and
developer of private-pay assisted living communities 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 September 30, 2000, the Company operated 30 assisted living
communities in nine western states. Of the 30 communities, three are
owned in joint ventures and accounted for under the equity method, and
three are operated under management contracts.
As of September 30, 1999, the Company operated 29 assisted living
communities in nine western states including two owned in joint
ventures and accounted for under the equity method and three operated
under management contracts.
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.
The accompanying unaudited condensed consolidated financial statements
as of September 30, 2000, and for the three month and nine month
periods ended September 30, 2000 and 1999, have been prepared in
conformity with accounting principles generally accepted in the United
States. The financial information as of December 31, 1999, is derived
from the Company's Form 10-K for the year ended December 31, 1999.
Certain information or footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying condensed
consolidated 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
Page 6
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
1. Operations and Summary of Significant Accounting Policies (continued)
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, 1999, included in
the Company's Form 10-K for the year ended December 31, 1999.
Operating results for the three month and nine month periods ended
September 30, 2000, are not necessarily indicative of the results that
may be expected for the remainder of the fiscal year ending December
31, 2000.
2. Property and Equipment
Property and equipment are stated at cost and consist of the following:
September 30, December 31,
2000 1999
---- ----
Land $ 5,364,716 $ 5,364,716
Buildings and improvements 33,714,769 33,332,546
Furniture and equipment 4,531,652 4,289,447
Construction in progress 10,025,691 6,572,177
------------- -------------
53,636,828 49,558,886
Less accumulated depreciation
and amortization (3,827,770) (2,657,903)
------------- -------------
Property and equipment, net $ 49,809,058 $ 46,900,983
============= =============
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. Earnings (Loss) Per Common Share
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standards
(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 $200,000 and $525,000 for the
three month and nine month periods ended September 30, 2000, and
$150,000 and $450,000 for the three month and nine month periods ended
September 30, 1999.
4. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," (SAB 101) and further amended it to defer the effective
date. This pronouncement summarizes certain of the SEC Staff's views on
applying generally accepted accounting principles to revenue
recognition. The Company is required to adopt the provisions of SAB 101
no later than December 31, 2000. The Company does not expect the
adoption of SAB 101 to have a material impact on its financial
statements.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44)
which provides interpretive guidance on several implementation issues
related to Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees." The Company is required to adopt the
provisions of FIN 44 in the third quarter of 2000. The Company does not
expect the adoption of FIN 44 to have a material impact on its
financial statements.
The FASB has issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133." This statement amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" to be
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 requires that every derivative
Page 8
<PAGE>
instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized in earnings unless
specific hedge accounting criteria are met. The Company believes that
the effect of adoption of SFAS No. 133 will not have a material effect
on the Company's financial statements.
The FASB has issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133." This statement amends SFAS No. 133 for specified
transactions. SFAS No. 138 is effective concurrently with SFAS No. 133
if SFAS No. 133 is not adopted prior to June 15, 2000. If SFAS No. 133
is adopted prior to June 15, 2000, SFAS No. 138 is effective for
quarters beginning after June 15, 2000. The Company believes that the
effect of adoption of SFAS No. 138 will not have a material effect on
the Company's financial statements.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company
The Company reported revenue of $16.7 million and a net loss of $1.9
million for the quarter ended September 30, 2000. For the nine month period
ended September 30, 2000, the Company reported revenue of $48.1 million and a
net loss of $4.2 million. After deducting preferred stock dividends, net loss
per share available to common shareholders on a diluted basis was $.47 and $1.05
for the three and nine month periods, respectively.
Current Communities. The table below sets forth certain information
regarding the Company's communities at September 30, 2000:
Regent
Operations
Community Location Commenced Units(1) Beds(2) Interest
--------- ----------- ---------- -------- ------- --------
Oregon
Park Place Portland 1986 112 112 Lease
Regency Park Portland 1987 122 136 Lease
Regent Court Clackamas 1999 24 48 Lease
Regent Court Corvallis 2000 24 48 Manage(3)
Sheldon Park Eugene 1998 104 116 Lease
Washington
Northshore House Kenmore 1998 85 92 Manage(4)
Regent Court Kent 1999 24 48 Manage(5)
Sterling Park Redmond 1990 154 175 Lease
California
Laurel Springs Bakersfield 1998 111 124 Own
Orchard Park Clovis 1998 112 124 Lease
Regent Court Modesto 1999 24 48 Own(6)
Summerfield House Vacaville 1998 109 122 Own
Sunnyside Court Fremont 1998 39 45 Lease
Sunshine Villa Santa Cruz 1990 106 124 Lease(7)
The Altenheim Oakland 2000 136 140 Manage
The Palms Roseville 1998 93 104 Lease
Villa Serra Salinas 1998 150 150 Manage
Willow Creek Folsom 1997 98 113 Lease
Page 10
<PAGE>
Regent
Operations
Community Location Commenced Units(1) Beds(2) Interest
--------- ----------- ---------- -------- ------- --------
Idaho
West Wind Boise 1997 48 51 Own(8)
Willow Park Boise 1997 106 120 Lease
Nevada
Mira Loma Henderson 1998 113 126 Lease
New Mexico
Sandia Springs Rio Rancho 1998 107 120 Lease
Texas
Hamilton House San Antonio 1997 111 123 Lease
Parmer Woods Austin 1998 114 130 Lease(9)
Arizona
Canyon Crest Tucson 1998 115 131 Lease
Desert Flower Scottsdale 1999 102 108 Manage(10)
Regent Court Scottsdale 1998 24 44 Lease
Wyoming
Aspen Wind Cheyenne 1998 77 77 Lease
Meadow Wind Casper 1998 51 51 Lease
Spring Wind Laramie 1998 52 52 Lease
----- -----
Totals: 2,647 3,002
===== =====
As of November 14, 2000, construction had commenced on the following six
communities:
Community Location Scheduled Opening Units(1) Beds(2) Interest
--------- -------- ----------------- ----- ---- --------
California
Regent Assisted Merced 1st quarter 2001 72 83 Own(11)
Living
Regent Assisted West Covina 1st quarter 2001 130 144 Lease
Living
Regent Assisted Elk Grove 4th quarter 2001 84 94 Own
Living
Page 11
<PAGE>
Community Location Scheduled Opening Units(1) Beds(2) Interest
--------- -------- ----------------- ----- ---- --------
Arizona
Citrus Park Mesa 4th quarter 2000 111 127 Lease
Utah
Regent Assisted South Ogden 1st quarter 2001 104 113 Own
Living
Regent Assisted Salt Lake City 3rd quarter 2001 107 116 Manage(12)
--- ---
Living
608 677
=== ===
(1) A "unit" is a single- or double-occupancy studio or 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 owns a 40 percent interest in a joint venture which owns the
Corvallis community.
(4) The Company owns a 50 percent interest in a joint venture which owns the
Kenmore community.
(5) The Company owns a 10 percent interest in a joint venture which owns the
Kent community.
(6) The Company owns a 55 percent co-tenancy interest in the Modesto
community.
(7) The Company sold the Santa Cruz community in a prior period pursuant to a
sale-leaseback transaction and is accounted for as a capital lease.
(8) The Company purchased West Wind in June 1999. Previously, this community
was operated pursuant to a lease arrangement.
(9) The Company completed a sale-leaseback transaction of its Austin
community in February 1999.
(10) The Company's Chairman and Chief Executive Officer purchased Desert
Flower in September 1999 pursuant to a sale-manageback transaction
accounted for under the deposit method.
Page 12
<PAGE>
(11) The Company owns a 75 percent interest in a joint venture which owns the
Merced community.
(12) The Company owns a 50 percent interest in a joint venture which owns the
Salt Lake City community.
As of November 14, 2000, the Company has entered into an agreement to
manage a 73-bed community being developed by a third party and has no additional
new communities in development.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain items included in the
Company's condensed consolidated financial statements.
<TABLE>
<CAPTION>
Percentage of Revenues Percentage of Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Expenses:
Residence operating expenses 69.1 72.1 67.9 72.3
General and administrative expenses 12.8 9.6 11.2 10.5
Lease expense 20.7 24.0 21.5 25.5
Depreciation and amortization 2.6 2.8 2.6 2.8
----------- ---------- ----------- -----------
Total operating expense 105.2 108.5 103.2 111.1
Operating loss (5.2) (8.5) (3.2) (11.1)
Other income (expense):
Interest income 0.7 0.4 0.7 0.5
Interest expense, net (6.7) (5.4) (6.0) (4.7)
Equity in losses of joint ventures (0.5) (0.6) (0.5) (0.5)
Other income, net 0.1 - - 1.1
----------- ---------- ----------- -----------
Loss before minority interests (11.6) (14.1) (9.0) (14.7)
Minority interests 0.1 0.1 0.2 0.1
----------- ---------- ----------- -----------
Loss before income taxes (11.5) (14.0) (8.8) (14.6)
Provision for income taxes - - - -
----------- ---------- ----------- -----------
Net loss (11.5) (14.0) (8.8) (14.6)
Preferred stock dividends (1.2) (1.0) (1.1) (1.1)
----------- ---------- ----------- -----------
Net loss available to common shareholders (12.7)% (15.0)% (9.9)% (15.7)%
=========== ========== =========== ===========
</TABLE>
Page 13
<PAGE>
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Revenues. For the three month period ended September 30, 2000, revenues
totaled $16.7 million compared to $14.2 million in the three month period ended
September 30, 1999, an increase of $2.5 million or 17.3 percent. During the
third quarter of 2000, the Company operated 31 communities comprised of eight
stabilized communities, 16 newly developed communities, and seven communities
operated pursuant to management contracts, three of which are owned in joint
ventures and accounted for under the equity method. The Company operated 29
communities during the third quarter of 1999, comprised of six stabilized
communities, 19 newly developed communities, and four communities operated
pursuant to management contracts, of which two are owned in joint ventures and
accounted for under the equity method. 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 three months ended September 30, 2000, rental and service
revenues from "Same Residences", the 24 communities that the Company operated at
the beginning of both periods, comprised of eight stabilized and 16 newly
developed communities, increased by $2.4 million over the three months ended
September 30, 1999. Of this increase, $0.5 million was from the eight stabilized
communities and $1.9 million was from the 16 newly developed communities.
Overall average occupancy at the Company's eight stabilized communities was 94.5
percent for the three month period ended September 30, 2000, compared to 95.6
percent at the Company's six stabilized communities for the same period in 1999.
Residence Operating Expenses. Residence operating expenses were $11.5
million for the three month period ended September 30, 2000, and $10.2 million
for the same period in 1999, an increase of $1.3 million or 12.4 percent.
Residence operating expenses from the 24 Same Residences increased by $1.3
million over the third quarter of 1999. Of this increase, $0.3 million was from
the eight stabilized communities and $1.0 million was from the 16 newly
developed communities. Residence operating expenses for all other newly
developed communities for the three month period ended September 30, 2000,
include $0.1 million of start-up operating expenses and pre-opening costs,
whereas such expenses totaled $0.2 million in 1999. Residence operating expenses
from Same Residences totaled 69.0 percent and 71.5 percent of rental and service
revenue for the three month periods ended September 30, 2000 and 1999,
respectively.
General and Administrative Expenses. General and administrative
expenses were $2.1 million for the three month period ended September 30, 2000,
compared to $1.4 million for the three month period ended September 30, 1999.
Development-related costs incurred in connection with asset write-downs (land
held for sale) and abandoned projects totaled $0.7 million compared to $0.1
million in 1999. Other general and administrative expenses increased by $0.2
million from 1999 to 2000, primarily related to the growth of the Company.
Page 14
<PAGE>
Lease Expense. Lease expense for the Company's leased communities was
$3.5 million for the three month period ended September 30, 2000, compared to
$3.4 million for the same period in 1999. The increase of $0.1 million relates
primarily to annual lease escalation clauses and the commencement of an
additional lease.
Depreciation and Amortization. Depreciation and amortization expense
was $0.4 million for the three month periods ended September 30, 2000 and
September 30, 1999.
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 September 30, 2000, to $1.1 million from $0.8 million for the three month
period ended September 30, 1999. Interest expense related to the operation of
communities increased a nominal amount in the current period as compared to the
same period in the prior year. The Company capitalized a nominal amount of
interest during the three months ended September 30, 2000, whereas the Company
capitalized $0.1 million of interest charges during the three months ended
September 30, 1999. Additionally, during the current period, the Company
expensed $0.2 million of interest incurred in conjunction with land held for
sale.
Equity in Losses of Joint Ventures. Equity in losses of joint ventures
resulted from the operations of the Company's 50 percent owned Kenmore,
Washington community; the 10 percent owned Kent, Washington community; and the
40 percent owned Corvallis, Oregon community.
Net Loss. Net operating results increased by $0.1 million during the
three month period ended September 30, 2000, compared to the same period in
1999. The Company reported a loss of $1.9 million for the third quarter of 2000,
whereas the Company reported a loss of $2.0 million for the third quarter of
1999. The increase in net results is primarily due to an increase in residence
operating profits (rental and service revenue less residence operating expenses)
of $1.1 million, offset by increases in general and administrative expenses,
lease expense, interest expense and equity in losses of joint ventures, all as
discussed above.
Nine Months ended September 30, 2000 Compared to Nine Months ended
September 30, 1999
Revenues. For the nine month period ended September 30, 2000, revenues
totaled $48.1 million compared to $39.2 million in the nine month period ended
September 30, 1999, an increase of $8.9 million or 22.9 percent. During the
first nine months of 2000, the Company operated 31 communities comprised of
seven stabilized communities, 17 newly developed communities, and seven
communities operated pursuant to management contracts, three of which are owned
in joint ventures and accounted for under the equity
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method. The Company operated 29 communities during the first nine months of
1999, comprised of five stabilized communities, 20 newly developed communities,
and four communities operated pursuant to management contracts, including two
owned in joint ventures and accounted for under the equity method.
During the nine months ended September 30, 2000, rental and service
revenues from Same Residences, the 22 communities that the Company operated at
the beginning of both periods, comprised of seven stabilized and 15 newly
developed communities, increased by $7.7 million over the nine months ended
September 30, 1999. Of this increase, $1.1 million was from the seven stabilized
communities and $6.6 million was from the 15 newly developed communities.
Revenues from two additional newly developed communities, one which opened in
February 1999 and the other in April 1999, increased by $0.9 million. Average
occupancy at the 22 Same Residences was 83.4 percent for the nine month period
ended September 30, 2000, compared to 78.1 percent for the same period in 1999.
Overall average occupancy at the Company's seven stabilized communities was 94.9
percent for the nine month period ended September 30, 2000, compared to 95.1
percent at the Company's five stabilized communities for the same period in
1999.
Residence Operating Expenses. Residence operating expenses were $32.7
million for the nine month period ended September 30, 2000, and $28.3 million
for the same period in 1999, an increase of $4.4 million or 15.4 percent.
Residence operating expenses from the 22 Same Residences increased by $4.2
million over the first nine months of 1999. Of this increase, $0.6 million was
from the seven stabilized communities and $3.6 million was from the 15 newly
developed communities. Residence operating expenses for all other newly
developed communities for the nine month period ended September 30, 2000,
include $1.5 million of start-up operating expenses and pre-opening costs,
whereas such expenses totaled $1.3 million in 1999. Residence operating expenses
from Same Residences totaled 67.8 percent and 70.5 percent of rental and service
revenue for the nine month periods ended September 30, 2000 and 1999,
respectively.
General and Administrative Expenses. General and administrative
expenses were $5.4 million for the nine month period ended September 30, 2000,
compared to $4.1 million for the nine month period ended September 30, 1999.
Development-related costs incurred in connection with asset write-downs (land
held for sale) and abandoned projects totaled $0.7 million compared to $0.3
million for the nine month periods ended September 30, 2000 and 1999,
respectively. Other general and administrative expenses increased by $0.9
million primarily due to the growth of the Company.
Lease Expense. Lease expense for the Company's leased communities was
$10.4 million for the nine month period ended September 30, 2000, compared to
$10.0 million for the same period in 1999. The increase of $0.4 million relates
to annual lease escalation clauses, the opening of two newly developed leased
communities and the sale-leaseback of one newly developed community offset by
the acquisition of a previously leased community.
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Depreciation and Amortization. Depreciation and amortization expense
was $1.3 million for the nine month period ended September 30, 2000, compared to
$1.1 million for the nine month period ended September 30, 1999. The increase
relates primarily to purchases of property and equipment to support existing
operations.
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 nine month period
ended September 30, 2000, to $2.9 million from $1.9 million for the nine month
period ended September 30, 1999. Interest expense related to the operation of
communities increased $0.3 million and interest expense related to land held for
sale increased by $ 0.2 million in the current period as compared to the same
period in the prior year. The Company capitalized $0.1 million of interest
charges during the nine months ended September 30, 2000, whereas the Company
capitalized $0.6 million of interest charges during the nine months ended
September 30, 1999.
Equity in Losses of Joint Ventures. Equity in losses of joint ventures
resulted from the operations of the Company's 50 percent owned Kenmore,
Washington community; the 10 percent owned Kent, Washington community; and the
40 percent owned Corvallis, Oregon community.
Other Income (Loss), Net. In the second quarter of 1999, the Company
sold a 45 percent co-tenancy interest in its Modesto, California community. The
Company recognized a $0.5 million gain as a result of the sale.
Net Loss. Net operating results increased by $1.5 million during the
nine month period ended September 30, 2000, compared to the same period in 1999.
The Company reported a loss of $4.2 million for the nine month period ended
September 30, 2000, whereas the Company reported a loss of $5.7 million for the
nine month period ended September 30, 1999. The increase in net results is
primarily due to an increase in residence operating profits (rental and service
revenue less residence operating expenses) of $4.3 million and an increase in
management fees of $0.3 million, offset by increases in general and
administrative expenses, lease expense, depreciation, interest expense and
equity in losses of joint ventures and other income (loss), all as discussed
above.
Liquidity and Capital Resources
At September 30, 2000, the Company had a $1.1 million working capital
deficit, compared to working capital of $1.4 million at December 31, 1999. The
decrease relates primarily to a decrease in cash and cash equivalents of $1.6
million (as described below) and an increase in net current liabilities of $0.9
million.
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Net cash used in operating activities totaled $1.8 million for the nine
month period ended September 30, 2000, resulting primarily from a net loss of
$4.2 million, adjusted $1.7 million for non-cash items (depreciation,
amortization, adjustment of land held for sale to fair value, equity interest in
joint ventures and minority interests), and an increase in net current
liabilities of $0.9 million offset by an increase in dividends payable of $0.5
million, an increase in land held for sale of $2.0 million, and an increase in
current portion of long-term debt of $1.7 million.
Net cash used in investing activities totaled $7.4 million for the nine
month period ended September 30, 2000, consisting primarily of development and
construction costs.
Net cash provided by financing activities totaled $7.6 million during
the nine month period ended September 30, 2000, consisting of property and
equipment financing proceeds totaling $15.9 million, and proceeds of $0.2
million from a sale-manageback arrangement with the Company's Chairman and Chief
Executive Officer, offset by repayment of long-term debt of $7.9 million, an
increase in restricted cash for financing arrangements of $0.2 million and a net
increase in payments and deposits for financing arrangements of $0.3 million.
During January 2000, the Company obtained an $8.8 million loan, the
proceeds of which will be used to construct and fund initial operations at the
Company's 113-bed South Ogden, Utah community. As of September 30, 2000, the
Company has drawn down approximately $3.8 million on this loan.
Also during January 2000, the Company entered into a joint venture
arrangement with an independent third party for the purpose of developing a
116-bed assisted living community in Salt Lake City, Utah. The Company's initial
capital contribution for its 50 percent joint venture interest totaled $1.1
million, comprised of $0.6 million of incurred development costs and a $0.5
million development fee. The joint venture partner contributed $1.1 million in
cash, which was utilized to acquire the land for the project. During July 2000,
the Company obtained an $8.0 million loan, the proceeds of which will be used to
construct and fund initial operations at this community. As of September 30,
2000, the Company has drawn down approximately $0.5 million on this loan.
On August 1, 2000, the Company completed an $8.8 million permanent
financing transaction for its Vacaville, California community. As a result of
the transaction, the Company repaid construction debt in the amount of $7.5
million and generated approximately $1.1 million of cash available for general
working capital requirements.
At September 30, 2000, the Company has capitalized costs totaling
approximately $10.0 million related to communities under construction or
development, encumbered by $7.1 million in outstanding debt.
The Company anticipates completing construction and commencing
operations at the Mesa community in the fourth quarter of 2000. The total
project cost, including the estimated initial operating deficit during
approximately the first six months of operations
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is being financed through a lease arrangement with a REIT; thereafter, the
deficit will be funded from general working capital.
The Company has four additional communities under construction that are
anticipated to commence operations in 2001. The Company has obtained financing
necessary to complete three of these communities and anticipates completing the
financing for the fourth community during the fourth quarter of 2000. The
Company estimates that the financing for these four construction projects is
sufficient to complete the projects and fund the estimated initial operating
deficit for the first year of operations. The Company's remaining capital
expenditures for 2000 will be primarily related to these construction
activities.
The Company has entered into a long-term lease for the West Covina
assisted living community being constructed by an unrelated third party and
expects to commence operation at this community during the first quarter of
2001. The Company intends to fund operating deficits from its general working
capital.
In order to conserve working capital and generate additional working
capital, the Company has discontinued development activities and has listed for
sale the four parcels of real property previously held for development. The
Company has entered into an agreement to sell one parcel of real property and
this transaction is scheduled to close in the fourth quarter of 2000. The
Company expects to generate $2.2 million in additional working capital available
to fund its general operations and satisfy certain debt obligations. Completion
of this transaction is subject to certain conditions that may not be satisfied
and thus is not certain.
Notwithstanding the Company's position related to selling land
previously held for development, the Company has not abandoned its intent to
grow. The Company believes there are many opportunities for growth in the
assisted living industry and, accordingly, has engaged an investment banking
advisor to evaluate the Company's financial prospects and assist with raising
additional equity or placing additional debt. The Company intends that it would
use the proceeds from any such transaction to acquire third party assisted
living operating companies, acquire from third parties individual assisted
living communities, repurchase communities leased by the Company, or commence
its internal development activities. The Company has not received a letter of
intent from any potential investor and the continued viability of the Company is
not dependent upon the success of this activity.
The Company has entered into agreements with two separate REITs to
purchase a total of four communities the Company currently leases. The Company
has obtained an expression of interest from a commercial bank to provide the
financing with which to effect these transactions. Additional equity is required
to complete the transactions. Mr. Bowen has offered to provide the required
equity and the Company's Board of Directors has approved a transaction by which
the Company will form a joint venture with Mr. Bowen to complete the
transactions. A material term of the proposed joint venture is that the Company
has the option to purchase Mr. Bowen's interest in the venture. Provided
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that the Company can complete these transactions, the Company will generate
approximately $500,000 of additional working capital to fund its general
operations. Completion of these transactions is subject to a number of
conditions, including the negotiation and execution of definitive documents.
There is no assurance that any of these transactions will be completed on the
terms proposed, or at all.
During the remainder of 2000, the Company expects to meet its working
capital requirements through cash on hand. The Company estimates that it will
have sufficient resources available to meet all operating needs through the
first quarter of 2001. The Company is working to generate additional working
capital through increasing occupancy and operating efficiencies at its
communities, selling land previously held for development, divesting from
unprofitable operations, refinancing or restructuring the financing secured by
some properties, and possibly through issuing additional equity and/or debt
instruments.
Certain operating lease agreements and loans contain restrictive
covenants. As of September 30, 2000, the Company was not in compliance with at
least one covenant relating to leases on five of the Company's communities and a
loan on one of the Company's communities. The Company believes the ultimate
resolution of this matter for each of the leases and the loan will not have a
material adverse impact on the Company's financial position, results of
operations, or cash flows.
The Company does not presently intend to pay dividends to holders of
its Common Stock and intends to retain future earnings to finance the operation
of its business.
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, the Company's plans to
construct and operate new communities, and the Company's ability to generate
sufficient working capital to meet its operating needs 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.
Completion of the company's current construction activities and
operation of the those communities will involve a number of risks including,
without limitation, the risk that the Company will be unable to obtain, or
delays in obtaining, necessary occupancy and other required governmental permits
and authorizations, risks that financing terms may change, 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 operations. 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
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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 financial operating 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.
The Company's ability to generate working capital sufficient to meet
its operating needs is subject to a number of risks. One such risk is the
ability of the Company to increase resident census and generate additional
revenue. This can be negatively impacted by increased competition and
regulation, instability in community staffing, and the effectiveness of the
Company's marketing and care programs. Additional risks include whether the
Company can successfully negotiate changes to current obligations to improve
their terms, replace maturing obligations with more favorable terms, and
restructure other obligations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's earnings are affected by changes in interest rates as a
result of its variable rate indebtedness. The Company manages this risk by
obtaining fixed rate borrowings when possible. At September 30, 2000, the
Company's variable rate borrowings totaled $8.6 million. If market interest
rates average one percent more in 2000 than in 1999, the Company's interest
expense would increase and income before taxes would decrease by $86,000. These
amounts are determined by considering the impact of hypothetical interest rate
on the Company's outstanding variable rate borrowings as of September 30, 2000,
and does not consider changes in the actual level of borrowings which may occur
subsequent to September 30, 2000. This analysis also does not consider the
effects of the reduced level of overall economic activity that could exist in
such an environment nor does it consider likely actions that management could
take with respect to the Company's financial structure to mitigate the exposure
to such a change.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A discussion of the Company's material legal proceeding appears in Item
3 of the Company's Annual Report on Form 10-K filed for the year ended December
31, 1999.
Item 3. Defaults Upon Senior Securities
The Company has not paid the first, second and third quarterly
dividends which were accrued with respect to its preferred stock. A total of
$525,000 was in arrears at September 30, 2000. The first quarter dividend rate
was 6 percent. For each subsequent quarter in which the dividend is not paid,
the dividend rate increases by one percent to a maximum of 12 percent or a
specific prime rate plus 300 basis points.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
27 Financial Data Schedule.
Reports on Form 8-K
There were no reports on Form 8-K for the period ended September 30,
2000.
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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 14, 2000
Steven L. Gish
Chief Financial Officer
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