----------------------------------------------------
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 June 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 August 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
June 30, 2000
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2000 and 1999. . . . . .. . . . 4
Condensed Consolidated Statements of Cash Flows for the three
months and six months ended June 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. . . . . . . . . . . . . . . . . . . . . . 9
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 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 23
Signature 24
Page 2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,102,695 $ 4,537,839
Cash held in working capital escrow 180,175 404,598
Accounts receivable, net 555,090 723,081
Prepaid expenses 824,168 739,569
Construction advances receivable 240,908 235,706
Land held for sale 2,835,000 2,860,000
--------------- ---------------
Total current assets 7,738,036 9,500,793
Restricted cash 3,122,735 2,916,182
Property and equipment, net 49,886,825 46,900,983
Investment in and advances to joint ventures 743,350 383,114
Other assets 3,193,964 2,985,291
--------------- ---------------
Total assets $ 64,684,910 $ 62,686,363
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,343,835 $ 2,266,919
Construction accounts payable 466,037 463,136
Accounts payable and other accrued expenses 6,058,336 5,343,587
--------------- ---------------
Total current liabilities 8,868,208 8,073,642
Long-term debt 36,293,223 32,275,189
Convertible subordinated notes 9,000,000 9,000,000
Deposits under sales contract 10,356,905 10,194,342
Deferred gains and development fees, net 6,450,600 6,714,156
Other liabilities 1,376,176 1,387,250
--------------- ---------------
Total liabilities 72,345,112 67,644,579
--------------- ---------------
Minority interests in consolidated subsidiaries 281,875 352,389
--------------- ---------------
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 (27,911,267) (25,279,795)
--------------- ---------------
Total shareholders' equity (7,942,077) (5,310,605)
--------------- ---------------
Total liabilities and shareholders' equity $ 64,684,910 $ 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 Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Revenues:
Rental and service $ 15,744,615 $ 12,944,516 $ 31,066,009 $ 24,790,553
Management fees 194,809 89,067 396,255 169,606
------------ ------------ ------------ ------------
Total revenues 15,939,424 13,033,583 31,462,264 24,960,159
------------ ------------ ------------ ------------
Operating expenses:
Residence operating expenses 10,803,385 9,465,801 21,145,884 18,052,262
General and administrative 1,831,163 1,455,760 3,283,984 2,740,392
Lease expense 3,461,380 3,388,300 6,902,444 6,590,898
Depreciation and amortization 414,144 401,361 826,399 722,170
------------ ------------ ------------ ------------
Total operating expenses 16,510,072 14,711,222 32,158,711 28,105,722
------------ ------------ ------------ ------------
Operating loss (570,648) (1,677,639) (696,447) (3,145,563)
Interest income 112,315 71,706 226,194 155,296
Interest expense (875,020) (558,722) (1,732,622) (1,083,328)
Equity in losses of joint venture (73,819) (27,027) (168,414) (113,343)
Other income (loss), net 255 457,008 (5,697) 451,269
------------ ------------ ------------ ------------
Loss before minority interest (1,406,917) (1,734,674) (2,376,986) (3,735,669)
Minority interest 37,431 29,982 70,514 29,982
------------ ------------ ------------ ------------
Loss before income taxes (1,369,486) (1,704,692) (2,306,472) (3,705,687)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net loss (1,369,486) (1,704,692) (2,306,472) (3,705,687)
Preferred stock dividends (175,000) (150,000) (325,000) (300,000)
------------ ------------ ------------ ------------
Net loss available to common shareholders $ (1,544,486) $ (1,854,692) $ (2,631,472) $ (4,005,687)
============ ============ ============ ============
Basic loss per common share $ (.34) $ (.40) $ (.58) $ (.86)
============ ============ ============ ============
Diluted loss per common share $ (.34) $ (.40) $ (.58) $ (.86)
============ ============ ============ ============
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>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,306,472) $ (3,705,687)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 826,399 722,170
Loss (gain) on sale of assets 104 (462,112)
Amortization of deferred gains and development fees (263,556) (245,857)
Equity interest in joint ventures 168,414 113,343
Minority interests (70,514) (29,982)
Changes in other assets and liabilities:
Cash held in working capital escrow 224,423 126,998
Accounts receivable 221,414 (116,157)
Prepaid expenses (84,599) (723,269)
Other assets 11,074 372,728
Accounts payable and other accrued expenses 389,749 1,177,064
Other liabilities (11,074) (372,729)
------------- -------------
Net cash used in operating activities (894,638) (3,143,490)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (4,412,835) (10,406,072)
Increase (decrease) in construction accounts payable 2,901 (211,882)
Investment in and advances to joint venture - (97,000)
Proceeds from the sale of property and equipment 25,000 740,309
Deposits to replacement reserve account, net (35,739) 58,989
------------- -------------
Net cash used in investing activities (4,420,673) (9,915,656)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,318,900 8,216,966
Payments on long-term debt (223,950) (7,300,703)
Construction (advances) payments (5,202) 385,988
Payments and deposits for financing arrangements, net (201,330) (229,199)
Restricted cash for financing arrangements, net (170,814) (347,653)
Deferred development fees from lease financing arrangements - 243,419
Proceeds from lease financing arrangements - 11,342,114
Proceeds from sales contract 162,563 -
Contributions by minority interest - 138,277
Preferred stock dividends - (300,000)
------------- -------------
Net cash provided by financing activities 3,880,167 12,149,209
------------- -------------
Net decrease in cash and cash equivalents (1,435,144) (909,937)
Cash and cash equivalents, beginning of period 4,537,839 4,483,048
------------- -------------
Cash and cash equivalents, end of period $ 3,102,695 $ 3,573,111
============ ============
Supplemental disclosure of non-cash investing and financing activities during
the six months ended June 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 $325,000.
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, 2000, the Company operated 31 assisted living
communities in nine western states. Of the 31 communities, three are
owned in joint ventures and accounted for under the equity method, and
four are operated under management contracts.
As of June 30, 1999, the Company operated 27 assisted living
communities in nine western states including one owned in a joint
venture and accounted for under the equity method and two 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 June 30, 2000, and for the three and six month periods ended June
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 presented. The accompanying condensed consolidated
financial statements should be read in
Page 6
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
1. Operations and Summary of Significant Accounting Policies (continued)
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 and six month periods ended June 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:
June 30, December 31,
2000 1999
---- ----
Land $ 5,364,716 $ 5,364,716
Buildings and improvements 33,524,320 33,332,546
Furniture and equipment 4,390,026 4,289,447
Construction in progress 10,035,641 6,572,177
------------- -------------
53,314,703 49,558,886
Less accumulated depreciation
and amortization (3,427,878) (2,657,903)
------------- -------------
Property and equipment, net $ 49,886,825 $ 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 $175,000 and $325,000 for the
three month and six month periods ended June 30, 2000, and $150,000 and
$300,000 for the three month and six month periods ended June 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.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company
The Company reported revenue of $15.9 million and a net loss of $1.4 million
for the quarter ended June 30, 2000. For the six month period ended June 30,
2000, the Company reported revenue of $31.5 million and a net loss of $2.3
million. After deducting preferred stock dividends, net loss per share available
to common shareholders on a diluted basis was $.34 and $.58 for the three and
six month periods, respectively.
Current Communities. The table below sets forth certain information
regarding the Company's communities at June 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 105 117 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
Sun Oak Citrus Heights 1997 40 50 Manage
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 9
<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 116 132 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 53 53 Lease
--- ---
Totals: 2,690 3,055
===== =====
As of August 14, 2000, construction had commenced on the following five
communities:
Community Location Scheduled Opening Units(1) Beds(2) Interest
--------- -------- ----------------- ----- ---- --------
California
Regent Assisted Merced 1st quarter 2001 72 83 Own(11)
Living
West Covina West Covina 4th quarter 2000 130 142 Lease
Gardens
Arizona
Citrus Park Mesa 4th quarter 2000 111 127 Lease
Page 10
<PAGE>
Community Location Scheduled Opening Units(1) Beds(2) Interest
--------- -------- ----------------- ----- ---- --------
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 --- ---
524 581
=== ===
(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 11
<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 August 14, 2000, the Company has entered into an agreement to manage a
73-bed community being developed by a third party and has three additional new
communities in varying stages of development. If all three communities are
developed, total operations of the Company will increase by approximately 295
beds to a total of approximately 4,000 beds.
The Company continues to pursue its primary strategy of developing new
communities and is therefore engaged in negotiations to acquire additional sites
and is pursuing joint venture opportunities with parties who control parcels of
land in strategic markets. There is no assurance that the Company will be able
to develop successfully any of the sites it has acquired or will in the future
acquire.
Page 12
<PAGE>
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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Expenses:
Residence operating expenses 67.8 72.6 67.2 72.3
General and administrative expenses 11.5 11.2 10.4 11.0
Lease expense 21.7 26.0 22.0 26.4
Depreciation and amortization 2.6 3.1 2.6 2.9
-------- -------- -------- --------
Total operating expense 103.6 112.9 102.2 112.6
Operating loss (3.6) (12.9) (2.2) (12.6)
Other income (expense):
Interest income 0.7 0.6 0.7 0.6
Interest expense, net (5.4) (4.2) (5.5) (4.3)
Equity in losses of joint ventures (0.5) (0.2) (0.5) (0.4)
Other income, net - 3.5 - 1.8
-------- -------- -------- --------
Loss before minority interests (8.8) (13.2) (7.5) (14.9)
Minority interests 0.2 0.2 0.2 0.1
-------- -------- -------- --------
Loss before income taxes (8.6) (13.0) (7.3) (14.8)
Provision for income taxes - - - -
-------- -------- -------- --------
Net loss (8.6) (13.0) (7.3) (14.8)
Preferred stock dividends (1.1) (1.2) (1.1) (1.2)
-------- -------- -------- --------
Net loss available to common shareholders (9.7)% (14.2)% (8.4)% (16.0)%
======== ======== ======== ========
</TABLE>
Page 13
<PAGE>
Three Months Ended June 30, 2000 Compared to Three Months Ended
June 30, 1999
Revenues. For the three month period ended June 30, 2000, revenues totaled
$15.9 million compared to $13.0 million in the three month period ended June 30,
1999, an increase of $2.9 million or 22.3 percent. During the second 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 27 communities
during the second quarter of 1999, comprised of five stabilized communities, 19
newly developed 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. 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 June 30, 2000, rental and service revenues from
"Same Residences", the 23 communities that the Company operated at the beginning
of both periods, comprised of eight stabilized and 15 newly developed
communities, increased by $2.6 million over the three months ended June 30,
1999. Of this increase, $0.7 million was from the eight stabilized communities
and $1.9 million was from the 15 newly developed communities. Revenues from one
additional newly developed community that opened in April 1999 increased by $0.2
million during the second quarter of 2000. Overall average occupancy at the
Company's eight stabilized communities was 94.7 percent for the three month
period ended June 30, 2000, compared to 94.9 percent at the Company's five
stabilized communities for the same period in 1999.
Residence Operating Expenses. Residence operating expenses were $10.8
million for the three month period ended June 30, 2000, and $9.5 million for the
same period in 1999, an increase of $1.3 million or 14.1 percent. Residence
operating expenses from the 23 Same Residences increased by $1.4 million over
the second quarter of 1999. Of this increase, $0.2 million was from the eight
stabilized communities and $1.2 million was from the 15 newly developed
communities. Residence operating expenses for all other newly developed
communities for the three month period ended June 30, 2000, include $0.2 million
of start-up operating expenses and pre-opening costs, whereas such expenses
totaled $0.3 million in 1999. Residence operating expenses from Same Residences
totaled 67.1 percent and 70.9 percent of rental and service revenue for the
three month periods ended June 30, 2000 and 1999, respectively.
General and Administrative Expenses. General and administrative expenses
were $1.8 million for the three month period ended June 30, 2000, compared to
$1.5 million for the three month period ended June 30, 1999. The increase is due
to an increase in operations related to the implementation of the Company's plan
for growth and a non-recurring charge of $0.2 million related to the termination
of an employment contract.
Page 14
<PAGE>
Lease Expense. Lease expense for the Company's leased communities was $3.5
million for the three month period ended June 30, 2000, compared to $3.4 million
for the same period in 1999. The increase of $0.1 million relates to annual
lease escalation clauses and the opening of two newly developed leased
communities offset by the acquisition of a previously leased community.
Depreciation and Amortization. Depreciation and amortization expense was
$0.4 million for the three month periods ended June 30, 2000 and June 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 June 30, 2000, to $0.9 million from $0.6 million for the three month
period ended June 30, 1999. Interest expense related to the operation of
communities increased $0.1 million in the current period as compared to the same
period in the prior year. The Company capitalized $0.2 million of interest
charges during the three months ended June 30, 2000, whereas the Company
capitalized $0.5 million of interest charges during the three months ended June
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 Income (Loss). Net operating results increased by $0.3
million during the three month period ended June 30, 2000, compared to the same
period in 1999. The Company reported a loss of $1.4 million for the second
quarter of 2000, whereas the Company reported a loss of $1.7 million for the
second 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 $1.5 million, offset by increases in general
and administrative expenses, lease expense, interest expense and equity in
losses of joint venture, and a decrease in other income all as discussed above.
Page 15
<PAGE>
Six Months ended June 30, 2000 Compared to Six Months ended June 30, 1999
Revenues. For the six month period ended June 30, 2000, revenues totaled
$31.5 million compared to $25.0 million in the six month period ended June 30,
1999, an increase of $6.5 million or 26.0 percent. During the first six 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 method. The Company operated 27 communities
during the first six months of 1999, comprised of five stabilized communities,
19 newly developed communities, and three communities operated pursuant to
management contracts, including one owned in a joint venture and accounted for
under the equity method.
During the six months ended June 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 $5.6 million over the six months ended June 30, 1999.
Of this increase, $0.8 million was from the seven stabilized communities and
$4.8 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 $0.7 million. Average occupancy at the 22
Same Residences was 82.9 percent for the six month period ended June 30, 2000,
compared to 75.3 percent for the same period in 1999. Overall average occupancy
at the Company's seven stabilized communities was 95.3 percent for the six month
period ended June 30, 2000, compared to 95.0 percent at the Company's five
stabilized communities for the same period in 1999.
Residence Operating Expenses. Residence operating expenses were $21.1
million for the six month period ended June 30, 2000, and $18.0 million for the
same period in 1999, an increase of $3.1 million or 17.1 percent. Residence
operating expenses from the 22 Same Residences increased by $3.0 million over
the first six months of 1999. Of this increase, $0.4 million was from the seven
stabilized communities and $2.6 million was from the 15 newly developed
communities. Residence operating expenses for all other newly developed
communities for the six month period ended June 30, 2000 include $0.9 million of
start-up operating expenses and pre-opening costs, whereas such expenses totaled
$0.7 million in 1999. Residence operating expenses from Same Residences totaled
65.3 percent and 70.0 percent of rental and service revenue for the six month
periods ended June 30, 2000 and 1999, respectively.
General and Administrative Expenses. General and administrative expenses
were $3.3 million for the six month period ended June 30, 2000, compared to $2.7
million for the six month period ended June 30, 1999. The increase 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 $6.9
million for the six month period ended June 30, 2000, compared to $6.6 million
for the same period in 1999. The increase of $0.3 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
$0.8 million for the six month period ended June 30, 2000, compared to $0.7
million for the six month period ended June 30, 1999. The increase 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 six month period ended
June 30, 2000, to $1.7 million from $1.1 million for the six month period ended
June 30, 1999. Interest expense related to the operation of communities
increased $0.2 million in the current period as compared to the same period in
the prior year. The Company capitalized $0.3 million of interest charges during
the six months ended June 30, 2000, whereas the Company capitalized $0.9 million
of interest charges during the six months ended June 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.
Net Income (Loss). Net operating results increased by $1.4 million during
the six month period ended June 30, 2000, compared to the same period in 1999.
The Company reported a loss of $2.3 million for the six month period ended June
30, 2000, whereas the Company reported a loss of $3.7 million for the six month
period ended June 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 $3.2 million, offset by increases in general
and administrative expenses, lease expense, depreciation, interest expense and
equity in losses of joint venture, all as discussed above.
Liquidity and Capital Resources
At June 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 $1.4 million (as
described below) and an increase in net current liabilities of $0.9 million.
Net cash used in operating activities totaled $0.9 million for the six month
period ended June 30, 2000, resulting primarily from a net loss of $2.3 million,
adjusted $0.7 million for non-cash items (depreciation, amortization, 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 $0.3 million, and the release of $0.2 million of cash held in working capital
escrow.
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Net cash used in investing activities totaled $4.4 million for the six month
period ended June 30, 2000, consisting primarily of development and construction
costs.
Net cash provided by financing activities totaled $3.9 million during the
six month period ended June 30, 2000, consisting of property and equipment
financing proceeds totaling $4.3 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 $0.2 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 $0.2 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 June 30, 2000, the Company
has drawn down approximately $1.7 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 $600,000 of incurred development costs and a $500,000
development fee. The joint venture partner contributed $1.1 million in cash,
which was utilized to acquire the land for the project.
At June 30, 2000, the Company has capitalized costs totaling approximately
$10.0 million related to communities under construction or development,
encumbered by $5.9 million in outstanding debt. The Company intends to finance
substantially all of the remaining cost of developing each new community through
joint venture arrangements, as well as conventional financing with commercial
banks and other financial institutions.
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, is being financed through a
lease arrangement with a REIT. The Company has two additional communities under
construction that are anticipated to commence operations in 2001. The Company
has obtained financing necessary to complete these communities. Additionally,
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 fourth quarter of 2000.
During the remainder of 2000, the Company expects to meet its working
capital requirements through cash generated from operating results, debt
refinancing and restructuring, and possibly through issuing additional equity
and/or debt instruments. The Company plans to achieve improved operating
performance primarily through increased resident census.
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The Company anticipates capital expenditures for 2000 will include
additional architectural fees and other development and construction costs
related to at least three assisted living communities. During 2000, the Company
anticipates commencing construction on at least one of these communities. The
total cost to develop and construct the three communities, including the
estimated initial operating deficits, will likely be between $25.0 million to
$28.0 million. A nominal portion of these costs will be incurred during 2000.
The Company is currently discussing with commercial banks and other
financing sources 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 one of these three communities in order to complete construction and
to fund the initial operating deficits. Additional equity capital will be
required prior to commencing construction on the remaining two communities.
To finance additional growth, 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. 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 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 operating lease agreements contain restrictive covenants. As of June
30, 2000, the Company was in compliance with the covenants of all lease
agreements except at least one covenant relating to five of the Company's
communities. The Company has entered into an agreement to purchase two of the
communities and is currently negotiating the terms of the financing necessary to
complete the transactions. There is no certainty that financing will ultimately
be available upon acceptable terms. The Company believes the ultimate resolution
of this matter for each of the five leases will not have a material adverse
impact on the Company's financial position, results of operations, or cash
flows.
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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.
Subsequent Events
In July, 2000, the Company obtained an $8.0 million loan, the proceeds of
which will be used to construct and fund initial operations at the Company's
116-bed Salt Lake City, Utah community.
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.
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
develop, 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.
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.
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.
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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 June 30, 2000, the Company's variable
rate borrowings totaled $11.7 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 $117,000. These amounts are determined
by considering the impact of hypothetical interest rate on the Company's
outstanding variable rate borrowings as of June 30, 2000, and does not consider
changes in the actual level of borrowings which may occur subsequent to June 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 and second quarterly dividends which were
accrued with respect to its preferred stock. A total of $325,000 was in arrears
at June 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 4. Submission of Matters to a Vote of Security Holders.
The Company held its 2000 annual meeting of shareholders at 11:00 a.m., PDT,
on May 23, 2000, on the 31st Floor of the U.S. Bancorp Tower, 111 S.W. Fifth
Avenue, Portland, Oregon.
The only matters submitted to a vote of the shareholders were the election
of two directors and to increase the number of shares of the Company's Common
Stock that may be issued pursuant to the Company's 1995 Stock Incentive Plan
from 600,000 to 800,000. 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:
Votes Against
Votes For or Withheld Abstentions Non-Votes
--------- ------------- ----------- ---------
Class I (three year term):
Dana J. O'Brien 3,296,451 0 103,000 0
Steven L. Gish 3,296,451 0 103,000 0
The proposal to increase the number of shares of the Company's Common Stock that
may be issued pursuant to the Company's 1995 Stock Incentive Plan from 600,000
to 800,000 was approved by the following vote:
Votes Against
Votes For or Withheld Abstentions Non-Votes
--------- ------------- ----------- ---------
3,236,618 162,833 0 0
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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 June 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:/s/ Steven L. Gish
------------------------------------------- Date: August 14, 2000
Steven L. Gish
Chief Financial Officer
