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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Period Ended June 30,
1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Transition Period From
_____________ to _____________
COMMISSION FILE NUMBER: 0-20765
SUNRISE ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1746596
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
</TABLE>
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(Address of principal executive offices)
(703) 273-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 periods that the
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 July 31, 1996, there were 14,248,186 shares of the Registrant's
Common Stock outstanding.
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SUNRISE ASSISTED LIVING, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income for the three months
ended June 30, 1996 and 1995 and six months ended
June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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PART I. FINANCIAL INFORMATION
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ --------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,712,621 $ 6,252,449
Accounts receivable, less allowance of $501,802
and $235,000 1,572,441 1,319,429
Short-term securities 50,000,000 -
Prepaid and other current assets 1,726,548 2,328,571
------------ ------------
Total current assets 76,011,610 9,900,449
Property and equipment, net 137,470,595 104,317,117
Investment 5,645,785 5,375,404
Restricted cash and cash equivalents 1,333,542 1,260,470
Other assets 3,505,966 2,467,421
------------ ------------
Total assets $223,967,498 $123,320,861
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,207,813 $ 6,547,122
Deferred revenue 971,245 903,711
Other current liabilities 1,077,430 130,669
Current portion of long-term debt 394,935 268,576
------------ ------------
Total current liabilities 9,651,423 7,850,078
Notes payable to affiliated entities 1,620,838 1,735,138
Interests in unconsolidated partnerships 744,863 620,014
Long-term debt, less current maturities 118,695,915 120,285,996
------------ ------------
Total liabilities 130,713,039 130,491,226
Minority interests 371,457 639,895
Preferred stock, $0.01 par value, 10,000,000 shares
authorized:
Series A convertible preferred stock, convertible
and redeemable; $9 stated value and liquidation
value of $9; plus 9% preferred return;
2,444,444 shares issued and outstanding in 1995 - 23,963,496
Stockholders' equity (deficit):
Common stock, issued and outstanding 14,244,562
shares in 1996 and 6,019,475 in 1995 142,446 60,195
Contributed capital (deficiency) 107,938,331 (19,733,287)
Accumulated deficit (15,197,775) (12,100,664)
------------ ------------
Total stockholders' equity (deficit) 92,883,002 (31,773,756)
------------ ------------
Total liabilities and stockholders' equity $223,967,498 $123,320,861
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
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SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Operating revenue:
Resident fees $10,362,386 $ 8,679,234 $19,458,479 $17,075,543
Management services income 899,598 714,120 1,541,500 1,211,692
----------- ----------- ----------- -----------
11,261,984 9,393,354 20,999,979 18,287,235
Operating expenses:
Facility operating expenses 6,543,249 4,922,238 12,607,649 10,268,363
Facility development and pre-opening
expenses 465,761 229,706 649,661 433,326
General and administrative 2,292,440 1,397,290 4,413,204 2,718,929
Depreciation and amortization 992,799 718,970 1,803,481 1,479,259
----------- ----------- ----------- -----------
10,294,249 7,268,204 19,473,995 14,899,877
Income from operations 967,735 2,125,150 1,525,984 3,387,358
Other income (expense):
Interest income 423,024 275,614 700,258 605,935
Interest expense:
GECC mortgage interest (2,467,930) (2,505,750) (4,807,319) (4,970,796)
Other debt (329,355) (288,948) (614,740) (557,445)
----------- ----------- ----------- -----------
Total interest expense (2,797,285) (2,794,698) (5,422,059) (5,528,241)
Total other expenses (2,374,261) (2,519,084) (4,721,801) (4,922,306)
Equity in (losses) earnings on investments
in unconsolidated partnerships (22,704) 21,649 6,675 48,135
Minority interest 31,118 (24,619) 82,704 (18,587)
Unusual charge (Note 6) (981,300) - (981,300) -
----------- ----------- ----------- -----------
Net loss $(2,379,412) $ (396,904) $(4,087,738) $(1,505,400)
=========== =========== =========== ===========
Net loss per share data (Note 7):
---------------------------------
Net loss per common and common equivalent
shares $ (0.33) $ (0.69)
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 8,725,356 7,625,366
=========== ===========
Pro forma net loss per share data (Note 7):
-------------------------------------------
Net loss per common and common equivalent
shares $ (0.24) $ (0.45)
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 10,701,064 9,885,510
=========== ===========
</TABLE>
See accompanying notes.
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SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,087,738) $(1,505,400)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Equity in earnings on investment in unconsolidated partnerships
Minority interests (82,704) 18,587
Provision for bad debts 266,802 64,043
Depreciation and amortization 1,803,481 1,479,259
Amortization of discount on long-term debt 416,900 228,500
Changes in operating assets and liabilities:
(Increase) decrease:
Accounts receivable (519,814) (1,410,616)
Prepaid and other current assets 602,023 217,886
Other assets (225,776) 95,533
Increase (decrease):
Accounts payable and accrued expenses 660,690 1,541,425
Deferred revenue 67,534 204,547
Other liabilities 946,762 42,748
----------- -----------
Net cash (used in) provided by operating activities (158,515) 928,378
INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents (73,072) (471,997)
Acquisition of interests in facilities (18,700) -
Purchases of property and equipment (33,941,627) (2,655,832)
Disposition of property and equipment - 22,889
Purchases of investments (50,270,381) (5,214,093)
Distributions from investment in unconsolidated ----------- -----------
partnerships 150,224 83,983
Net cash used in investing activities
(84,153,556) (8,235,050)
FINANCING ACTIVITIES:
Dividends paid (347,500) -
Net proceeds from initial public offering of common stock 104,339,950 -
Organization costs paid (112,993) -
Financing costs paid (780,258) (162,750)
Net proceeds from sale of Series A convertible preferred stock stock - 20,165,593
Net proceeds from sale of Series B exchangeable preferred stock 10,000,000 -
Redemption of Series B exchangeable preferred stock (10,000,000) -
Net proceeds from exercised options 99,036 -
Contributions from partners - 5,100
Distributions to partners (390,486) (9,645,461)
Additional net investments of minority interests (40,582) (10,294)
Additional borrowings under long-term debt 14,916,267 1,333,483
Repayment of long-term debt (16,796,891) (102,764)
Repayment of related party note payable (114,300) (141,750)
------------ -----------
Net cash provided by financing activities 100,772,243 11,441,157
------------ -----------
Net increase in cash and cash equivalents 16,460,172 4,134,485
Cash and cash equivalents at beginning of period 6,252,449 8,088,655
------------ -----------
Cash and cash equivalents at end of period $ 22,712,621 $12,223,140
============ ===========
</TABLE>
See accompanying notes.
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SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company and include all normal recurring adjustments which are,
in the opinion of management, necessary for a fair presentation of the results
for the three- and six-month periods ended June 30, 1996 and 1995 pursuant to
the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto for the year
ended December 31, 1995 included in the Company's Form S-1 (No. 333-2582).
Operating results for the three- and six-month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1996. Unless the context indicates otherwise, the
Company means Sunrise Assisted Living, Inc. and its consolidated subsidiaries.
2. LONG-TERM DEBT
Long-term debt was $119,090,850 at June 30, 1996 compared to $120,554,572
at December 31, 1995. In June 1996, pursuant to a Loan Modification Agreement
relating to a $95.0 million principal amount term loan (the "GECC Mortgage") in
place with General Electric Capital Corporation ("GECC"), the Company paid GECC
$8,633,000 as payment in full of GECC's 25% participating interest in cash flow
and appreciation in the value of certain properties. In addition, the Company
prepaid $8,000,000 of its variable rate debt. The interest rate applicable to
the remaining $22,000,000 balance of the floating rate debt was reduced from
LIBOR plus 5.75% to LIBOR plus 3.75%.
The Company has obtained a commitment (subject to certain conditions
including syndication) from a financial institution for an $80,000,000 line of
credit for construction and interim loans to finance the development of up to
10 assisted living facilities of a wholly-owned subsidiary of the Company. As
of June 30, 1996, the Company had closed $38,000,000 of the total commitment.
The Company guaranteed the repayment of all amounts outstanding under this line
of credit. The line of credit is for a term of five years and is secured by
cross-collateralized first mortgages on the real property and improvements and
first liens on all other assets of the subsidiary. Advances under the facility
bear interest at rates from LIBOR plus 1.7% to LIBOR plus 2.9%. As part of
this line, the Company has entered into a swap transaction whereby effective
during the period June 18, 1998 through June 18, 2001, outstanding advances of
up to $19,000,000 under this line of credit, or other LIBOR floating rate debt,
bear interest at a fixed rate based on a fixed LIBOR base rate of 7.3%. The
Company also has a $13,000,000 unsecured credit facility to be used for
development and acquisitions and working capital needs. The credit facility is
for a term of five years. Advances under the facility bear interest at a rate
per annum, fluctuating daily, equal to the greater of (i) the lender's prime
leading rate and (ii) the Federal funds rate plus one-half of one percent.
There were no amounts outstanding under either credit facility at June 30,
1996.
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SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. SHORT-TERM SECURITIES
At June 30, 1996, short-term securities consisted of high-quality
commercial paper with maturities not greater than 180 days. These securities
are classified as available-for-sale in accordance with SFAS 115. The carrying
amount of these investments approximates their market value at June 30, 1996.
4. REDEEMABLE PREFERRED STOCK
On June 5, 1996, all of the 2,444,444 outstanding shares of Series A
Convertible Preferred Stock of the Company were converted into an equal number
of shares of Common Stock. Preferred return of $2,794,000 through the
conversion date was forfeited upon conversion. In addition, the Company
redeemed all of its 1,000,000 shares of Series B Exchangeable Preferred Stock
on June 5, 1996 at a redemption price of $10 per share plus accrued dividends
of $165,000.
5. STOCKHOLDERS' EQUITY (DEFICIT)
On June 5, 1996, the Company successfully completed an initial public
offering (the "Offering") of its Common Stock. A total of 5,700,000 shares,
representing 40% of the Company's outstanding Common Stock at June 30, 1996,
were sold by the Company in the Offering at a price of $20 per share, for gross
proceeds of $114,000,000. The net proceeds to the Company from the Offering,
after deducting underwriting discount and offering expenses, were approximately
$104,340,000.
On May 28, 1996, the Company purchased the remaining 30% interest held by a
director in one of the Company's facilities in exchange for 52,500 shares of
Common Stock. The purchase price of $945,000 was determined based on a
valuation of the facility prepared by the Company based primarily upon a
capitalization of net operating income from the facility.
6. UNUSUAL CHARGE
To avoid a possible change in the Company's ability to continue to manage
two facilities resulting from the reduction in the ownership interest in the
Company of Paul J. Klaassen, the Company's Chairman of the Board, President,
Chief Executive Officer and co-founder, and Teresa M. Klaassen, the Company's
Executive Vice President and co-founder (collectively, the "Founders")
following the Offering, the Company made a $1,000,000 cash payment to the
third-party limited partner in these two facilities. The payment was made in
exchange for the transfer to the Company by the third-party of additional 1%
partnership interests in each facility with a total book value of $18,700 and
the elimination of any requirement for the Founders to maintain a specified
ownership interest in the Company.
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SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7. NET LOSS PER SHARE
The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission (SEC) staff accounting
bulletin No. 83, options to purchase Common Stock issued at prices below the
initial public offering price during the twelve months immediately preceding
the initial filing of the registration statement relating to the Offering have
been included in the computation of net loss per share as if they were
outstanding for all periods presented prior to the Offering (using the treasury
method assuming repurchase of common stock at the estimated Offering price).
Other shares issuable upon the exercise of stock options or conversion of
redeemable convertible preferred stock have been excluded from the computation
because the effect of their inclusion would be anti-dilutive. Subsequent to
the Company's Offering, options under the treasury stock method are included to
the extent they are dilutive. Weighted average shares used to calculate the
pro forma net loss per share differs from the weighted average on a historical
basis due primarily to the inclusion of the shares of Common Stock resulting
from the assumed conversion at the beginning of the applicable period of the
Series A Convertible Preferred Stock.
8. OFFICE LEASE COMMITMENT
On July 8, 1996, the Company entered into an agreement to renew its
corporate office lease. The lease has a term of five years with an option to
terminate after twelve months from October 1, 1996, the lease commencement
date. The initial annual lease payments amount to $252,412. The base rent is
subject to annual increases based on the Consumer Price Index from a minimum of
2% to a maximum cap of 3% per year. The Company is also responsible for its
proportionate share of annual increases in operating expenses and property
taxes.
9. SUBSEQUENT EVENTS
The Company received commitments to close two additional $10,000,000
portions, one on July 11, 1996 and one on July 24, 1996, of the $80,000,000
line of credit commitment from a financial institution (see Note 2 above). The
credit facility is for construction and interim loans to finance the
development of up to 10 assisted living facilities. The Company guaranteed the
repayment of all amounts outstanding under this line of credit. The line of
credit is for a term of five years and is secured by cross-collateralized first
mortgages on the real property and improvements and first liens on all other
assets of the borrower. Advances under the facility bear interest at rates
ranging from LIBOR plus 1.7% to LIBOR plus 2.9%.
On July 17, 1996, the Company received a $7,400,000 construction loan
commitment to finance the construction of an assisted living facility. The
loan will be for a term of five years at interest rates ranging from 2.25% to
2.75% in excess of the 30-day LIBOR.
On July 31, 1996, the Company entered into a purchase agreement subject to
certain conditions, including satisfactory completion by the Company of
financial, accounting, regulatory and property due diligence over the next 60
days (the "Study Period"), to acquire five facilities located in the southeast
United States for $34.0 million in cash. Assuming the Company elects to
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proceed with the transaction following the completion of its due diligence
review, the closing of the transaction would take place on the earlier to occur
of (i) 30 days after expiration of the Study Period or (ii) October 31, 1996,
or such earlier date as specified by the Company. Under certain circumstances,
the Company may extend the closing date until December 3, 1996. In the event
the Company elects to proceed with the transaction, the Company would intend to
finance approximately $25.0 million of the purchase price through loans from
one or more third party lenders. The five facilities consist of 510 total
units providing primarily independent and assisted living services. Based on
preliminary information furnished by the seller to the Company, four of the
five facilities are operating in excess of 95 percent of their occupancy
capacity with the fifth in its initial lease-up phase providing combined net
resident revenue of approximately $5.0 million for the first six months of
1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
Management's discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, among others, development and construction risks,
acquisitions risks, licensing risks, business conditions, risks of downturns in
economic conditions generally, satisfaction of closing conditions and
availability of financing for development and acquisitions.
OVERVIEW
The Company reported a net loss of $2.4 million, or $0.33 per share, on
revenue of $11.3 million for the three months ended June 30, 1996, including an
unusual charge of $1.0 million, compared to a net loss of $0.4 million on
revenue of $9.4 million for the three months ended June 30, 1995. Without the
one-time unusual charge, the Company's net loss for the quarter ended June 30,
1996 would have been $1.4 million. During the 1996 reporting period, the
Company completed an initial public offering ("the Offering") which provided
net proceeds of $104.3 million. The Company had a net loss of $4.1 million, or
$0.69 per share, on revenue of $21.0 million for the six months ended June 30,
1996, including the $1.0 million unusual charge, compared to a net loss of $1.5
million on revenue of $18.3 million for the six months ended June 30, 1995.
Without the one-time unusual charge, the Company's net loss for the six months
ended June 30, 1996 would have been $3.1 million.
The Company presently operates 30 assisted living facilities in nine states
with a capacity of approximately 2,500 residents, including 23 facilities owned
by the Company or in which it has ownership interests and seven facilities
managed for third parties. The Company also operates two skilled nursing
facilities owned by a third party. The 1996 operations include two additional
facilities, a Sunrise Model facility in Raleigh, which opened in February 1996,
and the Chanate Lodge, which was acquired in February 1996. On May 28, 1996,
the Company purchased the remaining 30% interest held by a director in one of
the Company's facilities in exchange for 52,500 shares of Common Stock. The
purchase price of $945,000 was determined based on a valuation of the facility
prepared by the Company based primarily upon a capitalization of net operating
income from the facility. During the next three years, the Company plans to
develop at least 40 of its model facilities in major metropolitan and suburban
markets throughout the United States. To date, 12 Sunrise Model facilities are
under construction. An additional facility to be leased by the Company is also
under construction. The Company anticipates that it will use a combination of
net proceeds of the Offering, existing construction lines of credit, equity and
debt financing and cash generated from operations to fund this development
activity. During the next three years, the Company also plans to acquire up to
15 additional assisted living facilities or other properties that can be
repositioned as Sunrise assisted living facilities.
Operating results for the three months ended June 30, 1996, are not
necessarily indicative of future financial performance as the Company intends
to expand its operating base of facilities using the remaining proceeds of the
public offering and new credit facilities.
UNUSUAL CHARGE TO EARNINGS
In order to avoid a possible change in the Company's ability to continue to
manage the Annapolis and Pikesville facilities resulting from the reduction in
the Founder's ownership interest in the Company following completion of the
Offering, the Company made a $1.0 million cash
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payment to the third-party limited partner in these two facilities in exchange
for the transfer to the Company by the third party of additional 1% partnership
interests in each facility with a total book value of $18,700 and the
elimination of any requirement for the Founders to maintain a specified
ownership interest in the Company. This was reflected as an unusual charge for
the quarter ended June 30, 1996.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Operating Revenues. Operating revenue for the three months ended June 30,
1996 increased 19.9% to $11.3 million from $9.4 million for the three months
ended June 30, 1995 due primarily to the growth in resident fees. Resident
fees (including community fees and fees for Basic Care (assistance with
activities of daily living and other personalized support services), Extended
Care (additional specialized care and services to residents with low acuity
medical needs), Alzheimer's Care (specialized care and services to residents
with Alzheimer's disease or other forms of dementia) and other services) for
the three months ended June 30, 1996 increased 19.4% to $10.4 million from $8.7
million in the three months ended June 30, 1996. This increase was due
primarily to inclusion of the Raleigh and Chanate Lodge facilities ($1.2
million), an increase in the average daily resident fee ($0.4 million), and an
increase in average resident occupancy. Resident occupancy increased from
91.0% in the three months ended June 30, 1995 to 93.6% in the three months
ended June 30, 1996 for owned facilities operated by the Company for at least
12 months, excluding facilities with temporary vacancies due to renovations or
resident relocations ("Same Facilities"). Resident occupancy, including
vacancies attributable to renovations at two facilities in order to meet
requirements for accepting non-ambulatory residents and the relocation of
non-ambulatory residents at a third facility, was 91.4% in the three months
ended June 30, 1996 compared to 88.9% in the three months ended June 30, 1995.
The average daily resident fee (excluding community fees) for Same
Facilities increased to $84 in the three months ended June 30, 1996 from $81 in
the three months ended June 30, 1995 primarily due to an increase in the Basic
Care rate and an increase in the number of residents receiving Extended Care
and Alzheimer's Care services.
Management services income in the three months ended June 30, 1996
increased by $0.2 million, or 26.0%, to $0.9 million due primarily to an
increase in one-time consulting fees. In July 1996, the Company was advised by
the Maryland housing agency that owns the three Kensington facilities managed
by the Company that another bidder had been selected to take over the
management of the facilities when the Company's existing management contract
expires in September 1996. Gross management services income before expenses
for the three facilities was $75,000 for the three month ended June 30, 1996.
Operating Expenses. Operating expenses for the three months ended June 30,
1996 increased by 41.6% to $10.3 million from $7.3 million for the three months
ended June 30, 1995. The increase in operating expenses for the quarter ended
June 30, 1996 was attributable primarily to the growth in facility operating
and general and administrative expenses, including the addition of the two new
facilities.
Facility operating expenses for the three months ended June 30, 1996
increased 32.9% to $6.5 million from $4.9 million in the three months ended
June 30, 1995. As a percentage of operating revenue, facility operating
expenses in the three months ended June 30, 1996 increased to 58.1% from 52.4%
in the three months ended June 30, 1995. The new Raleigh and Chanate Lodge
facilities contributed $0.5 million and $0.4 million of the increase,
respectively. Salary and benefit increases for existing staff, increased
facility based staffing required to handle the
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increased number of residents receiving Extended Care or Alzheimer's Care and
training of facility-based personnel constituted $0.4 million of the increase.
The balance of $0.3 million is comprised of other general expenses.
Facility development and pre-opening expenses for the quarter ended
June 30, 1996 increased $0.3 million to $0.5 million from $0.2 million for the
quarter ended June 30, 1995. This increase was primarily due to increased
labor costs resulting from increased development activity.
General and administrative expenses in the three months ended June 30,
1996 increased 64.1% to $2.3 million from $1.4 million in the three months
ended June 30, 1995. As a percentage of operating revenue, general and
administrative expenses in the three months ended June 30, 1996 increased to
20.4% from 14.9% in the three months ended June 30, 1995. Of the $0.9 million
increase in general and administrative expenses in the three months ended June
30, 1996, $0.4 million was related to labor costs which included $0.1 million
for salary increases of existing headquarters and regional office management
staff and $0.3 million attributable to hiring additional staff. The remaining
$0.5 million is attributable to a combination of accounting, marketing,
consulting, public relations, legal, telephone, travel and other corporate
expenses.
Depreciation and amortization in the three months ended June 30, 1996
compared to the three months ended in June 30, 1995 increased $0.3 million, or
38.1%, to $1.0 million primarily due to the new Raleigh and Chanate Lodge
facilities and amortization of capitalized pre-opening costs over twelve
months.
Other income (expense). Interest income increased 53.5% to $0.4
million for June 30, 1996 compared to $0.3 million for the three months ended
June 30, 1995. This increase primarily was due to the investment of funds
received from the Offering. Interest expense remained relatively constant in
the three months ended June 30, 1996 compared to the three months ended June
30, 1995, reflecting interest expense on additional borrowings which offset the
reduction of interest expense due to the elimination of the 25% GECC Mortgage
participation interest, prepayment of a portion of the variable rate debt, and
reduction of the interest rate on the floating rate portion of the GECC
Mortgage in June 1996.
Net loss. The Company incurred a net loss of $2.4 million for the
three months ended June 30, 1996, including the one-time unusual charge of $1.0
million, compared to a net loss of $0.4 for the three months ended June 30,
1995. The increased loss was primarily attributable to a $3.0 million increase
in operating expenses and the $1.0 million unusual charge described above
offset, in part, by a $1.9 million increase in operating revenue. The Company
did not recognize any income tax expense in the three months ended June 30,
1996 because of such net loss.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Operating Revenue. Operating revenue for the six months ended June
30, 1996 increased 14.8% to $21.0 million from $18.3 million in the six months
ended June 30, 1995 due primarily to the growth in resident fees. Resident
fees (including community fees and fees for Basic Care, Extended Care,
Alzheimer's Care and other services) for the six months ended June 30, 1996
increased 14.0% to $19.5 million from $17.1 million in the six months ended
June 30, 1995. This increase was due primarily to the inclusion of the Raleigh
and Chanate Lodge facilities ($1.5 million) and an increase in the average
daily resident fee ($0.8 million). Resident occupancy was 92.5% for the six
months ended June 30, 1996 excluding vacancies attributable to renovating two
facilities in order to meet requirements for accepting non-ambulatory residents
and relocating non-ambulatory residents at a third facility, compared to 91.8%
for the six months ended June 30,
12
<PAGE> 13
1995. Resident occupancy remained virtually unchanged at 90.0% for the six
months ended June 30, 1996 compared to 90.1% for the six months ended June 30,
1995.
The average daily resident fee (excluding community fees) for Same
Facilities increased to $83 in the six months ended June 30, 1996 from $79 in
the six months ended June 30, 1995 primarily due to an increase in the Basic
Care rate and an increase in the number of residents receiving Extended Care
and Alzheimer's Care services.
Management services income for the six months ended June 30, 1996
increased by $0.3 million, or 27.2%, to $1.5 million from $1.2 million in the
six months ended June 30, 1995 due to an increase in management fees ($0.2
million) and one-time consulting fees ($0.1 million).
Operating Expenses. Operating expenses for the six months ended June
30, 1996 increased 30.7% to $19.5 million from $14.9 million in the six months
ended June 30, 1995. The increase in operating expenses in the six months
ended June 30, 1996 is attributable primarily to growth in facility operating
and general and administrative expenses.
Facility operating expenses for the six months ended June 30, 1996
increased 22.8% to $12.6 million from $10.3 million in the six months ended
June 30, 1995. As a percentage of operating revenue, facility operating
expenses in the six months ended June 30, 1996 increased to 60.0% from 56.2% in
the six months ended June 30, 1995. Of the $2.3 million increase in facility
operating expenses in the six months ended June 30, 1996, $1.1 million is
attributable to Raleigh and the Chanate Lodge. Increased staffing, benefits,
salaries and training at existing facilities accounted for $0.7 million. The
balance of the increase, $0.5 million, was comprised of an increase in other
general expenses.
Facility development and pre-opening expenses for the six months ended
June 30, 1996 increased $0.2 million to $0.6 million from $0.4 million in the
six months ended June 30, 1995. This increase was primarily due to increased
labor costs resulting from increased development efforts.
General and administrative expenses in the six months ended June 30,
1996 increased 62.3% to $4.4 million from $2.7 million in the six months ended
June 30, 1995. As a percentage of operating revenue, general and
administrative expenses in the six months ended June 30, 1996 increased to
21.0% from 14.9% in the six months ended June 30, 1995. Of the $1.7 million
increase in general and administrative expenses in the six months ended June
30, 1996, approximately 55.7% was related to labor costs including a $0.7
million increase in salary and benefits expenses relating to the hiring of
additional headquarters and regional office management staff in anticipation of
the Company's growth plans, and $0.2 million related to salary increases and
benefits for existing staff. The remaining $0.8 million increase is
attributable to accounting, marketing, consulting, public relations, telephone,
and other general expenses.
Depreciation and amortization in the six months ended June 30, 1996
increased 21.9% to $1.8 million from $1.5 million in the six months ended June
30, 1995 primarily due to the opening of the Raleigh facility and acquisition
of the Chanate Lodge facility and amortization of capitalized pre-opening costs
over twelve months.
Other income (expense). Interest income for the six months ended June
30, 1996 increased 15.6% to $0.7 million from $0.6 million in the six months
ended June 30, 1995 primarily due to interest earned on $5.0 million of revenue
bonds purchased in March 1995 (the Company has an option to purchase the
facility subject to the revenue bonds, at any time, for fair market value).
13
<PAGE> 14
Interest expense for the six months ended June 30, 1996 decreased 1.9% to $5.4
million from $5.5 in the six months ended June 30, 1995 as a result of a
decrease in GECC Mortgage interest. In June 1996, the Company paid
approximately $8.6 million to GECC as payment in full of all participation
interest due and payable pursuant to the GECC Mortgage. In addition, the
Company paid GECC $8.0 million to be applied to prepay a portion of the
variable rate indebtedness. GECC reduced the interest rate applicable to the
outstanding portion of variable rate indebtedness from LIBOR plus 5.75% to
LIBOR plus 3.75%.
Net loss. The Company incurred a net loss of $4.1 million for the six
months ended June 30, 1996, including the $1.0 million unusual charge, compared
to a net loss of $1.5 million in the six months ended June 30, 1995. The net
loss for the six months ended June 30, 1996 resulted primarily from a $4.6
million increase in operating expenses and the $1.0 million unusual charge
described above offset, in part, by a $2.7 million increase in operating
revenue. The Company did not recognize any income tax expense in the six
months ended June 30, 1996 because of such net loss.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had approximately $22.7 million in cash
and cash equivalents, $66.4 million in net working capital, including $50.0
million in high quality short-term investments (A1/P1 rated) with maturities no
more than 180 days, and $61.0 million of unused lines of credit.
On June 5, 1996, the Company completed its initial public offering.
The net proceeds to the Company from the Offering, after deducting underwriting
discount and offering expenses, were approximately $104.3 million. As of June
30, 1996, uses of the net proceeds included $16.6 million in partial payment of
the Company's long-term debt and $10.2 million to redeem shares of Series B
Exchangeable Preferred Stock. The Company expects to use the balance of the
net proceeds to fund continued development of up to 40 new Sunrise model
facilities and planned acquisitions over the next three years, as well as for
working capital and general corporate purposes. The estimated cost to complete
and lease up 40 new Sunrise model facilities targeted for completion over the
next three years is between $300 million and $400 million, which substantially
exceeds the net proceeds of the Offering and existing financing commitments.
The Company is evaluating additional financing alternatives. To date, the
Company has obtained zoning approval for 18 new sites, including 13 facilities
currently under construction, has entered into purchase contracts for 21
additional sites, and is currently negotiating purchase terms for the
additional identified sites.
Working capital increased to $66.4 million at June 30, 1996, compared
to $2.1 million as of December 31, 1995, primarily from the net proceeds
received from the Offering.
Net cash used in operating activities for the six months ended June
30, 1996 was approximately $0.2 million, including a $1.0 million payment to a
third-party limited partner which was charged to earnings. Without the $1.0
million payment, operating activities would have provided $0.8 million. Net
cash provided by operations was $0.9 million for the six months ended June 30,
1995. The Company's unrestricted cash balances were $22.7 million and $6.3
million at June 30, 1996 and December 31, 1995, respectively.
For the six months ended June 30, 1996 and 1995, the Company used cash
in investing activities of $84.2 million and $8.2 million, respectively.
Investing activities during 1996 included
14
<PAGE> 15
the purchase of $50.3 million in investments and $33.9 million for construction
of assisted living facilities.
Net cash provided by financing activities was $100.8 million and $11.4
million for the six months ended June 30, 1996 and 1995, respectively. Cash
was provided by the Offering, described above, as well as $14.9 million
provided by additional borrowings. In June 1996, the Company paid GECC $8.6
million as payment in full of GECC's 25% participating interest in cash flow
and appreciation in the value of certain properties. In addition, the Company
prepaid $8.0 million of its variable rate debt, paid $0.3 million in dividends
to holders of Series B Exchangeable Preferred Stock, and $0.8 million in
various financing costs. All shares of Series B Exchangeable Preferred Stock
have been redeemed.
The Company has obtained a commitment (subject to certain conditions
including syndication) from a financial institution for an $80.0 million line
of credit for construction and interim loans to finance the development of up
to 10 assisted living facilities by a wholly-owned subsidiary of the Company.
To date, of this total line of credit, the Company has closed $38.0 million and
is in the process of closing all additional $20 million. The Company
guaranteed the repayment of all amounts outstanding under this line of credit.
The line of credit is for a term of five years and is secured by
cross-collateralized first mortgages on the real property and improvements and
first liens on all other assets of the subsidiary. Advances under the facility
bear interest at rates from LIBOR plus 1.7% to LIBOR plus 2.9%. As part of
this line, the Company has entered into a swap transaction whereby effective
during the period June 18, 1998 through June 18, 2001, outstanding advances of
up to $19,000,000 under this line of credit, or other LIBOR floating rate debt,
bear interest at a fixed rate based on a fixed LIBOR base rate of 7.3%.
Construction of all 10 facilities to be financed by the lines of credit must be
commenced within 18 months of the closing of the line of credit. There were no
borrowings on these lines of credit at June 30, 1996.
The Company's financing documents contain financial covenants and
other restrictions that (i) require the Company to meet certain financial tests
and maintain certain escrows of funds, (ii) require that the Founders maintain
ownership of at least 25% of the Common Stock and that one of them serve as
Chairman of the Board and President of the Company, (iii) limit, among other
things, the ability of certain subsidiaries of the Company to borrow additional
funds, and the ability of the Company to dispose of assets and engage in
mergers or other business combinations, and (iv) prohibit the Company from
operating competing facilities within certain distances from mortgaged
facilities.
On July 31, 1996, the Company entered into a purchase agreement
subject to certain conditions, including satisfactory completion by the Company
of financial, accounting, regulatory and property due diligence over the next
60 days (the "Study Period"), to acquire five facilities located in the
southeast United States for $34.0 million in cash. Assuming the Company elects
to proceed with the transaction following the completion of its due diligence
review, the closing of the transaction would take place on the earlier to occur
of (i) 30 days after expiration of the Study Period or (ii) October 31, 1996,
or such earlier date as specified by the Company. Under certain circumstances,
the Company may extend the closing date until December 3, 1996. In the event
the Company elects to proceed with the transaction, the Company would intend to
finance approximately $25.0 million of the purchase price through loans from
one or more third party lenders. The five facilities consist of 510 total
units providing primarily independent and assisted living services. Based on
preliminary information furnished by the seller to the Company, four of the
five facilities are operating in excess of 95 percent of their occupancy
capacity with the fifth in
15
<PAGE> 16
its initial lease-up phase providing combined net resident revenue of
approximately $5.0 million for the first six months of 1996.
At June 30, 1996 the Company had stockholders' equity of $92.9 million
compared to a stockholders' deficit of $31.8 at December 31, 1995. The change
resulted primarily from (i) adding the receipt of net proceeds from the
Offering of $104.3 million, conversion of Series A Convertible Preferred Stock
to an equal number of common shares for $24.0 million, $0.1 million from other
common shares issued including the exercise of stock options granted, and $0.1
million from the issuance of common stock warrants, and (ii) subtracting $0.7
million relating to dividends and other distributions paid and a net loss for
the six months ended June 30, 1996 of $4.1 million.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 31, 1996, the Company entered into a purchase agreement subject
to certain conditions, including satisfactory completion by the Company of
financial, accounting, regulatory and property due diligence over the next 60
days (the "Study Period"), to acquire five facilities located in the southeast
United States for $34.0 million in cash. Assuming the Company elects to
proceed with the transactions following the completion of its due diligence
review, the closing of the transaction would take place on the earlier to occur
of (i) 30 days after expiration of the Study Period or (ii) October 31, 1996,
or such earlier date as specified by the Company. Under certain circumstances,
the Company may extend the closing date until December 3, 1996. In the event
the Company elects to proceed with the transaction, the Company would intend to
finance approximately $25.0 million of the purchase price through loans from
one or more third-party lenders. The five facilities consist of 510 total
units providing primarily independent and assisted living services. Based on
preliminary information furnished by the seller to the Company, four of the
five facilities are operating in excess of 95 percent of their occupancy
capacity with the fifth in its initial lease-up phase providing combined net
resident revenue of approximately $5.0 million for the first six months of
1996. Because the transaction is subject to a due diligence review by the
Company, there is not assurance that the transaction will be consummated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
----------- ------------
<S> <C>
11.1 Computation of Net Loss Per Share
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNRISE ASSISTED LIVING, INC.
(Registrant)
Date: August 8, 1996 /S/ David W. Faeder
-------------- ----------------------------
David W. Faeder
Executive Vice President and Chief
Financial Officer
Date: August 8, 1996 /S/ Larry E. Hulse
-------------- ----------------------------
Larry E. Hulse
Controller and Chief Accounting
Officer
17
<PAGE> 18
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name Page
- ----------- ------------ ----
<S> <C> <C>
11.1 Computation of Net Loss Per Share 19
</TABLE>
18
<PAGE> 1
EXHIBIT 11.1 COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Weighted average common shares outstanding 8,363,997 7,191,736
Net effect of stock options-based on the treasury
stock method using estimated offering price 361,359 433,630
----------- -----------
Totals 8,725,356 7,625,366
=========== ===========
Net loss $(2,379,412) $(4,087,738)
Dividend preference attributable to Series
A Convertible Preferred Stock (Note 1) (357,500) (858,000)
Dividends attributable to Series B
Exchangeable Preferred Stock (Note 2) (165,000) (347,500)
----------- -----------
Net loss attributable to common shares $(2,902,912) $(5,293,238)
=========== ===========
Net loss per common and common equivalent
shares $ (0.33) $ (0.69)
=========== ===========
Pro forma net loss per share data:
- ---------------------------------
Weighted average common shares outstanding 7,650,584 6,835,030
Net effect of stock options-based on the
treasury stock method using current market
price 553,536 553,536
Common stock resulting from:
Assumed conversion of Series A Convertible
Preferred Stock 2,444,444 2,444,444
Other 52,500 52,500
----------- -----------
Totals 10,701,064 9,885,510
=========== ===========
Net loss $(2,379,412) $(4,087,738)
Dividends attributable to Series B
Exchangeable Preferred Stock (165,000) (347,500)
----------- -----------
Net loss attributable to common shares $(2,544,412) $(4,435,238)
=========== ===========
Pro forma net loss per common and common
equivalent shares $ (0.24) $ (0.45)
=========== ===========
</TABLE>
Note 1-The dividend preference was eliminated upon conversion of Series A
Convertible Preferred Stock into Common Stock upon completion of the
Company's initial public offering on June 5, 1996.
Note 2-The Series B Exchangeable Stock was redeemed in full on June 5, 1996
using a portion of the net proceeds from the initial public offering.
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,712,621
<SECURITIES> 50,000,000
<RECEIVABLES> 2,074,243
<ALLOWANCES> 501,802
<INVENTORY> 0
<CURRENT-ASSETS> 76,011,610
<PP&E> 154,243,537
<DEPRECIATION> 16,772,942
<TOTAL-ASSETS> 223,967,498
<CURRENT-LIABILITIES> 9,651,423
<BONDS> 118,695,915
0
0
<COMMON> 142,446
<OTHER-SE> 92,740,556
<TOTAL-LIABILITY-AND-EQUITY> 223,967,498
<SALES> 0
<TOTAL-REVENUES> 20,999,979
<CGS> 0
<TOTAL-COSTS> 19,473,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 266,802
<INTEREST-EXPENSE> 5,422,059
<INCOME-PRETAX> (4,087,738)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,087,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,087,738)
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
