<PAGE> 1
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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 September 30, 1998
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)
DELAWARE 54-1746596
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
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 November 2, 1998, there were 19,384,082 shares of the Registrant's Common
Stock outstanding.
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<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the three months
ended September 30, 1998 and 1997 and nine months ended
September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ ------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 64,003 $ 82,643
Accounts receivable, net 9,704 5,849
Prepaid expenses and other current assets 14,293 6,081
--------- ---------
Total current assets 88,000 94,573
Property and equipment, net 480,920 423,615
Investments and notes receivable 29,853 22,998
Restricted cash and cash equivalents 2,637 1,573
Deferred financing costs, net 6,158 7,459
Other assets 5,647 6,042
--------- ---------
Total assets $ 613,215 $ 556,260
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 14,962 $ 16,620
Deferred revenue 3,535 1,482
Other current liabilities 44 669
Current maturities of long-term debt 5,287 5,462
--------- ---------
Total current liabilities 23,828 24,233
Long-term debt, less current maturities 368,837 335,485
Investment in unconsolidated interests 528 445
Other long-term liabilities 4,102 359
--------- ---------
Total liabilities 397,295 360,522
Minority interests 714 398
Preferred stock, $0.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.01 par value, 60,000,000 shares authorized,
19,376,488 and 19,028,040 shares issued and outstanding
in 1998 and 1997 194 190
Additional paid-in capital 211,751 206,784
Retained earnings (deficit) 3,261 (11,634)
--------- ----------
Total stockholders' equity 215,206 195,340
--------- ---------
Total liabilities and stockholders' equity $ 613,215 $ 556,260
========= =========
</TABLE>
Note: The balance sheet at December 31, 1997 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.
3
<PAGE> 4
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- ------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenue:
Resident fees $ 40,918 $ 23,159 $ 108,703 $ 56,875
Management services income 4,499 1,105 12,080 2,588
Realized gain on assets 735 - 735 -
---------- ---------- ----------- ----------
Total operating revenue 46,152 24,264 121,518 59,463
---------- ---------- ----------- ----------
Operating expenses:
Facility operating 24,129 14,267 64,412 35,356
Facility development and pre-rental 1,301 1,360 4,070 4,488
General and administrative 3,135 2,672 9,093 8,028
Depreciation and amortization 5,742 2,956 15,671 6,533
Facility lease 825 775 2,128 1,062
---------- ---------- ----------- ----------
Total operating expenses 35,132 22,030 95,374 55,467
---------- ---------- ----------- ----------
Income from operations 11,020 2,234 26,144 3,996
Other income (expense):
Interest income 1,619 2,093 4,563 5,014
Interest expense (5,683) (3,080) (15,584) (7,346)
---------- ---------- ----------- ----------
Total other expense (4,064) (987) (11,021) (2,332)
Equity in (losses) earnings of
unconsolidated partnerships and
minority interests (270) 71 (228) 164
---------- ---------- ----------- ----------
Net income $ 6,686 $ 1,318 $ 14,895 $ 1,828
========== ========== =========== ==========
Net income per common share data:
Basic net income per common share $ 0.35 $ 0.07 $ 0.77 $ 0.10
========== ========== =========== ==========
Diluted net income per common share $ 0.33 $ 0.07 $ 0.73 $ 0.09
========== ========== =========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------------
1998 1997
----------------- -------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 14,895 $ 1,828
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings (losses) of unconsolidated
partnerships and minority interests 228 (164)
Provision for bad debts 297 373
Gain on sale of interest (489) -
Amortization of discount on investments (162) -
Depreciation and amortization 15,671 6,533
Amortization of financing costs and discount on long-term debt 1,533 793
Changes in assets and liabilities:
Increase:
Accounts receivable (3,000) (2,571)
Prepaid expenses and other current assets (7,685) (14)
Other assets (1,928) (5,592)
Increase (decrease):
Accounts payable and accrued expenses (1,819) 2,099
Deferred revenue (3,642) (331)
Other liabilities 3,969 589
---------- ---------
Net cash provided by operating activities 17,868 3,543
---------- ---------
INVESTING ACTIVITIES:
Proceeds from disposition of assets 28,552 -
Increase in restricted cash and cash equivalents (1,064) (88)
Acquisition of interests in facilities - (262)
Investment in property and equipment (96,426) (141,731)
Increase in investment and notes receivable (4,887) (1,864)
Proceeds from maturities of marketable securities - 8,322
Contributions to investments in unconsolidated interests (742) -
Distributions from investment in unconsolidated partnerships 62 88
---------- ---------
Net cash used in investing activities (74,505) (135,535)
---------- ---------
FINANCING ACTIVITIES:
Net proceeds from exercised options 4,971 2,926
Additional borrowings under long-term debt 56,000 203,670
Repayment of long-term debt (22,974) (58,405)
Financing costs paid - (4,101)
Repayment of notes payable to affiliated partnerships - (1,327)
---------- ---------
Net cash provided by financing activities 37,997 142,763
---------- ---------
Net (decrease) increase in cash and cash equivalents (18,640) 10,771
Cash and cash equivalents at beginning of period 82,643 101,811
---------- ---------
Cash and cash equivalents at end of period $ 64,003 $ 112,582
========== =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Sunrise Assisted
Living, Inc. and subsidiaries (the "Company") are unaudited 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 nine-month periods
ended September 30, 1998 and 1997 pursuant to the instructions to Form 10-Q and
Article 10 of Regulation S-X. Certain information and footnote disclosures
normally included in the 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, 1997 included in the Company's
1997 Annual Report to Stockholders. Operating results for the three- and
nine-month periods ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1998.
Certain 1997 balances have been reclassified to conform with the 1998
presentation.
2. LONG-TERM DEBT
Long-term debt was $374.1 million at September 30, 1998, excluding notes
payable to affiliated entities, compared to $340.9 million at December 31, 1997.
On June 6, 1997, the Company issued and sold $150.0 million aggregate
principal amount of 5 1/2% convertible subordinated notes due 2002 (the
"Notes"). The Notes bear interest at 5 1/2% per annum, payable semiannually on
June 15 and December 15 of each year. The conversion price is $37.1875
(equivalent to a conversion rate of 26.89 shares per $1,000 principal amount of
the Notes). The Notes are redeemable at the option of the Company commencing
June 15, 2000, at specified premiums. The holders of the Notes may require the
Company to repurchase the Notes upon a Change of Control (as defined) of the
Company.
The Company has an $86.3 million dollar multi-property mortgage (the
"Multi-Property Mortgage"), collateralized by a blanket first mortgage on all
assets of a subsidiary of the Company, consisting of 15 facilities. The
Multi-Property Mortgage consists of two separate debt classes: Class (A) in the
amount of $65.0 million bears a fixed interest rate of 8.56% and is interest
only until the maturity date of May 31, 2001; and Class (B) in the amount of
$21.3 million bears a variable interest rate of LIBOR plus 1.75% and is payable
in installments through May 2001.
A subsidiary of the Company has a syndicated revolving credit facility
for $250.0 million. The facility is used for general corporate purposes,
including the continued construction and development of assisted living
facilities. The Company guarantees the repayment of all amounts outstanding
under this credit facility. The credit facility expires in December 2000, with
the right to extend, and is secured by cross-collateralized first mortgages on
the real property and
6
<PAGE> 7
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. LONG-TERM DEBT (CONTINUED)
improvements and first liens on all other assets of the subsidiary. Advances
under the facility bear interest at LIBOR plus 1.00% to LIBOR plus 1.50%. There
were $85.0 million of advances outstanding under this credit facility as of
September 30, 1998.
A subsidiary of the Company has received a commitment for a $51.0 million
revolving construction credit facility. The Company closed $32.1 million of the
total commitment. The credit facility provides for construction and interim
loans to finance the development of up to seven assisted living facilities. The
Company has agreed to guarantee the repayment of all amounts outstanding under
this credit facility. The credit facility is for a term of five years and is
secured by cross-collateralized first mortgages on the real property and liens
on receivables. Advances under the credit facility bear variable interest rates
based upon LIBOR plus 2.00% to LIBOR plus 2.35%. There were $4.7 million of
advances outstanding under this facility as of September 30, 1998.
A subsidiary of the Company has received a commitment for a $15.7 million
revolving construction credit facility. The credit facility provides for
construction and interim loans to finance the development of up to two assisted
living facilities. The Company guarantees the repayment of all amounts
outstanding under this credit facility. The credit facility is for a term of
three 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 credit facility bear variable interest rates based upon LIBOR
plus 1.25% to LIBOR plus 1.75%. There were no advances outstanding under this
facility as of September 30, 1998.
As of September 30, 1998, the Company has various other debt outstanding
totaling approximately $49 million with interest rates ranging from 6.4% to
12.0%.
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
$19.0 million LIBOR floating rate debt bear interest at a fixed rate based on a
fixed LIBOR base rate of 7.30%. The Company has entered into another swap
transaction whereby effective during the period August 20, 1997 through April 1,
2003, outstanding advances of up to $7.0 million under LIBOR floating rate debt
bear interest at a fixed LIBOR base rate of 7.14%.
3. STOCK OPTION PLANS
The Company has stock option plans providing for the grant of incentive
and non-qualified stock options to employees, directors, consultants and
advisors for a fixed number of shares with an exercise price equal to the fair
market value of the shares at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees and accordingly recognizes no compensation expense for the stock
option grants.
7
<PAGE> 8
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option activity and related information
as of September 30, 1998, is presented below:
<TABLE>
<CAPTION>
Shares Weighted - Average
Fixed Options (000) Exercise Price
------------- ---------------------------------------------
<S> <C> <C>
Outstanding - January 1, 1998 3,156 $22.76
Granted 2,969 31.72
Exercised (318) 15.43
Forfeited (1,973) 36.74
==========
Outstanding - September 30, 1998 3,834 23.12
==========
Exercisable - September 30, 1998 761
==========
</TABLE>
The following table summarizes information about stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices (000) Contractual Life Price (000) Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 to 8.00 236 6.9 $ 5.55 152 $ 5.64
8.01 to 20.00 375 7.6 16.97 226 16.70
20.01 to 25.63 3,188 9.2 24.95 352 25.04
25.64 to 44.56 35 9.2 40.06 31 41.28
----------- -------------
3,834 761
=========== =============
</TABLE>
In September 1998, the Company canceled 1.6 million options granted to
employees at exercise prices greater than $29 and granted an equal number of
options with an exercise price of $25. In connection with the new grants certain
vesting periods of the executive officers were extended.
8
<PAGE> 9
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. COMMITMENTS AND CONTINGENCIES
The Company has entered into contracts to purchase and lease properties
for development of additional assisted living facilities. Total contracted
purchase price of these sites amounts to $57.9 million. The Company is pursuing
additional development opportunities and also plans to acquire additional
facilities as market conditions warrant.
During the three months ended September 30, 1998, the Company completed
the sale of two assisted living communities for an aggregate purchase price of
$29.3 million in cash resulting in a $6.4 million gain from the transaction. The
Company recognized $0.7 million of the gain during the three months ended
September 30, 1998. The remaining gain was deferred, the recognition of which is
contingent upon future events. For tax purposes, the transaction was set up as a
tax-free exchange. The Company will continue operating the facilities under
long-term operating agreements.
5. NET INCOME PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income per share amounts presented in the accompanying consolidated statements
of operations (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------
1998 1997 1998 1997
-------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted net income
per share $ 6,686 $ 1,318 $ 14,895 $ 1,828
========== ========== =========== ==========
Denominator:
Denominator for basic net income per
common share-weighted average shares 19,340 18,727 19,228 18,654
Effect of dilutive securities:
Employee stock options 757 1,327 1,055 1,069
Warrants - 25 9 22
---------- ---------- ----------- ----------
Denominator for diluted net income per common
share-weighted average shares plus assumed
conversions 20,097 20,079 20,292 19,745
---------- ---------- ----------- ----------
Basic net income per common share $ 0.35 $ 0.07 $ 0.77 0.10
========== ========== =========== ==========
Diluted net income per common share $ 0.33 $ 0.07 $ 0.73 $ 0.09
========== ========== =========== ==========
</TABLE>
Shares issuable upon the conversion of convertible subordinated notes
have been excluded from the computation because the effect of their inclusion
would be anti-dilutive.
9
<PAGE> 10
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Included in prepaid expenses and other current assets are net receivables
from unconsolidated partnerships and limited liability companies of $10.3
million and $4.1 million as of September 30, 1998 and December 31, 1997,
respectively, which relate primarily to development activities.
7. RELATED-PARTY TRANSACTIONS
The Company has entered into a joint venture arrangement with a third
party that is providing up to $55.3 million of equity capital to develop up to
22 projects in the United Kingdom and Canada. A director of the Company is a
general partner in the third party that is providing such equity capital. The
joint venture has acquired a property near London, England on which it is
developing an independent living, an assisted living and an Alzheimer's care
facility. The Company will provide management and development services to the
joint venture on a contract-fee basis with rights to acquire the assets in the
future and has agreed to invest up to $2.8 million of equity capital in the
joint venture.
The Company has committed to providing a revolving credit arrangement of
up to approximately pound sterling 2.0 million (approximately $3.4 million) to a
subsidiary of the joint venture. Interest on the outstanding principal amount
accrues at 12%. The arrangement expires on November 4, 2001. On November 6,
1998, the Company advanced pound sterling 1.0 million (approximately $1.7
million) under this revolving credit arrangement.
8. SUBSEQUENT EVENTS
On October 18, 1998, the Company entered into a merger agreement ("Merger
Agreement") to acquire Karrington Health, Inc., a Columbus-based leading
assisted living provider ("Karrington"). The Company plans to acquire Karrington
in a tax-free, stock-for-stock transaction valued at approximately $88.9 million
(based on the closing price of the Company's Common Stock on October 16, 1998)
and assume approximately $102.1 million in debt for a total purchase price of
approximately $191.0 million. The transaction will be accounted for using the
purchase method of accounting.
Under the Merger Agreement, Karrington would become a wholly owned
subsidiary of the Company, and each issued and outstanding share of Karrington
common stock would be automatically converted into the right to receive a number
of shares of the Company's Common Stock equal to the lessor of 0.3939 or the
number obtained by dividing $13 by the Average Trading Price of the Company's
Common Stock, but in no event less than 0.3333. The Average Trading Price of the
Company's Common Stock is defined to mean the average of the closing price of a
share of the Company's Common Stock as quoted on Nasdaq National Market during
the 10-day trading period ending three trading days prior to the date of the
Karrington shareholder meeting held to approve the Merger Agreement. Subject to
satisfaction of the conditions set forth in the Merger Agreement, including
approval of the Merger Agreement by Karrington shareholders, the Company expects
to consummate its acquisition of Karrington during the first quarter of 1999.
10
<PAGE> 11
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8. SUBSEQUENT EVENTS (CONTINUED)
Pursuant to the Merger Agreement, the Company agreed to make available to
Karrington a fully secured line of credit in the principal amount of up to $10.0
million, subject to good faith negotiation, execution and delivery of mutually
acceptable loan documentation. On November 6, 1998, the Company advanced $1.3
million to Karrington under this line of credit.
On October 18, 1998, the Company also entered into an agreement with
Meditrust Corporation to acquire four separate first trust mortgages secured by
Karrington properties and six assisted living properties currently leased by
Karrington ("the Meditrust Interests") for approximately $63.7 million. Closing
of the Company's acquisition of the Meditrust Interests is scheduled to occur by
December 2, 1998, subject to certain conditions such as examination of titles
and completion of transfer documents.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis contains certain forward-looking
statements that involve risks and uncertainties. The Company's 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, acquisition risks, licensing risks, business conditions,
risks of downturns in economic conditions generally, satisfaction of closing
conditions and availability of financing for development and acquisitions.
Certain of these factors are discussed elsewhere herein. Unless the context
suggests otherwise, references herein to the "Company" or "Sunrise" means
Sunrise Assisted Living, Inc. and its subsidiaries.
OVERVIEW
The Company is a leading provider of assisted living services to the
elderly. The Company currently operates 76 facilities in 13 states with a
capacity of approximately 6,500 residents, including 65 facilities owned by the
Company or in which it has ownership interests and 11 facilities managed for
third parties. The Company also operates two skilled nursing facilities owned by
a third party. The current number of facilities operated by the Company
represents a significant growth in operations. Over the past 12 months, the
Company began operating an additional 22 facilities in which it has an ownership
interest and managing an additional four facilities for third parties.
The Company reported net income of $6.7 million, or $0.33 per share
(diluted), on operating revenue of $46.2 million for the three months ended
September 30, 1998, compared to net income of $1.3 million, or $0.07 per share
(diluted), on operating revenue of $24.3 million for the three months ended
September 30, 1997. The Company reported net income of $14.9 million, or $0.73
per share (diluted), on operating revenue of $121.5 million for the nine months
ended September 30, 1998, compared to net income of $1.8 million, or $0.09 per
share (diluted), on operating revenue of $59.5 million for the nine months ended
September 30, 1997. The increase in net income between the three and nine months
ended September 30, 1998 and 1997 was attributable to the additional facilities
in 1998 and the Company's ability to control general and administrative expenses
during the expansion. General and administrative expenses decreased as a
percentage of operating revenue by 4.2% and 6.0% between the three- and
nine-month periods, respectively (see Results of Operations for further
discussion).
The Company's growth objectives include developing new Sunrise model
assisted living facilities and selectively acquiring existing facilities. The
Company currently has 21 facilities under construction with a resident capacity
of 1,980. The Company has also entered into contracts to purchase 40 additional
development sites, 12 of which are zoned, and to lease three additional sites.
The Company is pursuing additional development opportunities and also plans to
acquire additional facilities as market conditions warrant.
On October 18, 1998, the Company entered into a merger agreement ("Merger
Agreement") to acquire Karrington Health, Inc., a Columbus-based leading
assisted living provider ("Karrington"). The Company plans to purchase
Karrington in a tax-free, stock-for-stock transaction valued at approximately
$88.9 million (based on the closing price of the Company's Common Stock on
October 16, 1998) and assume approximately $102.1 million in debt for a total
purchase price of approximately $191.0 million. The transaction will be
accounted for using the purchase method of accounting.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Under the Merger Agreement, Karrington would become a wholly owned
subsidiary of the Company, and each issued and outstanding share of Karrington
common stock would be automatically converted into the right to receive a number
of shares of the Company's Common Stock equal to the lessor of 0.3939 or the
number obtained by dividing $13 by the Average Trading Price of the Company's
Common Stock, but in no event less than 0.3333. The Average Trading Price of the
Company's Common Stock is defined to mean the average of the closing price of a
share of the Company's Common Stock as quoted on Nasdaq National Market during
the 10-day trading period ending three trading days prior to the date of the
Karrington shareholder meeting held to approve the Merger Agreement. Subject to
satisfaction of the conditions set forth in the Merger Agreement, including
approval of the Merger Agreement by Karrington shareholders, the Company expects
to consummate its acquisition of Karrington during the first quarter of 1999.
Pursuant to the Merger Agreement, the Company agreed to make available to
Karrington a fully secured line of credit in the principal amount of up to $10.0
million, subject to good faith negotiation, execution and delivery of mutually
acceptable loan documentation. The Company has advanced $1.3 million to
Karrington under this line of credit.
On October 18, 1998, the Company also entered into an agreement with
Meditrust Corporation to acquire four separate first trust mortgages secured by
Karrington properties and six assisted living properties currently leased by
Karrington ("the Meditrust Interests") for approximately $63.7 million. Closing
of the Company's acquisition of the Meditrust Interests is scheduled to occur by
December 2, 1998, subject to certain conditions such as examination of titles
and completion of transfer documents.
The Company anticipates, subject to market conditions, selling selected
real estate assets as a normal part of its operations while retaining long-term
management through operating agreements. This strategy of selling selected real
estate assets as a normal part of operations should enable the Company to reduce
debt, redeploy its capital into new development projects and recognize gains on
appreciated real estate.
During the three months ended September 30, 1998, the Company completed
the previously announced sale of two assisted living communities located in
Annapolis and Pikesville, Maryland for an aggregate purchase price of $29.3
million in cash. The Company will realize a $6.4 million gain from the
transaction over a maximum of 15 quarters. The Company recognized a gain of $0.7
million on the sale during the three months ended September 30, 1998. For tax
purposes, the transaction was set up as a tax-free exchange. The Company will
continue operating the facilities under long-term operating agreements.
In mid 1997, the Company again began seeking to capitalize on its brand
awareness by accepting third-party management and development contracts. The
Company has renewed efforts to seek additional third-party management and
development opportunities after a two year period during which the Company
focused on building its infrastructure. During the first quarter of 1998 the
Company entered an agreement expanding its relationship with Resource Housing of
America, an Atlanta-based nonprofit organization for which the Company currently
manages two nursing homes and an assisted living community. Under this
agreement, the Company will initially develop and manage three new assisted
living communities in the southeastern United States.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the three months ended September 30, 1998, the Company entered
into an agreement with Inova Health System Services, Inc. ("Inova"), the largest
not-for-profit integrated health care system in the Washington, D.C.
metropolitan area, to manage Inova's two assisted living communities and provide
development and management services for an additional four to eight assisted
living communities with a total resident capacity of up to 800.
The Company has continued its efforts to explore international
development and acquisition possibilities in the United Kingdom and Canada and
has entered into a joint venture arrangement with a third party that is
providing up to $55.3 million of the equity capital to develop up to 22
projects. A director of the Company, is a general partner in the third party
that is providing such equity capital. The joint venture has acquired a property
near London, England on which it is developing an independent living, an
assisted living and an Alzheimer's care facility. The Company will provide
management and development services to the joint venture on a contract-fee basis
with rights to acquire the assets in the future and has agreed to invest up to
$2.8 million of equity capital in the joint venture. To date, the third party
has provided approximately $5.1 million and the Company has provided $0.4
million of equity capital to the joint venture.
The Company has committed to providing a revolving credit arrangement of
up to approximately pound sterling 2.0 million (approximately $3.4 million) to a
subsidiary of the joint venture. Interest on the outstanding principal amount
accrues at 12%. The arrangement expires on November 4, 2001. In November 1998,
the Company advanced pound sterling 1.0 million (approximately $1.7 million)
under this revolving credit arrangement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
Operating Revenue. Operating revenue for the three months ended September
30, 1998 increased 90.2% to $46.2 million from $24.3 million for the three
months ended September 30, 1997 due primarily to the growth in resident fees.
Resident fees (including community fees) for the three months ended September
30, 1998 increased $17.8 million compared to the three months ended September
30, 1997. This increase was due primarily to the inclusion, for the three months
ended September 30, 1998, of approximately $12.4 million of resident fees
generated from the additional assisted living facilities. The remaining increase
in resident fees was due primarily to an increase in the average daily resident
rate (excluding community fees) and the average resident occupancy for
facilities that were operational in both periods.
Average resident occupancy for owned facilities operated by the Company
for at least 12 months or that have achieved stabilization of 95% ("Stabilized
Facilities") increased to 95.6% for the three months ended September 30, 1998
compared to 94.4% for the three months ended September 30, 1997. The average
daily resident fee (excluding community fees) for Stabilized Facilities
increased to $90 in the three months ended September 30, 1998 from $78 in the
three months ended September 30, 1997. The increase is due to the inclusion of
additional stabilized prototype facilities which have higher Basic Care rates, a
general increase in the Basic Care rate at other facilities, and an increase in
the number of residents receiving Plus Care and Alzheimer's Care services.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Management services income represents fees from long-term contracts for
facilities owned by joint ventures and other third party owners. Management
services income for the three months ended September 30, 1998 increased to $4.5
million from $1.1 million for the three months ended September 30, 1997. This
increase resulted primarily from a $3.1 million increase in fees from additional
management activities. Currently, the Company has management services contracts
for 20 domestic facilities, one international facility, and two skilled nursing
facilities for third parties compared to five facilities and two skilled nursing
facilities for the same period last year.
During the three months ended September 30, 1998, the Company recognized
a gain of $0.7 million on the sale of two assisted living communities (see
Overview for further discussion).
Operating Expenses. Operating expenses for the three months ended
September 30, 1998 increased by 59.5% to $35.1 million from $22.0 million for
the three months ended September 30, 1997. The increase in operating expenses
for the three months ended September 30, 1998 was attributable primarily to an
increase in facility operating and depreciation and amortization expenses.
Facility operating expenses for the three months ended September 30,
1998, increased 69.1% to $24.1 million from $14.3 million for the three months
ended September 30, 1997. As a percentage of resident fees, facility operating
expenses for the three months ended September 30, 1998, decreased to 59.0% from
61.6% for the three months ended September 30, 1997. The increase in facility
operating expenses for the three months ended September 30, 1998 was
attributable primarily to the additional assisted living facilities operated in
the 1998 period.
General and administrative expenses for the three months ended September
30, 1998 increased 17.3% to $3.1 million from $2.7 million for the three months
ended September 30, 1997. As a percentage of operating revenue, general and
administrative expenses for the three months ended September 30, 1998 decreased
to 6.8% from 11.0% for the three months ended September 30, 1997, which is a
reflection of higher operating revenue in the 1998 period. The $0.4 million
increase in general and administrative expenses for the three months ended
September 30, 1998 was primarily related to labor costs, consisting of hiring
and training additional staff at the headquarters and regional offices.
Depreciation and amortization for the three months ended September 30,
1998 compared to the three months ended in September 30, 1997 increased $2.8
million, or 94.2%, to $5.7 million primarily due to the openings of additional
assisted living facilities and the inclusion of operations of acquired
facilities.
Other income (expense). Interest income decreased to $1.6 million for the
three months ended September 30, 1998 compared to $2.1 million for the three
months ended September 30, 1997. This decrease was primarily due to decreased
funds available for investment. Interest expense increased for the three months
ended September 30, 1998 to $5.7 million from $3.1 million for the three months
ended September 30, 1997. The increase was primarily due to interest on
additional borrowings under one of the Company's credit facilities.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Operating Revenue. Operating revenue for the nine months ended September
30, 1998 increased 104.4% to $121.5 million from $59.5 million for the nine
months ended September 30, 1997 due primarily to the growth in resident fees.
Resident fees (including community fees) for the nine months ended September 30,
1998 increased 91.1% to $108.7 million from $56.9 million for the nine months
ended September 30, 1997. This increase was due primarily to the inclusion, for
the nine months ended September 30, 1998, of resident fees of approximately
$22.7 million generated from the operations of additional facilities opened or
acquired subsequent to September 30, 1997. The remaining increase in resident
fees was primarily due to an increase in the average daily rate (excluding
community fees) for owned facilities operated by the Company for at least twelve
months and an increase in the average resident occupancy for facilities that
were operational in both periods.
Average resident occupancy for Stabilized Facilities increased to 94.7%
for the nine months ended September 30, 1998 compared to 94.3% for the nine
months ended September 30, 1997. The average daily resident fee (excluding
community fees) for Stabilized Facilities increased to $86 in the nine months
ended September 30, 1998 from $79 in the nine months ended September 30, 1997.
The increase is due to the inclusion of additional stabilized prototype
facilities which have higher Basic Care rates, a general increase in the Basic
Care rate at other facilities, and an increase in the number of residents
receiving Plus Care and Alzheimer's Care services.
Management services income for the nine months ended September 30, 1998
increased to $12.1 million from $2.6 million for the nine months ended September
30, 1997. The increase resulted primarily from a $7.9 million increase in fees
from additional management activities. Also included are management services
income from four additional facilities managed by the Company during the nine
months ended September 30, 1998 and a $0.5 million gain to the Company from the
sale of its minority interest in a tenancy-in-common that owned one facility.
Operating Expenses. Operating expenses for the nine months ended
September 30, 1998 increased by 71.9% to $95.4 million from $55.5 million for
the nine months ended September 30, 1997. The increase in operating expenses was
attributable primarily to the increase in facility operating and depreciation
and amortization expenses.
Facility operating expenses for the nine months ended September 30, 1998
increased 82.2% to $64.4 million from $35.4 million for the nine months ended
September 30, 1997. As a percentage of resident fees, facility operating
expenses for the nine months ended September 30, 1998 decreased to 59.3% from
62.2% for the nine months ended September 30, 1997. Of the $29.0 million
increase, $14.4 million was attributable to expenses from the operations of
additional assisted living facilities operated by the Company for the nine
months ended September 30, 1998 as compared to the nine months ended September
30, 1997 and $13.3 million was attributable to facilities included for a full
nine months in 1998 versus a partial period in 1997. The remaining balance was
primarily due to an increase in labor and general and administrative expenses at
facilities that were operational for a full nine months in both periods.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses for the nine months ended September
30, 1998 increased 13.3% to $9.1 million from $8.0 million for the nine months
ended September 30, 1997. As a percentage of operating revenue, general and
administrative expenses for the nine months ended September 30, 1998 decreased
to 7.5% from 13.5% for the nine months ended September 30, 1997, which is a
reflection of higher operating revenue in the 1998 period. The $1.1 million
increase in general and administrative expense for the nine months ended
September 30, 1998, was primarily related to labor costs, consisting of hiring
and training additional staff at the headquarters and regional offices.
Depreciation and amortization for the nine months ended September 30,
1998 compared to the nine months ended in September 30, 1997 increased $9.1
million, or 139.9%, to $15.7 million from $6.5 million primarily due to the
increase in the number of facilities operated by the Company.
Facility lease expense increased $1.1 million primarily due to the
opening of two facilities developed and leased by the Company in 1998 and three
facilities included for a full nine months in 1998 versus a partial period in
1997.
Other income (expense). Interest income decreased to $4.6 for the nine
months ended September 30, 1998 compared to $5.0 for the nine months September
30, 1997. This decrease was primarily due to decreased funds available for
investment. Interest expense increased for the nine months ended September 30,
1998 to $15.6 million from $7.3 million for the nine months ended September 30,
1997. Of this increase, $3.6 million was due to interest on the Notes. The
remaining increase was primarily due to interest on additional borrowings under
one of the Company's credit facilities.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations from long-term
borrowings, equity offerings and cash generated from operations. At September
30, 1998, the Company had $374.1 million of outstanding debt (excluding notes
payable to affiliates) at a weighted average interest rate of 6.7%. Of such
amount, the Company had $259.2 million of fixed-rate debt (excluding a $1.1
million loan discount) at a weighted average interest rate of 6.5%, and $114.9
million of variable rate debt at a weighted average interest rate of 7.2%.
Increases in prevailing interest rates could increase the Company's interest
payment obligations relating to variable-rate debt.
At September 30, 1998, the Company had approximately $64.0 million in
unrestricted cash and cash equivalents, including $20.9 million in high quality
short-term investments (A1/P1 rated) and $64.2 million in net working capital
and currently has $227.0 million of unused lines of credit.
Working capital decreased to $64.2 million from $70.3 million at December
31, 1997, primarily due to the Company's continued investment in the development
and ownership of assisted living facilities, offset by a net increase in working
capital resulting from the sale of two facilities and net borrowings during the
three months ended September 30, 1998.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net cash provided by operating activities for the nine months ended
September 30, 1998 and 1997 was approximately $17.9 million and $3.5 million,
respectively, corresponding to the increased number of facilities operated by
the Company at September 30, 1998, compared to September 30, 1997.
For the nine months ended September 30, 1998 and 1997, the Company used
$74.5 million and $135.5 million, respectively, for investing activities.
Investing activities included investment in property and equipment in the
amounts of $96.4 million and $141.7 million, respectively, related to the
construction of assisted living facilities.
Net cash provided by financing activities was $38.0 million and $142.8
million for the nine months ended September 30, 1998 and 1997, respectively.
Financing activities included additional borrowings of $56.0 million and $203.7
million, respectively, offset, in part, by debt repayments of $23.0 million and
$58.4 million, respectively. Additional borrowings during the nine months ended
September 30, 1998 were primarily from the Company's credit facilities (see Note
2, Long-term Debt) and were used to fund the Company's continued development of
assisted living facilities.
The Company's growth objectives include developing new Sunrise model
assisted living facilities. The Company has 21 facilities currently under
construction with a resident capacity of 1,980. The Company has also entered
into contracts to purchase 40 additional development sites, 12 of which are
zoned, and to lease three additional sites. The Company is pursuing additional
development opportunities and also plans to acquire additional facilities as
market conditions warrant.
The Company currently estimates that the existing credit facility,
together with existing working capital, financing commitments and financing
expected to be available, will be sufficient to fund its growth objectives.
Additional financing will be required to complete the Company's growth plans and
to refinance existing indebtedness. There can be no assurance that such
financing will be available on acceptable terms.
The Company's ability to achieve its development plans will depend upon a
variety of factors, many of which are beyond the Company's control. There can be
no assurance that the Company will not suffer delays in its development program,
which could slow the Company's growth. The successful development of additional
assisted living facilities will involve a number of risks, including the
possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. The Company may also incur
construction costs that exceed original estimates, may not complete construction
projects on schedule and may experience competition in the search for suitable
development sites. The Company relies on third-party general contractors to
construct its new assisted living facilities. There can be no assurance that the
Company will not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that may adversely affect project cost
and completion time, including shortages of, or the inability to obtain, labor
or materials, the inability of the general contractor or subcontractor to
perform under their contracts, strikes, adverse weather
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
conditions and changes in applicable laws or regulations or in the method of
applying such laws and regulations. Accordingly, if the Company is unable to
achieve its development plans, its business, financial condition and results of
operations could be adversely affected.
The Company's previously announced growth plan includes the acquisition
of additional facilities, of which nine have been acquired through September 30,
1998. If the Company's proposed acquisition of Karrington is consummated, the
number of the Company's facilities will increase by approximately 39. The
success of the Company's acquisitions will be determined by numerous factors,
including the Company's ability to identify suitable acquisition candidates,
competition for such acquisitions, the purchase price, the financial performance
of the facilities after acquisition and the ability of the Company to integrate
or operate acquired facilities effectively may have a material adverse effect on
the Company's business, financial condition and results of operations.
The long-term care industry is highly competitive and the Company
believes that the assisted living segment, in particular, will become more
competitive in the future. The Company competes with numerous other companies
providing assisted living and other similar long-term care alternatives such as
home health care agencies, facility-based service programs, retirement
communities and convalescent centers. In general, regulatory and other barriers
to competitive entry in the assisted living industry are not substantial. In
pursuing its growth strategy, the Company faces competition in its efforts to
develop and acquire assisted living facilities and is experiencing competition
in many of its opened facilities. Some of the Company's present and potential
competitors are significantly larger and have, or may obtain, greater financial
resources than the Company. There can be no assurance that the Company will not
encounter increased competition that could limit its ability to attract
residents or expand its business and that could have a material adverse affect
on its business, financial condition and results of operations. Moreover, if the
development of new assisted living facilities outpaces demand for those
facilities in certain markets, such markets may become saturated. Such an
oversupply of facilities could cause the Company to experience decreased
occupancy, depressed margins and lower operating results. Providers of assisted
living and related services compete for residents primarily on the basis of
quality of care, price, reputation, physical appearance and location of the
facilities, services offered, and family and physician preferences. As assisted
living receives increased attention, the Company believes that competition will
grow from new and existing local, regional, and national companies that operate,
manage and develop assisted living facilities within the same geographic areas
as the Company. The Company believes that each local market is different and the
Company is and will continue to react in a variety of ways, including selective
price discounting, to the specific competitive environment that exists in each
market.
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) one of the Company's Founders (Paul and
Teresa Klaassen) serve as Chairman of the Board and Chief Executive Officer of
the Company, (iii) require consent for changes in management or control of the
Company, (iv) limit, among other things, the ability of the Company and certain
of its subsidiaries to borrow additional funds, dispose of assets and engage in
mergers or other business combinations, and (v) prohibit the Company from
operating competing facilities within certain distances from mortgaged
facilities.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
At September 30, 1998, the Company had net operating loss carryforwards
for income tax purposes of approximately $16.5 million which expire from 2010
through 2012.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities ("SOP
98-5"), which is effective for fiscal years beginning after December 15, 1998.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The adoption of SOP 98-5 is not anticipated to
affect results of operations or the financial position of the Company.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
fiscal years beginning after December 15, 1997. Statement 131 establishes
standards for the way that a public company reports information about operating
segments in annual financial statements and requires that those companies report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt the new
requirements in 1998. Management has not completed its review of Statement 131;
however, the adoption of Statement 131 is not anticipated to affect results of
operations or financial position, but could add to the Company's operating
disclosures in future periods.
IMPACT OF INFLATION
Resident fees from Company-owned assisted living facilities and
management services income from facilities operated by the Company for third
parties are the primary sources of revenue for the Company. These revenues are
affected by daily resident fee rates and facility occupancy rates. The rates
charged for the delivery of assisted living services are highly dependent upon
local market conditions and the competitive environment in which the facilities
operate. In addition, employee compensation expense is the principal cost
element of property operations. Employee compensation, including salary
increases and the hiring of additional staff to support the Company's growth
initiatives, have previously had a negative impact on operating margins and may
again do so in the foreseeable future.
Substantially all of the Company's resident agreements are for terms of
one year (but are terminable by the resident at any time upon 30 days' notice)
and allow, at the time of renewal, for adjustments in the daily fees payable
thereunder, and thus may enable the Company to seek increases in daily fees due
to inflation or other factors. Any such increase would be subject to market and
competitive conditions and could result in a decrease in occupancy of the
Company's facilities. The Company believes, however, that the short-term nature
of its resident agreements generally serves to reduce the risk to the Company of
the adverse effect of inflation. There can be no assurance that resident fees
will increase or that costs will not increase due to inflation or other causes.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF YEAR 2000
Some of the older computer programs utilized by the Company were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000 ("Year 2000 Issue"). This could
cause a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
During the past year, the Company has continued to invest resources
developing the needed infrastructure to support current and anticipated growth.
In most cases, the Company has implemented financial and accounting systems that
will support its development plans, which includes year 2000 compliant software.
To date, financial and accounting systems implemented or updated that are year
2000 compliant include the accounting general ledger system, the resident
billing system, the cash disbursement or accounts payable system, the
development or project cost system, the fixed asset system, the employee stock
option system, payroll and human resource system and substantially all software
residing on the Company's home office and facility desk-top and lap-top
computers. The Company is in the process of evaluating certain facility specific
systems, including phone, elevator, security, HVAC, and other systems. The
Company and the respective service providers have begun to implement changes to
ensure Year 2000 compliance. The Company is committed to funding capital
expenditures as required for upgraded equipment and software but does not expect
these charges to be material.
The Company will continue to assess its software to determine whether
additional portions will have to be modified or replaced so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company believes that with modifications to existing software
and conversions to new software, planned and completed, the Year 2000 Issue will
not pose significant operational problems or costs. However, there can be no
assurance that management's expectations will be achieved and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. If such
modifications and conversions are not made or are not completed timely, the Year
2000 Issue could have a material impact on the operations of the Company.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
----------- ------------
<S> <C>
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and is not filed.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
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)
<TABLE>
<S> <C>
Date: November 9, 1998 /s/ David W. Faeder
- ------------------------------ ----------------------------------
David W. Faeder
Executive Vice President and Chief
Financial Officer
Date: November 9, 1998 /s/ Larry E. Hulse
- ------------------------------ ----------------------------------
Larry E. Hulse
Chief Accounting Officer
</TABLE>
22
<PAGE> 23
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name Page
- ----------- ------------ ----
<S> <C> <C>
27 Financial Data Schedule, which
is submitted electronically to
the Securities and Exchange
Commission for information only
and is not filed.
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 64,003
<SECURITIES> 0
<RECEIVABLES> 11,535
<ALLOWANCES> 1,831
<INVENTORY> 0
<CURRENT-ASSETS> 88,000
<PP&E> 516,765
<DEPRECIATION> 35,845
<TOTAL-ASSETS> 613,215
<CURRENT-LIABILITIES> 23,828
<BONDS> 368,837
0
0
<COMMON> 194
<OTHER-SE> 215,012
<TOTAL-LIABILITY-AND-EQUITY> 613,215
<SALES> 0
<TOTAL-REVENUES> 121,518
<CGS> 0
<TOTAL-COSTS> 95,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 297
<INTEREST-EXPENSE> 15,584
<INCOME-PRETAX> 14,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,895
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.73
</TABLE>
