SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 31, 2000
GRAND COURT LIFESTYLES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-21249 22-3423087
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
2650 North Military Trail, Suite 350, Boca Raton, Florida 33431
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 997-0323
n/a
(Former name or former address, if changed since last report)
<PAGE>
Item 5 - Other Events
On May 31, 2000, Grand Court Lifestyles, Inc. (the "Company") wrote a
letter (the "Letter") addressed to all limited partners (the "Limited Partners")
of syndicated Grand Court Lifestyles senior living communities (the
"Properties"). The Letter, attached as Exhibit 99.1 to this Current Report on
Form 8-K, informs the Limited Partners as to the status of the Properties. The
information contained in the Letter is incorporated herein by reference.
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Description
99.1 Letter of the Company dated May 31, 2000, addressed to
all Limited Partners of Syndicated Grand Court
Lifestyles Senior Living Communities:
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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, thereto duly authorized.
Dated: June 1, 2000.
GRAND COURT LIFESTYLES, INC.
By /s/ John Luciani
JOHN LUCIANI,
Chairman of the Board and Chief Executive Officer
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May 31, 2000
To All Limited Partners of Syndicated Grand Court Lifestyles
Senior Living Communities:
As previously discussed in our letter dated March 22, 2000, on March 20,
2000, Grand Court Lifestyles Inc. ("Grand Court") filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. This letter is being sent to
all limited partners of syndicated senior living communities to provide some
general information about the Chapter 11 case and the impact of the
reorganization on these communities.
The only company that has filed for bankruptcy protection is Grand Court,
the manager of the senior living communities. None of the partnerships that own
senior living communities is in bankruptcy. The partnerships that own these
communities are separate companies that continue to operate their senior living
communities as before. Grand Court and its affiliates continue to provide
management services to the partnerships and their communities.
Over the past several years, intensive new construction of senior living
communities has caused an oversupply of such properties in many markets around
the country. This oversupply has caused occupancy and rental rate reductions at
many communities managed by Grand Court. These same market conditions adversely
impacted our competition and many senior housing companies suffered business
reversals. Please see the attached article from The New York Times.
Prior to the bankruptcy and pursuant to various agreements, if the cash
flow from the senior living communities was insufficient, Grand Court used its
own resources to fund operating shortfalls or make capital improvements at the
senior living communities and to make payments to the owning partnerships to
ensure that limited partners received certain priority returns. As a result of
the bankruptcy, Grand Court can no longer use its own resources to fund the
senior living communities it manages. This means that the communities must meet
all of their obligations, including debt service, from their own operations. It
also means that communities can only make distributions from cash flow available
after meeting all operating expenses. Since the bankruptcy filing, all of the
revenues of the senior living communities have been kept in the segregated bank
accounts each community maintains and have not been co-mingled with the accounts
of Grand Court or the other communities.
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Most of the syndicated communities managed by Grand Court are meeting
their debt service obligations. Overall, Grand Court's Chapter 11 filing has not
affected the operations of the respective communities. Occupancy has improved at
some communities and declined at others. Although our competitors are seeking to
take advantage of Grand Court's bankruptcy, average occupancy has been stable
across the portfolio. However, without funding support from Grand Court, some
communities have been unable to meet their debt service obligations and are
currently in default on their mortgages.
The syndicated senior living communities managed by Grand Court fall into
six categories regarding their current financial condition:
1. The following communities have sufficient cash flow to permit
distributions. The amount of such distributions may not equal the full priority
return and will vary from month to month due to normal fluctuations in revenues
and operating expenses. The communities within this category are:
<TABLE>
<S> <C> <C>
TGC Belleville Belleville Associates, LP Essex Associates, Inc.
TGC Bryan GC - Bryan Station Assoc. Warwick Associates, LP
TGC Dayton Brookstead Assoc. Concorde Assoc. LP
TGC Kansas City I Cloverset Place LP Cloverleaf Assoc. I,II,III, Cloverset Valley
TGC Overland Park GC - Overland Park Assoc. Victoria Manor Assoc. LP
TGC Tampa GC - Bayshore Assoc. Henley Assoc. LP
TGC Tavares Tavares Center Assoc. Brighton Manor Assoc.
</TABLE>
2. The following communities have sufficient cash flow to pay their
current operating expenses, including debt service on their mortgages, but do
not have sufficient cash flow to make distributions because, in most cases, the
communities have accounts payable owed to vendors. It is important for the
continued success of these communities that the accounts payable be paid down as
quickly as is reasonably possible. We expect that these communities will have
sufficient cash flow to reduce payables and resume making distributions in
future months.
<TABLE>
<S> <C> <C>
TGC Adrian GC - Adrian Associates Knightsbridge Assoc., LP
TGC Albuquerque GC - Albuquerque Assoc. Manchester Manor, LP
TGC Carrollton GC - Carrollton Assoc. Wellington Manor Assoc. LP
TGC Columbus Woodstead Associates Brookstone Associates LP
TGC Denver Grand Court - Denver Assoc. Cumberland Assoc., LP
TGC Farmington Hills Devon Assoc.. LP Windsor Assoc. LP
TGC Findlay Springfield - Findlay Assoc. Millbrook Hills Assoc. LP
TGC Fort Meyers Twin Lakes LP Waterford Shores I & II
TGC Ft. Worth GC - Ft Worth Assoc. Nottingham Manor Assoc. LP
TGC Garland GC - Garland Assoc. Hampton Assoc. LP
TGC Kansas City II Victory Hills Assoc. Green Hills Assoc. LP
TGC Las Vegas I Flamingo Vista Assoc. LP Sierra Vista Assoc. LP
TGC Las Vegas II GC - Las Vegas Assoc. Sandhurst Manor, LP
</TABLE>
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<TABLE>
<S> <C> <C>
TGC Lubbock Cambridge Retirement Village LP Lubbock Village Assoc. LP
TGC Mesa GC - Mesa Assoc. Wembley Associates LP
TGC Morristown GC - Morristown Assoc. Sinclair Assoc. LP
TGC Novi West Oak Assoc. Western Oaks Assoc. LP
TGC Pensacola Pensacola Village Assoc. Tudor Assoc. LP
TGC Phoenix Paradise Retirement Center, LP Paradise Valley Assoc. LP
TGC Radcliff GC - Radcliff Assoc. Sherwood Manor Assoc., LP
TGC San Antonio I New Forest Realty Assoc. Salisbury Assoc. LP
TGC Seward GC - Seward Assoc. Winchester Manor Assoc. LP
TGC Springfield Springfield - Findlay Assoc. Millbrook Hills Assoc. LP
TGC Westland GC - Westland Assoc. Churchill Manor Assoc. LP
</TABLE>
3. The following communities involve new construction which has recently
been completed. These properties are in their initial lease-up phase and are not
expected to have excess cash flow available for distribution until lease-up is
completed.
<TABLE>
<S> <C> <C>
TGC Overland Park II GC - Kansas Assoc. Midland Manor Assoc. LP
TGC South Shore Harbour GC S. Shore Harbour Seaford Manor Assoc.
</TABLE>
4. The following community has no mortgage debt, but the level of cash
flow is insufficient to pay current operating expenses. Grand Court can no
longer fund operating deficits and is investigating the feasibility of a sale of
this property.
<TABLE>
<CAPTION>
Property Trade Name Owning Partnership Investing Partnership
------------------- ------------------ ---------------------
<S> <C> <C>
TGC North Miami Florida Club Assoc. Harrow Assoc. LP
</TABLE>
5. The following communities are in financial default on their mortgages.
Grand Court has been seeking to negotiate workout agreements or other
appropriate resolutions with the respective lenders. If we are unable to
negotiate workout agreements or other appropriate resolutions, some of these
communities may be lost through foreclosure.
<TABLE>
<CAPTION>
Property Trade Name Owning Partnership Investing Partnership
------------------- ------------------ ---------------------
<S> <C> <C>
TGC I Chattanooga Mountain Creek Associates Edgemere Assoc. LP
TGC II Chattanooga Cambridge Hall Associates Dover Assoc. LP
TGC Lake Worth Worthington Associates Palm Villas Associates, LP
TGC Lakeland Palm View Associates Sommerville Associates LP
TGC Longview GC - Longview Associates Sheffield Associates LP
TGC Memphis Knight Associates Magnolia Hills Associates LP
TGC Pompano Beach I & II Palm Club Associates Palm Gardens Associates LP
TGC Sacramento Grand Court Sacramento Associates Regal Associates LP
TGC San Antonio II/Bristol Liberty Place Associates Bayswater Associates LP
TGC South Miami GC - South Miami Associates Glades Associates, L.P.
TGC Weatherford Lake Associates Stratford Associates LP
TGC Winter Haven GC - Winter Haven Associates Fox Manor Associates LP
</TABLE>
6. The following community was in financial default of its mortgage. An
agreement was entered into with the mortgage lender, which allowed the lender to
foreclose on the mortgage.
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Since the lender was the successful bidder at the foreclosure sale, the
agreement provides that the lender and the owning partnership will cooperate in
attempting a subsequent sale of the community. If such subsequent sale occurs
within 6 months of the foreclosure, the owning partnership will receive any
excess sale proceeds over the outstanding mortgage balance and accrued interest,
the cost of any improvements deemed necessary to sell the community and the
costs of the sale transaction.
<TABLE>
<CAPTION>
Property Trade Name Owning Partnership Investing Partnership
------------------- ------------------ ---------------------
<S> <C> <C>
TGC Kansas City III Venue Apartments, L.P. Harvard Heights Associates, L.P.
</TABLE>
Grand Court has made an application seeking the approval of the Bankruptcy
Court to make distributions to limited partners of those communities which are
not in financial default on their mortgages. A hearing on this application is
currently scheduled to be held on June 12, 2000. We are hopeful that the
Bankruptcy Court will authorize these distributions.
The reason we need to obtain court approval is because almost all of the
communities are subject to mortgage loan agreements containing language that may
prohibit distributions at this time. Those agreements prohibit the owning
partnership, as borrower, from making distributions to the investing partnership
and its limited partners if the loan is in default. Even though all payment
obligations may be current, the loans may still be technically in default. This
is because Grand Court extended guaranties of the communities' underlying
indebtedness (in whole or in part) to the lenders. The bankruptcy of Grand
Court, as guarantor, may create an event of default that prevents distributions
from the partnerships.
Grand Court will forcefully urge the Bankruptcy Court to allow these
distributions. In the event that the Bankruptcy Court does not grant our motion
to make distributions, all excess cash flow for periods after the bankruptcy
filing will remain in the segregated bank accounts of the owning partnerships,
and will be distributed as and when the Bankruptcy Court directs.
Some limited partners have asked whether Grand Court is putting the
communities up for sale. Our present strategy is to continue to manage the
syndicated communities and emerge from bankruptcy as a profitable and growing
property management company. We believe this is the course that will most
benefit our creditors and limited partners. We believe that the sale of the
senior living communities in the midst of an industry-wide down-turn would not
maximize the value of these communities and would, therefor, not be in the best
interests of Grand Court's creditors and limited partners. We are, however,
exploring the sale of certain communities that are in financial default on their
mortgages.
The bankruptcy of Grand Court is now two months old. Under bankruptcy laws
and rules, the company and its activities are overseen by a Federal Bankruptcy
Court judge, the United States Trustee (an official of the United States Justice
Department), two official committees appointed in the case (one representing
unsecured creditors and the other representing limited partners), and attorneys
and accountants for those committees. Although we are seeking to accomplish a
rapid reorganization, please understand that the bankruptcy process is
enormously demanding and time consuming.
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<PAGE>
We plan to accelerate the typical timetable (in view of the size and
complexity of Grand Court) for the formulation and presentation of a plan of
reorganization. The plan will set forth the structure of the reorganized
company, including the equity stake or other interests in the company of each of
the interested parties. We are doing our best for limited partners, creditors
and all other parties in interest and will endeavor to keep you informed of
significant developments as they arise.
We ask for your continued patience. We are working very hard to produce
the optimal plan of reorganization as soon as possible.
Very truly yours,
GRAND COURT LIFESTYLES, INC.
By:_________________________________
JOHN LUCIANI, Chairman of the Board and Chief
Executive Officer
This letter contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. Important factors that could cause
actual results to differ materially from those in the forward-looking statements
include the Company's ability to successfully reorganize, the possibility of
liquidation if the Company cannot successfully reorganize and competitive
factors affecting the long-term care services industry. For a discussion of
other important factors, refer to the Company's documents and reports that are
available from the Securities and Exchange Commission, including the Company's
Annual Report on Form 10K for the fiscal year ended January 31, 1999 at Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Safe Harbor for Forward-Looking Statements." Forward-looking
statements are all statements other than statements of historical fact,
including, without limitation, those that are identified by the use of the words
"anticipates," "expects", "intends", "believes", and similar expressions. The
Company's actual results could differ materially from such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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<PAGE>
The New York Times
May 28, 2000, Sunday
Money and Business/Financial Desk
BUSINESS; Too Much, Too Soon Halts Assisted-Living Boom
By TERRY PRISTIN
FUELED by favorable demographic trends, strong consumer demand and a robust
economy, the assisted-living industry was supposed to be mounting record profits
this year while expanding rapidly and reaching new stock market peaks. That, at
least, is what analysts were predicting three years ago.
It has not exactly worked out that way. One publicly traded company -- Grand
Court Lifestyles Inc., in Boca Raton, Fla. -- filed for bankruptcy protection in
March. Several others are under financial strain, and most have seen their
shares recently plunge to record lows.
New construction has all but stopped. The Alterra Healthcare Corporation of
Milwaukee, the nation's largest assisted-living operator, has abandoned plans to
build 100 new homes. Last year, the industry's publicly traded companies, which
account for 10 percent of the homes, lost 68 percent of their value, according
to Philip J. Martin, an analyst with First Union Securities.
What went wrong? The answer is a binge of overinvestment and overbuilding, with
too many companies trying to seize a trend.
The elderly are the fastest-growing segment of the population; the number of
Americans 85 or older is expected to increase by one-third in the next decade,
to about six million. Most dread the prospect of being confined to the
hospital-like setting of a nursing home.
Privately paid assisted living is viewed as an appealing alternative for people
who need some help but do not require skilled nursing. Residents have their own
apartments with kitchens, eating communally and taking part in social activities
only when they want to. Public areas are designed to evoke a comfortable hotel
rather than an institution.
Experts in senior housing say the industry's poor financial performance has not
discredited assisted living, any more than the slide in dot-com stocks has
undermined the Internet. They cite a gold-rush fever that led some companies to
grow too fast and to use creative (though legal) accounting methods to hide
their losses.
The concept of assisted living has existed for about two decades, but as
recently as 1994, the industry had only two publicly traded companies. As
capital became widely available, about 20
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more public offerings followed, including some for companies operating both
assisted-living and nursing homes. That resulted in pressure to produce quick
increases in earnings.
In contrast to nursing homes, assisted-living homes face few regulatory
barriers. New residences often went up with little market research.
But many companies did not anticipate how long it would take to fill their
buildings. The costs are beyond many people's means. Monthly fees start at
$3,000 in lower-cost regions and climb sharply, depending on the services needed
-- with medical care usually extra. Also, many elderly people are reluctant to
give up their independence.
Some companies failed to foresee that they would be serving an increasingly
older, and therefore more frail clientele (the average age is now 84), forcing
them to add staff, which cut into profits. "There wasn't a lot of discipline on
the part of the companies," said Christos Kuliopoulos, a senior consultant at
Ernst & Young who specializes in senior housing. "They weren't doing their due
diligence."
And so the building boom has tapered off. The 164 homes now under construction
are just a third as many as were completed in 1998. There are about 7,000
professionally run homes nationwide, with about 520,000 units, according to the
American Seniors Housing Association in Fairfax, Va.
DURING the building boom, many markets quickly became saturated, prompting
several states to require certificates of need before a home could be built.
North Carolina has declared a moratorium on new construction, an action that
backfired when many companies rushed into the state to beat the deadline.
Confidence in the industry was also shaken when many companies chose to engage
in so-called off-balance-sheet financing. Abraham Gosman, the chairman of the
Care-Matrix Corporation, a publicly traded company based in Needham, Mass., used
a private but wholly owned company, the Chancellor Senior Housing Group, to buy
property and absorb start-up losses. Chancellor paid CareMatrix a fee for
developing the homes and running them in the early stages. As the homes filled
up, CareMatrix would either lease them or buy them back.
"They were moving money from one pocket to another pocket," said James J.
Kumpel, an analyst at Raymond James & Associates, who called attention to this
financing arrangement at several companies. "It was a cynical financing vehicle
to promote hypergrowth in what is generally not a hypergrowth industry."
However, Louise T. Major, director of investor relations for CareMatrix, said
this type of financing has been standard in the hotel industry for many years.
Not all of the industry's problems have been of its own making. Changes in
Medicare reimbursement methods for nursing homes also affected the prices of
assisted-living stocks, because many investors do not distinguish among various
forms of senior housing, analysts say.
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Last year, the stocks tumbled after an analyst reported -- incorrectly, as it
turned out -- that the Government Accounting Office was about to recommend
federal regulation of assisted living.
The industry is generally not opposed to regulation (it is easier to market
government-certified homes), but it prefers to have it imposed by state
lawmakers, who are easier to lobby.
As the industry faltered, even the better-managed companies saw their shares
drop precipitously. These included Sunrise Assisted Living, Brookdale Living
Communities and the American Retirement Corporation. The pioneer in assisted
living, Sunrise, based in Fairfax, Va., opened its first home in 1981 and now
has 148 homes in 23 states and one in Britain.
Companies like these own their real estate, choose their locations carefully,
usually in densely populated areas, and focus on their operations, said Kathryn
A. Sweeney, a vice president at AEW Capital Management, a Boston company that
invests in privately held assisted-living companies. "Those firms that succeed
as good operators will live in this business," she said. "Those that entered the
business as real estate developers -- for opportunistic reasons -- will not."
For these reasons, a shakeout could benefit consumers in the long run. It would
force companies to shift their attention from development to management, said
Don Redfoot, a senior policy adviser to AARP.
But for now, families may want to exercise an extra measure of caution when
choosing a home. "The intense pressure to show profit margins created enormous
pressures to keep staffing to a minimum," Mr. Redfoot said. "You want to make
sure that the place is adequately staffed."
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