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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the Quarterly Period ended March 31, 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 0-22253
-------
BROOKDALE LIVING COMMUNITIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-4103821
- ------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
77 W. Wacker Drive, Suite 4400
Chicago, IL 60601
- ------------------------------- ----------------------------------------
(Address of principal executive (Zip Code)
offices)
(312) 977-3700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
77 W. Wacker Drive, Suite 4800, Chicago, IL 60601
- --------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since last
report)
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 period 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_____
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 15, 1998, 9,475,000 shares of the Registrant's Common Stock,
$0.01 par value per share, were outstanding.
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BROOKDALE LIVING COMMUNITIES, INC.
FORM 10-Q
INDEX
-----
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED). 3
Consolidated Balance Sheet of Brookdale Living Communities, Inc. as of
March 31, 1998 and as of December 31, 1997 4
Consolidated Statement of Operations of Brookdale Living Communities,
Inc. for the period from January 1, 1998 through March 31, 1998 and
Combined Statement of Operations of Predecessor Properties (predecessor
to Brookdale Living Communities, Inc.) for the period from January 1,
1997 through March 31, 1997 5
Consolidated Statement of Cash Flows of Brookdale Living Communities,
Inc. for the period from January 1, 1998 through March 31, 1998 and
Combined Statement of Cash Flows of Predecessor Properties (predecessor
to Brookdale Living Communities, Inc.) for the period from January 1,
1997 through March 31, 1997 6
Notes to Consolidated and Combined Financial Statements of Brookdale
Living Communities, Inc. and Predecessor Properties (predecessor to
Brookdale Living Communities, Inc.) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 14
PART II: OTHER INFORMATION 15
ITEM 1. LEGAL PROCEEDINGS. 15
ITEM 2. CHANGES IN SECURITIES. 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 15
ITEM 5. OTHER INFORMATION. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURES 18
</TABLE>
2
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PART I: FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS.
The information furnished in the accompanying consolidated and combined
balance sheets, statements of operations, and statements of cash flows reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the aforementioned financial statements for the interim period.
Brookdale Living Communities, Inc. ("Brookdale" or the "Company") was
incorporated on September 4, 1996 and commenced operations upon the completion
of its initial public offering on May 7, 1997. The consolidated financial
statements of the Company represent the results of operations of 14 facilities
the Company operated during the period presented. The combined financial
statements of Predecessor Properties (the "Predecessor" to the Company) are
presented for comparative purposes due to common ownership and management and
results of operations of the entities (five facilities) which comprised the
Predecessor Properties for the period from January 1, 1997 to March 31, 1997.
The aforementioned financial statements should be read in conjunction with the
notes to the financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements for
the period ended December 31, 1997 included in the Company's Annual Report on
Form 10-K.
3
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BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 7,935 $ 13,292
Accounts receivable........................................................ 763 843
Deferred tax asset......................................................... 45 385
Notes receivable........................................................... 7,446 -
Prepaid expenses and deposits.............................................. 1,177 790
Reimbursable leasehold improvements........................................ 735 210
Other...................................................................... 793 1,063
----------- -----------
Total current assets............................................... 18,894 16,583
Property, plant and equipment.............................................. 113,880 113,294
Accumulated depreciation................................................... (3,048) (2,164)
----------- -----------
Property, plant and equipment, net......................................... 110,832 111,130
Property under development................................................. 5,461 11,427
Cash-restricted............................................................ 7,087 5,920
Long-term investments-restricted........................................... 2,300 -
Letter of credit deposit................................................... 12,566 12,138
Lease security deposits.................................................... 24,646 18,542
Development fee receivable................................................. 1,516 -
Deferred costs, net........................................................ 4,263 3,230
Deferred tax asset......................................................... 4,173 4,199
----------- -----------
Total assets....................................................... $ 191,738 $ 183,169
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.......................................... $ 291 $ 286
Current portion of deferred gain on sale of property....................... 806 806
Prepaid rent............................................................... 29 108
Accrued interest payable................................................... 430 566
Accrued real estate taxes.................................................. 1,890 1,284
Accounts payable and accrued expenses...................................... 3,794 2,972
Income taxes payable....................................................... 253 236
Tenant entrance and security deposits...................................... 4,606 4,377
----------- -----------
Total current liabilities.......................................... 12,099 10,635
Deferred lease liability................................................... 2,515 1,811
Long-term debt, less current portion....................................... 95,822 95,881
Deferred gain on sale of property, less current portion.................... 16,721 16,922
Other...................................................................... 915 -
----------- -----------
Total liabilities.................................................. 128,072 125,249
Common stock, $.01 par value, 75,000 shares
authorized; 9,475 and 9,175 issued and outstanding
at March 31, 1998 and December 31, 1997, respectively.............. 95 92
Additional paid-in-capital................................................. 62,015 57,383
Accumulated earnings....................................................... 1,556 445
----------- -----------
Total stockholders' equity......................................... 63,666 57,920
----------- -----------
Total liabilities and stockholders' equity......................... $ 191,738 $ 183,169
=========== ===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
4
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BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND COMBINED
STATEMENT OF OPERATIONS OF THE PREDECESSOR
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from
January 1, 1998 January 1, 1997
through through
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
REVENUE
Resident fees..................................................... $ 15,657 $ 7,465
Development fees.................................................. 1,188 -
Management fees................................................... 53 -
------------------ ------------------
Total revenue............................................. 16,898 7,465
EXPENSES
Facility operating................................................ 8,587 4,195
General and administrative........................................ 1,292 -
Lease expense..................................................... 3,851 2,176
Depreciation and amortization..................................... 1,226 651
Property management fees.......................................... - 171
------------------ ------------------
Total operating expenses.................................. 14,956 7,193
------------------ ------------------
Income from operations.................................... 1,942 272
Interest income................................................... 705 49
Interest expense.................................................. (922) (536)
------------------ ------------------
Income (loss) before minority interest and income tax
expense.................................................. 1,725 (215)
Minority interest................................................. - (82)
Income tax expense................................................ (614) (169)
------------------ ------------------
Net income (loss)......................................... $ 1,111 $ (466)
================== ==================
Basic earnings per common share................................... $ 0.12
==================
Weighted average shares used for computing
basic earnings per common share........................... 9,408
==================
Diluted earnings per common share................................. $ 0.12
==================
Weighted average shares used for computing
diluted earnings per common share......................... 9,646
==================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
5
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BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from
January 1, 1998 January 1, 1997
through through
March 31, 1998 March 31, 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................................... $ 1,111 $ (466)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization................................................. 1,226 651
Decrease in deferred tax assets............................................... 366 -
Minority interest............................................................. - 82
Increase in deferred lease liability.......................................... 704 300
Deferred gain on sale of property............................................. (201) (201)
Decrease (increase) in accounts receivable.................................... 80 (47)
Decrease in prepaid rent asset................................................ - 1,251
Change in due from/to affiliates, net......................................... - 41
Increase in prepaid expenses and deposits..................................... (340) -
Decrease (increase) in other assets........................................... 270 (137)
Increase in development fee receivable........................................ (1,516) -
Decrease in prepaid rent liability............................................ (349) (597)
Decrease in accrued interest payable.......................................... (136) (25)
Increase (decrease) in accrued real estate taxes.............................. 606 (47)
Increase in accounts payable and accrued expenses............................. 822 261
(Decrease) increase in tenant entrance and security deposits.................. (65) 46
Increase in income taxes payable.............................................. 17 169
---------- ----------
Net cash provided by operating activities............................. 2,595 1,281
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for lease security deposits and acquisitions.......................... (5,277) -
Cash paid for property under development........................................ (3,780) -
Cash paid for reimbursable leasehold improvements............................... (525) -
Additions to property, plant and equipment...................................... (586) (104)
Increase in lease security deposits............................................. (320) -
Increase in cash-restricted..................................................... (242) (248)
---------- ----------
Cash used in investing activities..................................... (10,730) (352)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt..................................................... (54) -
Increase in letter of credit deposit............................................ (428) -
Increase in deferred costs...................................................... (1,375) (227)
Distributions to partners....................................................... - (1,186)
Net proceeds from offering...................................................... 4,635 -
---------- ----------
Net cash provided by (used in) financing activities................... 2,778 (1,413)
---------- ----------
Net decrease in cash and cash equivalents............................. (5,357) (484)
Cash and cash equivalents at beginning of period...................... 13,292 4,230
---------- ----------
Cash and cash equivalents at end of period............................ $ 7,935 $ 3,746
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
6
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from
January 1, 1998 January 1, 1997
through through
March 31, 1998 March 31, 1997
----------------- ---------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest Paid............................................................. $ 1,198 $ 560
=============== ===============
Income Taxes Paid......................................................... $ 16 $ -
=============== ===============
Supplemental Schedule of Noncash Investing and
Financing Activities:
In connection with net lease transactions, assets
acquired and liabilities assumed were as follows:
Fair value of assets acquired................................... $ 5,831 $ -
Less: Consideration given
Cash paid................................................... 4,352 -
--------------- ---------------
Liabilities assumed............................................. $ 1,479 $ -
=============== ===============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
7
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. ORGANIZATION
Brookdale Living Communities, Inc. ("Brookdale" or the "Company") was
incorporated in Delaware on September 4, 1996 and commenced operations in
connection with its initial public offering (the "IPO"), which closed on May 7,
1997. On December 24, 1997, the Company completed a follow-on offering of 2,000
shares of its common stock at $16.6875 per share.
The consolidated financial statements of the Company include the properties
owned or leased by the Company. The combined financial statements of the
Predecessor Properties (defined below) include the facilities owned or leased by
the senior independent and assisted living division of The Prime Group, Inc. and
its affiliates ("PGI"), which consisted of the five facilities as indicated in
the table below (PGI owned or leased The Heritage, The Devonshire and The
Hallmark facilities during the period from January 1, 1995 through May 6, 1997
and leased The Springs of East Mesa and The Gables at Brighton facilities for
the period from December 27, 1996 through May 6, 1997). The following table sets
forth the properties owned, leased, managed or under development by the Company
as of March 31, 1998 (collectively, the "Properties").
<TABLE>
<CAPTION>
Entity Property Name Date Owned or Leased
- ------ ------------- --------------------
<S> <C> <C>
Owned Facilities:
- -----------------
River Oaks Partners The Heritage (1) May 7, 1997
The Ponds of Pembroke Limited Partnership The Devonshire (1) May 7, 1997
Brookdale Living Communities of Illinois-II, Inc. Hawthorn Lakes May 7, 1997
Brookdale Living Communities of Minnesota, Inc. Edina Park Plaza May 7, 1997
Leased Facilities:
- -----------------
Brookdale Living Communities of Illinois, Inc. The Hallmark (1) May 7, 1997
Brookdale Living Communities of Arizona, Inc. The Springs of East Mesa (1) May 7, 1997
Brookdale Living Communities of New York, Inc. The Gables at Brighton (1) May 7, 1997
Brookdale Living Communities of Washington, Inc. The Park Place May 7, 1997
Brookdale Living Communities of Connecticut, Inc. The Gables at Farmington November 24, 1997
Brookdale Living Communities of Florida, Inc. The Classic at West Palm Beach December 18, 1997
Brookdale Living Communities of New Jersey, Inc. The Brendenwood Retirement Community December 22, 1997
Brookdale Living Communities of Illinois-HV, Inc. Harbor Village March 6, 1998
Managed Facilities:
- ------------------
Brookdale Living Communities of Texas, Inc. The Island on Lake Travis (2)
Brookdale Living Communities of Minnesota-II, Inc. The Kenwood (3)
Development Projects Under Construction:
- ---------------------------------------
BLC of Texas-II, L.P. Austin, Texas (4)
Brookdale Living Communities of Michigan, Inc. Southfield, Michigan (4)
Brookdale Living Communities of North Carolina, Inc. Raleigh, North Carolina (5)
Projects In Development:
- -----------------------
Glen Ellyn, Illinois
New York (Battery Park City), New York
</TABLE>
(1) Collectively referred to as "the Predecessor Properties"
(2) Management services commenced May 7, 1997
(3) Management services commenced July 1, 1997
(4) The Company is currently developing these projects for third party owners
(5) Construction commenced in April, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not
8
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include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments consisting only of recurring accruals considered
necessary for a fair presentation have been included. Operating results for such
interim periods are not necessarily indicative of the results that may be
expected for a full fiscal year. For further information regarding significant
accounting policies please refer to the financial statements and footnotes
thereto for the period ended December 31, 1997 included in the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission on
March 31, 1998. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of the consolidated and combined financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the consolidated
and combined financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
Development Fees
Development fees are recognized in the period earned.
3. RECENT DEVELOPMENTS
On January 21, 1998, the underwriters of the follow-on public offering
exercised their over-allotment option for an additional 300 shares of common
stock at $16.6875 per share. The Company received net proceeds of approximately
$4,635 from the sale of these shares.
On March 6, 1998, the Company entered into an agreement to lease the Harbor
Village facility, a 272-unit facility located in Chicago, Illinois. The lease
is an operating lease with an initial five-year term and seven one-year renewal
terms, and annual lease payment amounts ranging from $1,335 to $1,481 through
the initial lease term. The Company has an option to acquire this facility at
the end of the initial term and each renewal term. In connection with the lease,
the Company funded approximately $5,784 of lease security deposits.
On March 17, 1998, the Company amended its office lease agreement with an
affiliate of PGI, Prime Group Realty Trust (the "Landlord"), pursuant to which
the Company's offices were relocated to a different floor, the space leased by
the Company was increased and the term of the lease was extended to April 30,
2005. The base rent payable by the Company under the amended lease is $18.50 per
square foot, escalating at $0.75 per square foot on May 1 of each lease year,
commencing May 1, 1999. In consideration for executing the lease amendment, the
Company received a $452 incentive from the Landlord.
On March 31, 1998, the Company entered into an agreement pursuant to which
the Company acquired the right to purchase land in McCandless, Pennsylvania for
approximately $1.9 million. The Company expects to develop a Brookdale
prototype senior independent and assisted living facility on the land. The
closing of the purchase of the land is subject to customary closing
contingencies, including the receipt of all approvals for the development of the
land, and there can be no assurance that such closing contingencies will be
satisfied in a timely manner, if at all.
On March 31, 1998, the Company sold development sites located in Southfield,
Michigan (the "Michigan Project") and Austin, Texas (the "Texas Project") to
unaffiliated third parties (the "Purchasers"). The sales price for the Michigan
Project was $4,044, of which $1,000 was received in cash and $3,044 was received
by the delivery of a promissory note. The sales price for the Texas Project was
$5,316, of which $1,300 was received in cash and $4,016 was received by the
delivery of a promissory note. Both notes accrue interest at 9.0% per annum and
are payable on June 30, 1998.
In connection with the foregoing sales of the Texas Project and the Michigan
Project (collectively, the "Projects"), and in contemplation of the closing of
the construction financing for the Projects, the Company entered into interim
arrangements with each of the Purchasers pursuant to which the Company agrees to
continue to develop each of the Projects and earns a development fee therefore
in an amount which the Company believes to be a market rate fee which is partly
attributable to reimbursement of corporate overhead and other costs incurred by
the Company in connection with each Project. Under the interim development
arrangements, the Company has agreed to fund all costs incurred in connection
with the development of the Projects, and is entitled to reimbursement of such
costs upon the earlier of the closing of the construction financing for the
Projects or June 30, 1998. If the construction financing for the Projects is not
closed by June 30, 1998, the Company has the option to repurchase the Projects.
In connection with the above-described interim arrangements, the Company made
restricted cash investments in the aggregate amount of $2,300 which earn
interest at the rate of nine percent (9%) per annum. The return of these cash
investments and the payment of approximately one-half of the total development
fees to which the Company is entitled is expected to be subordinate to the
repayment or refinancing of the construction financing for the Projects
9
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and the satisfaction of certain other conditions. The above-described interim
arrangements expire upon the earlier of the closing of the construction
financing for the Projects or June 30, 1998, and are expected to be restated and
extended in connection with the closing of the construction financing for the
Projects.
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 believes that the adoption of Statement 131
will not affect results of operations or financial position, but could add to
the Company's current operating disclosures.
5. INCOME TAXES
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income tax expense principally
as a result of non-taxable amortization of the deferred gain on the sale of The
Hallmark and state income taxes.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the three months ended March 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
Numerator for basic and diluted earnings per common share $ 1,111
Denominator:
Denominator for basic earnings per share - weighted-average shares 9,408
Effect of dilutive securities:
Employee stock options 238
-----------
Dilutive potential common shares 238
Denominator for diluted earnings per share-adjusted 9,646
weighted-average shares and assumed conversions ===========
Basic and diluted earnings per share $ 0.12
===========
</TABLE>
7. SUBSEQUENT EVENTS
On April 15, 1998, the Company purchased land in Raleigh, North Carolina for
the purpose of developing a Brookdale prototype senior independent and assisted
living facility. The Company acquired the land for a total consideration of
approximately $2,100 in cash.
On April 27, 1998, the Company obtained a $15,000 unsecured revolving line
of credit from LaSalle National Bank to be used for working capital or in
connection with the acquisition, leasing, or development of real property.
Interest accrues on the outstanding principal amount of the loan at a rate equal
to the prime rate plus 1/2% per annum with interest payable monthly. The
outstanding principal amount of the loan and accrued but unpaid interest are
payable in full on April 26, 1999. The Company must pay an unused commitment fee
in an amount equal to 1/4% per annum of the amount of the line of credit which
is not outstanding, which fee is payable quarterly. As of May 14, 1998, the
Company has drawn approximately $7,000 under the line of credit.
On April 30, 1998, the Company entered into a purchase agreement to acquire
a 125-unit senior independent and assisted living facility located in the
northeastern United States for approximately $16,600 in cash. The closing of the
purchase of this facility is subject to the customary closing contingencies,
including approval of the sale by the limited partners of the owner of the
property, and there can be no assurance that such closing contingencies will be
satisfied in a timely manner, if at all.
On May 12, 1998, the Company entered into an agreement to lease The Atrium
of San Jose facility, a 292-unit facility located in San Jose, California. The
lease is an operating lease with an initial 10-year term and five one-year
renewal terms, and annual lease payment amounts ranging from $2,331 to $2,405
through the initial lease term. The Company has an option to acquire this
facility at the end of the initial term and each renewal term. In connection
with the lease the Company funded approximately $6,965 of lease security
deposits.
On May 12, 1998, the Company entered into a purchase agreement to acquire
land in Sterling Heights, Michigan for approximately $1,800 for the purpose of
developing a Brookdale prototype senior independent and assisted living
facility. The closing of the purchase of this property is subject to customary
closing contingencies, and there can be no assurance that such closing
contingencies will be satisfied in a timely manner, if at all.
10
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8. PRO FORMA INFORMATION
The following unaudited pro forma condensed, consolidated and combined
statements of operations of the Company for the three months ended March 31,
1998 and March 31, 1997 are presented as if, at January 1, 1998 and January 1,
1997, (i) the Company had sold and issued 9,475 shares of its common stock,
purchased the Owned Facilities and leased the Leased Facilities and The Atrium
of San Jose facility which was leased beginning May 12, 1998. If The Atrium of
San Jose facility was not included in the pro forma operations, revenue, net
income (loss) and earnings (loss) per share would be $17,560, $1,167, and $0.12,
respectively, for 1998 and $15,405, ($255), and ($0.03), respectively, for 1997.
These unaudited pro forma condensed, consolidated and combined statements of
operations are not necessarily indicative of what the actual results of
operations of the Company would have been assuming the IPO and follow-on public
offering had been consummated at the beginning of each period presented, nor do
they purport to represent the results of operations of the Company for future
periods.
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Revenue $19,073 $16,884
Net income (loss) 1,331 (93)
Earnings (loss) per share 0.14 ($0.01)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion is based on the Consolidated Statement of Operations
of the Company from January 1, 1998 to March 31, 1998 and the Combined Statement
of Operations of Predecessor Properties from January 1, 1997 to March 31, 1997
and the balance sheet of the Company as of March 31, 1998 and as of December 31,
1997. The financial statements of the Predecessor Properties combine the results
of operations of five properties which were contributed by PGI to the Company
simultaneously with the consummation of its IPO and are now consolidated in the
Company's financial statements. Historical results and any apparent percentage
relationships with respect thereto are not necessarily indicative of future
operations.
CAUTIONARY STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
and similar words and expressions are generally intended to identify forward-
looking statements. Statements that describe the Company's future strategic
plans, goals or objectives are also forward-looking statements. Readers of this
report are cautioned that any forward-looking statements, including those
regarding the intent, belief, or current expectations of the Company or
management, are not guarantees of future performance, results or events and
involve risks and uncertainties and that actual results and events may differ
materially from those in the forward-looking statements as a result of various
factors, including, but not limited to, (i) general economic conditions in the
markets in which the Company operates, (ii) competitive pressures within the
industry and/or the markets in which the Company operates, (iii) the successful
completion of the acquisition of the facilities which the Company has under
contract, the successful completion of development activities, the successful
integration of newly acquired or leased facilities with the operations of the
Company's existing facilities, fluctuations in operating results, occupancy
levels in the markets in which the Company competes, and/or unanticipated
changes in expenses or capital expenditures, (iv) the effect of future
legislation or regulatory changes on the Company's operations and (v) other
factors described from time to time in the Company's filings with the Securities
and Exchange Commission. The forward-looking statements included in this report
are made only as of the date hereof. The Company undertakes no obligation to
update such forward-looking statements to reflect subsequent events or
circumstances.
OVERVIEW
As of March 31, 1998, the Company operates 14 senior independent and assisted
living facilities containing a total of 3,080 units. Four of such facilities are
owned by the Company, eight facilities are leased by the Company and two
facilities (one of which is owned by PGI) are managed by Brookdale pursuant to
management contracts. The Company's senior independent and assisted living
facilities offer residents a supportive, "home-like" setting as well as
assistance with certain activities of daily living. By providing residents a
range of service options as their needs change, the Company seeks to achieve
greater continuity of care, enabling senior residents to age-in-place and
thereby maintain their stay for a longer time period. The ability to allow
residents to age-in-place is beneficial to the Company's residents as well as
their families who are burdened with care decisions for their elderly relatives.
The Company derives its revenues from resident fees, development fees and
management fees. Resident fees consist of charges for renting units, providing
basic care services, and, in certain instances, providing supplemental care
services to residents. Basic care services include meal service, housekeeping
services within the resident's unit, social and recreational activities,
scheduled transportation, security, emergency call response, access to on-site
medical services and medical education and wellness programs. In addition to
basic care
11
<PAGE>
services, the Company offers custom tailored supplemental care services for
residents who desire or need such services. Optional supplemental care services
include check-in services and escort and companion services. Depending on the
particular facility and as dictated by state licensing requirements, the Company
also provides assistance with activities of daily living, such as dressing and
bathing and medication administration or reminders. The Company plans to expand
its supplemental service offerings, as permitted by licensing, in order to
capture incremental revenue and enable its residents to remain in its facilities
longer. In addition, where practicable, the Company intends to obtain licensing
to provide home health services to residents. Resident fees typically are paid
monthly by residents, their families or other responsible parties. As of March
31, 1998, 99.9% of the Company's revenue was derived from private pay sources.
The Company derives additional revenue from development fees associated with
developing senior independent and assisted living facilities for third parties
and management fees from managing senior independent and assisted living
facilities for unaffiliated third parties pursuant to management contracts.
Management services income consists of management fees, which typically range
from 3.0% to 5.0% of a managed facility's total gross revenues. All fees are
recognized as revenues when services are provided.
The Company classifies its operating expenses into the following categories:
(i) facility operating expenses, which include property personnel payroll and
related costs, food, marketing, other direct facility expenses and real estate
taxes; (ii) general and administrative expenses, which primarily include
corporate and other overhead costs; (iii) lease expenses; and (iv) depreciation
and amortization.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED MARCH 31,
1997
For the three months ended March 31, 1998, results reflect the Company's
operations of 14 facilities. For the three months ended March 31, 1997, results
reflect the Predecessor's operations of five facilities.
Revenue. Total revenue increased by $9.4 million, or 126.4%, to $16.9
million for the three months ended March 31, 1998 when compared to the three
months ended March 31, 1997. Resident fees increased by $8.2 million, or 109.7%,
to $15.7 million. Of this increase, approximately $450,000 (or a "same store"
increase of 5.9%) reflects an increase in resident fees at the properties that
have been operated during both periods, which resulted primarily from increases
in unit rental rates. Approximately $7.8 million of such increase reflects
revenue from facilities acquired, leased or managed subsequent to March 31,
1997. The remaining $1.2 million of the total revenue increase reflects revenue
from development fees associated with projects being developed and managed by
the Company for unaffiliated third parties. The Company has the option to
purchase such properties following lease-up and stabilization.
Operating Expenses. Total operating expenses increased by $7.8 million, or
107.9%, to $15.0 million for the three months ended March 31, 1998 when compared
to the three months ended March 31, 1997. Facility operating expenses increased
by $4.4 million, or 104.7%, to $8.6 million primarily due to the inclusion of
the facilities acquired or leased subsequent to March 31, 1997. From the
commencement of operations on May 7, 1997, the Company has managed all of its
facilities and, accordingly, incurred general and administrative expenses of
approximately $1.3 million for the three months ended March 31, 1998. For the
three months ended March 31, 1997, two of the Predecessor Properties incurred
property management fees of approximately $171,000.
Lease expense increased by approximately $1.7 million, or 77.0%, to $3.9
million for the three months ended March 31, 1998 when compared to the three
months ended March 31, 1997 due to the inclusion of the facilities leased
subsequent to March 31, 1997. Depreciation and amortization increased by
approximately $575,000, or 88.3%, to $1.2 million for the three months ended
March 31, 1998 when compared to the three months ended March 31, 1997. This
increase primarily reflects the depreciation of the step-up in basis of two of
the Predecessor Properties that resulted in connection with the IPO and the
depreciation of the facilities acquired subsequent to March 31, 1997.
Interest expense increased by approximately $386,000, or 72.0%, to $922,000
for the three months ended March 31, 1998 when compared to the three months
ended March 31, 1997 primarily due to the assumption of debt on the Hawthorn
Lakes and Edina Park Plaza facilities in connection with the purchase of these
properties during 1997. Interest income increased by approximately $656,000 to
$705,000 for the three months ended March 31, 1998 due to an increase in average
cash balances and various deposits and restricted investments.
Net Income. For the three months ended March 31, 1998, the Company generated
net income of approximately $1.1 million, as compared to a net loss of $466,000
for the three months ended March 31, 1997 due to the changes in revenue and
expenses described above. Net income for the three months ended March 31, 1998
versus the net loss for the three months ended March 31, 1997, which included
the Predecessor Properties only, is not necessarily comparable, in the opinion
of management, due to the different ownership and capital structures for the
respective periods.
LIQUIDITY AND CAPITAL RESOURCES
On December 24, 1997, the Company completed a follow-on public offering of
2,000,000 shares of common stock, $.01 par value per share, at $16.6875 per
share. The underwriters of the offering exercised their over-allotment option,
and, on January 21, 1998, the Company sold an additional 300,000 shares of the
Company's common stock at $16.6875 per share. The proceeds from such offering
12
<PAGE>
(including the exercise of the underwriters' over-allotment option), net of
related underwriting discounts and commissions and offering costs, totaled
approximately $35.5 million ($4.6 million from the exercise of the underwriters'
over-allotment option). The Company used approximately $25.8 million of such net
proceeds to repay outstanding indebtedness and fund lease security deposits paid
subsequent to such offering. The remaining net proceeds were used to finance a
portion of subsequent acquisitions, leasing and developments of senior
independent and assisted living facilities and working capital and general
corporate purposes.
On April 15, 1998, the Company purchased land in Raleigh, North Carolina for
a total consideration of approximately $2.1 million in cash. On April 27, 1998,
the Company obtained a $15.0 million unsecured revolving line of credit from
LaSalle National Bank to be used for working capital or in connection with the
acquisition, leasing, or development of real property. As of May 14, 1998, the
Company has drawn approximately $7.0 million under the line of credit. On April
30, 1998, the Company entered into a purchase agreement to acquire a 125-unit
senior independent and assisted living facility located in the northeastern
United States for approximately $16.6 million in cash. The closing of the
purchase of this facility is subject to the customary closing contingencies,
including approval of the sale by the limited partners of the owner of the
property. On May 12, 1998, the Company entered into an agreement to lease The
Atrium of San Jose facility, a 292-unit facility located in San Jose,
California. In connection with the lease the Company funded approximately $7.0
million of lease security deposits. On May 12, 1998, the Company entered into a
purchase agreement to acquire land in Sterling Heights, Michigan for
approximately $1.8 million for the purpose of developing a Brookdale prototype
senior independent and assisted living facility. The closing of the purchase of
this property is subject to customary closing.
Cash and cash equivalents (which excludes cash-restricted of $7.1 million,
the letter of credit deposit of $12.6 million and lease security deposits of
$24.6 million) decreased by $5.4 million to $7.9 million at March 31, 1998
compared to $13.3 million at December 31, 1997 primarily due to cash utilized
for the acquisition, leasing and development of facilities offset in part by the
proceeds from the exercise of the underwriters' over-allotment option related to
the follow-on offering. The decrease consisted of $10.7 million of funds used
in investing activities offset by $2.6 million and $2.7 million of funds
provided by operating activities and financing activities, respectively.
Net cash used in investing activities totaled approximately $10.7 million for
the three months ended March 31, 1998. Investing activities included net cash
used for lease security deposits in connection with the lease of the Harbor
Village facility in the amount of $5.3 million, cash paid for property under
development of $3.8 million, an increase in cash-restricted of $0.2 million and
other uses of $1.4 million.
Net cash provided by financing activities was approximately $2.7 million for
the three months ended March 31, 1998. Financing activities included proceeds
from the exercise of the underwriters' over-allotment option related to the
follow-on offering of $4.6 million.
The Company currently plans to acquire or lease four to six senior
independent and assisted living facilities per year containing an aggregate of
approximately 800 to 1,200 units and to commence development of two to three new
facilities per year containing approximately 220 units. The Company anticipates
that new developments will require eight to ten months for pre-construction
development, 12 to 14 months for construction and approximately 12 months after
opening to achieve a stabilized occupancy rate of approximately 95%. The total
construction costs, including construction period financing costs and operating
deficits during the lease-up period, for the 220-unit prototype are estimated to
be approximately $30.0 million, or approximately $135,000 per unit. At March 31,
1998, the Company had five sites under development for new senior independent
and assisted living facilities, two of which were under construction. Subsequent
to such date, the Company commenced construction on its Raleigh, North Carolina
project. Capital expenditures related to the Company's existing facilities are
estimated to be approximately $3.0 million to $5.0 million in the aggregate in
1998. The Company anticipates that it will use a combination of cash on hand,
remaining net proceeds from the follow-on offering, additional equity financing
and debt financing, lease transactions and cash generated from operations to
fund its acquisition and development activities. The Company currently estimates
that the cash generated from operations, remaining net proceeds from the follow-
on offering, together with cash on hand, existing debt facilities and
commitments and anticipated financing, will be sufficient to meet its liquidity
needs for at least 12 months. Thereafter, in order to achieve its growth plans,
the Company will be required to obtain a substantial amount of additional
financing. The Company presently has no commitment, arrangement or understanding
regarding financing to fund the debt portion of the Company's acquisition and
development plans other than the $100.0 million commitment from Nomura Asset
Capital Corporation for development projects. There can be no assurance that the
Company will be able to obtain the financing necessary for its acquisition and
development programs.
As of March 31, 1998, the Company had $65.0 million of long-term indebtedness
in tax-exempt bonds with floating rates. The interest rates (exclusive of credit
enhancement and other fees) on such debt averaged 3.4% during the three months
ended March 31, 1998. Such tax-exempt bonds contain covenants requiring the
facilities to maintain a minimum number of units for income qualified residents.
The Company may obtain similar bond financing for future facilities.
The Company is dependent on third-party financing for its acquisition,
leasing and development programs. Some financing obtained in the future is
expected to contain terms and conditions and representations and warranties that
are customary for such loans and may contain financing covenants and other
restrictions that (i) require the Company to meet certain financial tests and
maintain certain amounts of funds in escrow, (ii) limit, among other things, the
ability of the Company to borrow additional funds, dispose of assets and engage
in mergers or other business combinations and (iii) restrict the ability of the
Company to operate competing facilities within certain distances from mortgaged
facilities. There can be no assurance that financing for the Company's
acquisition and development program
13
<PAGE>
will be available to the Company on acceptable terms or at all. A lack of funds
may require the Company to delay or eliminate all or some of its development
projects and acquisition and leasing plans and could therefore have a material
adverse effect on the Company's growth plans and on its business, financial
condition and results of operations.
IMPACT OF INFLATION
Resident fees from senior independent and assisted living facilities owned or
leased by the Company and management fees from facilities managed by the Company
for third parties are its primary sources of revenue. These revenues are
affected by monthly resident fee rates and facility occupancy rates. The rates
charged for senior independent and assisted living services are highly dependent
upon local market conditions and the competitive environment in which the
facilities operate. Substantially all of the Company's resident agreements have
terms of approximately one year and allow, at the time of renewal, for
adjustments in the monthly fees payable thereunder, thereby enabling the Company
to seek increases in monthly 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 at 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. In
addition, employee compensation expense is a principal cost element of facility
operations and is also dependent upon local market conditions. There can be no
assurance that resident fees will increase or that costs will not increase due
to inflation or other causes. In addition, as of March 31, 1998, approximately
$65.0 million in principal amount of the Company's indebtedness bore interest at
tax-exempt floating rates and future indebtedness may bear floating rate
interest. Inflation, and its impact on floating interest rates, could affect the
amount of interest payments due on such indebtedness.
READINESS FOR YEAR 2000
The Company is in the process of planning the nature and extent of the work
required to make its systems and infrastructure Year 2000 compliant. Based on a
recent assessment, the Company will have to modify or replace significant
portions of its hardware and software so that its systems will function properly
with respect to the Year 2000 and beyond. The Company believes that with
modifications to existing software and conversions to new software applications,
in addition to hardware upgrades on certain mechanical systems, the Year 2000
issue will not pose significant operational problems. However, if such
modifications and conversions are not made, or are not completed in a timely
manner, the Year 2000 issue could have a material impact on the operations of
the Company.
The Company continues to evaluate the Year 2000 issue and will utilize both
internal and external resources in order to reprogram, or replace, systems that
are not in compliance with the Year 2000. The Company anticipates completing
the project no later than March 31, 1999. The cost to complete the project has
not yet been determined.
The project completion date is based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
ability of third parties to modify the Company's systems on a timely basis.
There can be no guarantee that the project will be completed in a timely manner.
Specific factors that might delay completion of the project include, but are not
limited to, the availability of qualified personnel, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
14
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PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings.
No material developments with respect to legal proceedings occurred
during the period covered by this quarterly report.
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS:
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Restated Certificate of Incorporation of the Company, as filed with the
Securities and Exchange Commission on June 16, 1997 as Exhibit 3.1 to
the Company's Form 10-Q for the period ended March 31, 1997 (File No.
0-22253) and incorporated herein by reference
3.2 Amended and Restated By-laws of the Company, as filed with the
Securities and Exchange Commission on June 16, 1997 as Exhibit 3.2 to
the Company's Form 10-Q for the period ended March 31, 1997 (File
No.0-22253) and incorporated herein by reference
4.1 Form of certificate representing Common Stock of the Company, as filed
with the Securities and Exchange Commission on March 17, 1997 as
Exhibit 10.14 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.1 Lease dated as of March 6, 1998 by and between Brookdale Living
Communities of Illinois-H.V., Inc., as lessee, and The Harbor Village
Business Trust, as lessor, as filed with the Securities and Exchange
Commission on April 14, 1998 as Exhibit 10.1 to the Company's Form 8-K
dated March 6, 1998 (File No. 0-22253) and incorporated herein by
reference
10.2 Loan Agreement dated as of March 6, 1998 by and among The Harbor
Village Business Trust, Brookdale Living Communities of Illinois-H.V.,
Inc. and Nomura Asset Capital Corporation, as filed with the Securities
and Exchange Commission on April 14, 1998 as Exhibit 10.2 to the
Company's Form 8-K dated March 6, 1998 (File No. 0-22253) and
incorporated herein by reference
10.3 Certificate Pledge Agreement dated as of March 6, 1998 by Brookdale
Living Communities of Illinois-H.V., Inc. in favor of The Harbor
Village Business Trust, as filed with the Securities and Exchange
Commission on April 14, 1998 as Exhibit 10.3 to the Company's Form 8-K
dated March 6, 1998 (File No. 0-22253) and incorporated herein by
reference
15
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.4 Securities Pledge Agreement dated as of March 6, 1998 by Brookdale
Living Communities of Illinois-H.V., Inc. in favor of The Harbor
Village Business Trust and Wilmington Trust Company, as filed with the
Securities and Exchange Commission on April 14, 1998 as Exhibit 10.4 to
the Company's Form 8-K dated March 6, 1998 (File No. 0-22253) and
incorporated herein by reference
10.5 Indemnity Agreement dated as of March 6, 1998 from Brookdale Living
Communities, Inc. in favor of Wilmington Trust Company and FBTC Leasing
Corp., as filed with the Securities and Exchange Commission on April
14, 1998 as Exhibit 10.5 to the Company's Form 8-K dated March 6, 1998
(File No. 0-22253) and incorporated herein by reference
10.6 Guaranty and Suretyship Agreement dated as of March 6, 1998 from
Brookdale Living Communities of Illinois-H.V., Inc. in favor of Nomura
Asset Capital Corporation, as filed with the Securities and Exchange
Commission on April 14, 1998 as Exhibit 10.6 to the Company's Form 8-K
dated March 6, 1998 (File No. 0-22253) and incorporated herein by
reference
10.7 Environmental Indemnity Agreement dated as of March 6, 1998 from
Brookdale Living Communities, Inc. in favor of Nomura Asset Capital
Corporation, as filed with the Securities and Exchange Commission on
April 14, 1998 as Exhibit 10.7 to the Company's Form 8-K dated March 6,
1998 (File No. 0-22253) and incorporated herein by reference
10.8 Mezzanine Loan Agreement dated as of March 6 1998 by and among The
Harbor Village Business Trust, Brookdale Living Communities of
Illinois-H.V., Inc. and Nomura Asset Capital Corporation, as filed with
the Securities and Exchange Commission on April 14, 1998 as Exhibit
10.8 to the Company's Form 8-K dated March 6, 1998 (File No. 0-22253)
and incorporated herein by reference
10.9 Mezzanine Guaranty and Suretyship Agreement dated as of March 6, 1998
from Brookdale Living Communities of Illinois-H.V., Inc. in favor of
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on April 14, 1998 as Exhibit 10.9 to the Company's
Form 8-K dated March 6, 1998 (File No. 0-22253) and incorporated herein
by reference
10.10 Mezzanine Environmental Indemnity Agreement dated as of March 6, 1998
from Brookdale Living Communities, Inc. in favor of Nomura Asset
Capital Corporation, as filed with the Securities and Exchange
Commission on April 14, 1998 as Exhibit 10.10 to the Company's Form 8-K
dated March 6, 1998 (File No. 0-22253) and incorporated herein by
reference
10.11 Purchase and Sale Agreement, dated as of March 31, 1998, by and between
Brookdale Living Communities of Michigan, Inc. and AH Michigan Owner
Limited Partnership, as filed with the Securities and Exchange
Commission on April 15, 1998 as Exhibit 10.1 to the Company's Form 8-K
dated March 31, 1998 (File No. 0-22253) and incorporated herein by
reference
10.12 Note, dated March 31, 1998, issued by AH Michigan Owner Limited
Partnership payable to the order of Brookdale Living Communities of
Michigan, Inc. in the principal amount of $3,044,082.12, as filed with
the Securities and Exchange Commission on April 15, 1998 as Exhibit
10.2 to the Company's Form 8-K dated March 31, 1998 (File No. 0-22253)
and incorporated herein by reference
10.13 Development Agreement, dated as of March 31, 1998, by and between AH
Michigan Owner Limited Partnership and Brookdale Living Communities of
Michigan, Inc., as filed with the Securities and Exchange Commission on
April 15, 1998 as Exhibit 10.3 to the Company's Form 8-K dated March
31, 1998 (File No. 0-22253) and incorporated herein by reference
10.14 Guaranty Agreement, dated as of March 31, 1998, issued by AH Michigan
CPG, Inc. and AH Michigan Subordinated, LLC in favor of Brookdale
Living Communities, Inc., as filed with the Securities and Exchange
Commission on April 15, 1998 as Exhibit 10.4 to the Company's Form 8-K
dated March 31, 1998 (File No. 0-22253) and incorporated herein by
reference
16
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.15 Collateral Assignment of Partnership Interests, dated as of March 31,
1998, issued by AH Michigan CPG, Inc. and AH Subordinated, LLC for the
benefit of Brookdale Living Communities of Michigan, Inc., as filed
with the Securities and Exchange Commission on April 15, 1998 as
Exhibit 10.5 to the Company's Form 8-K dated March 31, 1998 (File No.
0-22253) and incorporated herein by reference
10.16 Purchase and Sale Agreement, dated as of March 31, 1998, by and between
BLC of Texas-II, L.P. and AH Texas Owner Limited Partnership, as filed
with the Securities and Exchange Commission on April 15, 1998 as
Exhibit 10.6 to the Company's Form 8-K dated March 31, 1998 (File No.
0-22253) and incorporated herein by reference
10.17 Note, dated March 31, 1998, issued by AH Texas Owner Limited
Partnership payable to the order of BLC of Texas-II, L.P. in the
principal amount of $4,016,340.53., as filed with the Securities and
Exchange Commission on April 15, 1998 as Exhibit 10.7 to the Company's
Form 8-K dated March 31, 1998 (File No. 0-22253) and incorporated
herein by reference
10.18 Development Agreement, dated as of March 31, 1998, by and between AH
Texas Owner Limited Partnership and BLC of Texas-II, L.P., as filed
with the Securities and Exchange Commission on April 15, 1998 as
Exhibit 10.8 to the Company's Form 8-K dated March 31, 1998 (File No.
0-22253) and incorporated herein by reference
10.19 Guaranty Agreement, dated as of March 31, 1998, issued by AH Texas CPG,
Inc. and AH Texas Subordinated, LLC in favor of BLC of Texas-II, L.P.,
as filed with the Securities and Exchange Commission on April 15, 1998
as Exhibit 10.9 to the Company's Form 8-K dated March 31, 1998 (File
No. 0-22253) and incorporated herein by reference
10.20 Collateral Assignment of Partnership Interests, dated as of March 31,
1998, issued by AH Texas CPG, Inc. and AH Texas Subordinated, LLC for
the benefit of BLC of Texas-II, L.P., as filed with the Securities and
Exchange Commission on April 15, 1998 as Exhibit 10.10 to the Company's
Form 8-K dated March 31, 1998 (File No. 0-22253) and incorporated
herein by reference
10.21 Development Agreement, dated as of March 31, 1998, by and between
Brookdale Living Communities, Inc. and National Development Eastern
Associates, Inc.
10.22 Agreement to Assign Agreement of Sale and Purchase, dated as of March
31, 1998, by and among Brookdale Living Communities, Inc., National
Development Eastern Associates, Inc., Kenneth A. LeDonne, Robert A.
LeDonne, Karen A. LeDonne, Peter O. LeDonne and Dorthea J. LeDonne
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
On February 18, 1998, the Company filed a Current Report on Form 8-K dated
December 17, 1997 with the Securities and Exchange Commission announcing
pursuant to Item 5 of Form 8-K the lease of (i) The Classic at West Palm Beach
by Brookdale Living Communities of Florida, Inc. which commenced on December 17,
1997 and (ii) The Brendenwood Retirement Community by Brookdale Living
Communities of New Jersey, Inc., which commenced on December 22, 1997.
17
<PAGE>
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.
BROOKDALE LIVING COMMUNITIES, INC.
----------------------------------
Registrant
Date: May 15, 1998 /s/ Mark J. Schulte
------------------------ ----------------------------------
Mark J. Schulte
President and
Chief Executive Officer
Date: May 15, 1998 /s/ Craig G. Walczyk
------------------------ ----------------------------------
Craig G. Walczyk
Vice President and
Chief Financial Officer
18
<PAGE>
Exhibit 10.21
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement") is made and entered into as
of this _____ day of ____________, 1998.
BY AND BETWEEN
Brookdale Living Communities, Inc.,
a Delaware corporation ("Brookdale")
AND
National Development Eastern Associates, Inc.,
a Pennsylvania corporation ("NDEA")
BACKGROUND
----------
WHEREAS, NHM Properties, Inc., a Pennsylvania corporation affiliated with
NDEA ("NHMP") entered into a certain Agreement of Sale and Purchase (as the
"Buyer") with Anna Marie LeDonne, Robert A. LeDonne, Co-Trustees of Anthony H.
LeDonne Trust, Peter O. LeDonne, and Dorothea J. LeDonne (the "LeDonnes", as the
"Seller"), dated November 4, 1996, and subsequently amended (together with all
amendments, the "LeDonne Agreement") relating to the sale and purchase of a
certain parcel of land containing approximately 9.165 acres located in the Town
of McCandless, Allegheny County, Pennsylvania (the "Real Estate"), as more fully
described in the attached Exhibit "A"). A copy of the LeDonne Agreement has
been provided to Brookdale;
WHEREAS, the LeDonnes, NDEA, and Brookdale have executed a certain
Agreement to Assign Agreement of Sale and Purchase (the "Assignment") of even
date herewith, which provides for the assignment of the LeDonne Agreement from
NDEA to Brookdale, effective upon the fulfillment of certain conditions as set
forth therein including without limitation, the tender of the deed to convey the
Real Estate (provided that certain "Project Approvals" have been obtained) on
the date of Settlement (as provided in Paragraph 4 of the "Fourth Amendment to
and Assignment of
<PAGE>
Agreement of Sale and Purchase" entered into by and among the LeDonnes, NDEA and
NHMP); and
WHEREAS, subject to the terms and conditions set forth herein, Brookdale
has requested NDEA to provide, and NDEA is willing to provide to Brookdale,
various existing permits and approvals related to development of the Real Estate
and to provide additional development services to obtain all additional permits
and approvals (other than building permits, or operating licenses) needed (the
"Project Approvals") to permit the construction on the Real Estate of a five (5)
story building containing approximately 242,000 gross square feet, containing
approximately 220 residential units, some of which (but not all) will be
licensed for personal care, together with all necessary and related utilities,
parking, curb cuts, storm water management facilities and site improvements (the
"Project");
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties set forth in this Agreement, and for other good
and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties agree as follows:
(1) Existing Permits and Approvals.
------------------------------
(A) NDEA has performed extensive development work related to the Real
Estate, including without limitation, work related to zoning, title, site
planning, special transportation district negotiations and settlement, access
easements, site access, storm water drainage planning and engineering, wetlands
planning, community and government communications, subdivision planning and
approval, engineering and architectural design, and market studies. As the
result of said development work, NDEA has obtained various approvals, permits,
studies, reports, surveys, site-plans and similar items necessary or desirable
in connection with the purchase and development of the Real Estate as previously
intended by NDEA which are listed on Exhibit "B" attached hereto and hereinafter
collectively referred to as the "Existing Permits and Approvals".
(B) NDEA agrees to assign, transfer, and deliver the Existing Permits
and Approvals to Brookdale subject to the terms and conditions set forth herein.
NDEA shall
-2-
<PAGE>
deliver copies of all Existing Permits and Approvals within ten (10) days of the
Agreement Date. NDEA shall deliver all original Existing Permits and Approvals
to Brookdale not later than the Effective Date (as defined in the Assignment).
In the event that this Agreement is terminated, or Brookdale does not purchase
the Real Estate on the Effective Date, Brookdale shall promptly return all
copies and original Existing Permits and Approvals to NDEA.
(2) Additional Permits and Approvals.
--------------------------------
(A) NDEA shall use its best efforts to apply for and obtain, or cause
to be prepared, all additional permits, approvals, reports, plans or other
matters (other than building permits, or operating licenses) as needed to permit
the construction of the Project by Brookdale (the "Additional Permits and
Approvals") on or before the Settlement Date (as hereinafter defined). NDEA
shall have no liability to Brookdale in the event it is unable to obtain any
Additional Permits and Approvals.
(B) NDEA agrees to assign, transfer, and deliver the Additional Permits
and Approvals to Brookdale subject to the terms and conditions set forth herein.
NDEA shall deliver copies of all Additional Permits and Approvals to Brookdale
promptly upon their receipt by NDEA. NDEA shall deliver all original Additional
Permits and Approvals to Brookdale not later than the Effective Date (as defined
in the Assignment). If NDEA fails to obtain the Additional Permits and
Approvals on or before the Settlement Date, Brookdale may terminate the
Assignment and the Agreement and the Earnest Money shall be returned to
Brookdale. In the event that this Agreement is terminated, or Brookdale does
not purchase the Real Estate on the Effective Date, Brookdale shall promptly
return all copies and original Existing and Additional Permits and Approvals to
NDEA.
(C) If NDEA fails to obtain any additional Permits and Approvals in a
timely manner then Brookdale shall have option to assume the obligations of NDEA
under this Paragraph 2. Additional expenses incurred by Brookdale in obtaining
said additional Permits and Approvals shall be deducted from the amounts payable
under paragraph 5 hereof.
(3) Construction Contract. Brookdale agrees that, in addition to the cash
---------------------
consideration being paid to NDEA under this Agreement, and as additional
consideration for NDEA
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agreeing to assign the LeDonne Agreement to Brookdale, Brookdale hereby grants
to NDEA and its affiliated construction company (the "General Contractor") the
first opportunity to serve as the General Contractor for the construction of the
Project provided that said General Contractor is able to satisfactorily bond its
obligations under the construction contract and is acceptable to Brookdale's
construction lender. This exclusive right of first opportunity shall be
implemented as follows:
(A) Based upon the construction records and data from the Detroit,
Michigan-area, Raleigh, North Carolina-area and Austin, Texas-area projects
currently underway by Brookdale, which are similar in design to the proposed
Project, Brookdale shall, within forty-five (45) days following the expiration
of the Feasibility Period provide to General Contractor a reasonable estimate of
the total building construction cost for the Project, inclusive of all
contractor general conditions and fees (the "Target Cost"). Brookdale shall take
into account in making such determination, differing site conditions at the Real
Estate and construction cost adjustment factors applicable in the Pittsburgh
market as compared to Detroit, Raleigh and Austin, as necessary.
(B) Brookdale shall authorize the completion of construction documents,
plans and specifications for the Project by its architect when Brookdale
reasonably believes that all permits and approvals from the Town of McCandless
for the start of construction of the project are likely to issue in due course.
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<PAGE>
(C) Upon completion of the construction documents, plans and
specifications by Brookdale's architect, or at such other time as sufficient
information is available, in the General Contractor's reasonable judgement to
allow for bidding the General Contractor shall have the exclusive right to price
the Project; put the Project out to bid to the subcontractor market; and
represent to the subcontractor market that the Project has been awarded to the
General Contractor subject to the Target Price being met.
(D) If the General Contractor agrees to commit to constructing the
Project for a Guaranteed Maximum Price which is equal to or less than the
Target Price, Brookdale and General Contractor shall enter into a construction
contract (on AIA form A111 with such revisions as are mutually acceptable to
Brookdale and General Contractor) which shall provide for said Guaranteed
Maximum Price and a savings split as follows: 75% to Brookdale, 25% to the
General Contractor.
(E) If the General Contractor can not agree to a Guaranteed Maximum
Price which is equal to or less than the Target Price, Brookdale shall have the
right thereafter to deal with any other general contractor or otherwise pursue
the construction of the Project in any manner that Brookdale deems appropriate.
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<PAGE>
(5) Reimbursement of Development Costs at Settlement.
------------------------------------------------
(A) Brookdale agrees to pay the sum of $410,000.00 (the "PUD Cost
Reimbursement") to NDEA upon purchase of the Real Estate at Settlement pursuant
to the LeDonne Agreement and the Assignment, to reimburse NDEA for various costs
and expenses incurred by NDEA in connection with development of the Property and
the LeDonne Agreements, including without limitation, the "Hand Money", and any
broker's commission or fee to Langholz/Wilson & Associates.
(B) In addition to the PUD Cost Reimbursement payment described in
Paragraph 5(A) above, Brookdale shall reimburse NDEA on the Effective Date for
all reasonable out-of-pocket costs paid hereafter to third parties to obtain the
Project Approvals, including, without limitation, the reasonable fees and
expenses of attorneys, engineers and land planners, not to exceed, in the
aggregate, Fifty Thousand and No/100 Dollars ($50,000.00). Brookdale shall also
reimburse NDEA, upon purchase of the Real Estate by Brookdale, for any payments
made to the LeDonnes to extend the date of Settlement, pursuant to the terms of
the Fourth Amendment to and Assignment of Agreement of Sale and Purchase.
Additionally, Brookdale acknowledges the obligation to purchase certain rights
to sanitary sewer taps from the LeDonnes and the obligation to the Town of
McCandless related to the settlement of a Special Transportation District
Assessment that was previously contested by the LeDonnes.
(6) Earnest Money Deposit. Within five (5) Business Days after the
---------------------
Agreement Date, Brookdale shall deposit the sum of Ten Thousand and No/100
Dollars ($10,000.00) in an escrow ("Escrow") established with Lawyers Title
Insurance Corporation (the "Title Company") in accordance with escrow
instructions in general use in the Pittsburgh area or otherwise as mutually
agreed upon. Upon the expiration of the Feasibility Period, Brookdale shall
deposit an additional Ninety Thousand and No/100 Dollars ($90,000.00) in the
Escrow. The sum of deposit in the Escrow, together with all earnings accrued
thereon at any time, is herein referred to as the "Earnest Money". The Earnest
Money shall be invested in a money market fund or in such other investment
instrument or account designated by Brookdale. Upon purchase of the Real Estate
by Brookdale, the Earnest Money, together with all interest and earnings accrued
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<PAGE>
thereon, shall be returned by the Title Company to Brookdale.
(7) Feasibility Period; Approval Period.
-----------------------------------
(A) Brookdale's obligation to accept the assignment of the LeDonne
Agreement, to pay the PUD Cost Reimbursement and to reimburse NDEA under
Paragraph (5)(B) above, is contingent upon the satisfactory inspection of the
Real Estate and an evaluation of the Existing Permits and Approvals by
Brookdale, in its sole and absolute discretion and judgment, during the period
(the "Feasibility Period") commencing on the Agreement Date and ending on the
thirtieth (30th) day following the Agreement Date.
(B) During the Feasibility Period, NDEA will arrange with the LeDonnes
for Brookdale to physically inspect the condition of the Real Estate, and
Brookdale will review the Existing Permits and Approvals and otherwise determine
the feasibility (economic or otherwise) of the acquisition, ownership and
development of the Real Estate. NDEA shall cooperate fully with Brookdale and
Brookdale's agents, employees and representatives in connection with Brookdale's
review of the Existing Permits and Approvals. At any time during the
Feasibility Period, Brookdale, in Brookdale's sole and absolute discretion, may,
upon written notice to NDEA, terminate this Agreement and the Assignment, in
which event the Earnest Money, and all earnings thereon, shall be returned to
Brookdale, and thereafter, all of the rights, duties and obligations of the
parties hereto shall immediately terminate, and this Agreement and the
Assignment shall be null, void and of no further force or effect.
(C) Brookdale's obligation to accept the assignment of the LeDonne
Agreement and make the payments described in paragraph (5) shall be contingent
upon NDEA procuring the Project Approvals in form and substance reasonably
acceptable to Brookdale, on or before the one hundred twentieth (120th) day
following the Agreement Date (the "Approval Period"); provided that as long as
NDEA is diligently and continuously pursuing the Project Approvals and is not
otherwise in default under this Agreement, Brookdale shall not have the right to
terminate this Agreement, and NDEA may extend the Approval Period for four (4)
additional thirty (30) day periods by written notice to Brookdale on or before
the expiration of the aforesaid 120-day or 30-day periods, as applicable.
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<PAGE>
(D) If: (i) in Brookdale's sole judgment and discretion, Brookdale
decides during the Feasibility Period that it does not wish to proceed with the
purchase of the Real Estate, or (ii) NDEA (or Brookdale) has failed to obtain
the Project Approvals during the Approval Period (subject to extension as
described in paragraph 7(c) above), then Brookdale shall give NDEA written
notice of such fact on or before the end of the applicable period, in which case
this Agreement shall terminate and the Earnest Money and all earnings thereon
shall be returned by the Title Company to Brookdale. In the event Brookdale
does not notify NDEA in writing on or before the end of the applicable period of
Brookdale's election to terminate this Agreement, Brookdale shall accept the
Assignment, and pay the sums described in paragraph (5) herein to NDEA in
accordance with, and subject to, the terms and conditions set forth in this
Agreement and the Assignment.
(8) Settlement. When used herein, the term "Settlement" shall mean
----------
Settlement as defined in the LeDonne Agreement.
(9) Title and Survey. Not later than ten (10) days following the Agreement
----------------
Date, NDEA will obtain and deliver to Brookdale the following:
(A) A commitment ("Commitment") to issue an ALTA owners title insurance
policy for the Real Estate for the benefit of Brookdale or its nominee issued by
Lawyers Title Insurance Corporation in the amount of $1,700,000.00 covering
title to the Real Estate on or after the date hereof, showing good, marketable
and indefeasible fee simple title to the Real Estate in the LeDonnes, together
with a copy of all documents of record and all exceptions to title to the Real
Estate as indicated in the Commitment.
(B) Six (6) copies of an ALTA/ASCM "Urban" survey ("Survey") (including
field notes) with respect to the Real Estate, dated and certified as of a date
subsequent to the date of this Agreement, prepared by a surveyor registered by
the Commonwealth of Pennsylvania, setting forth the legal description of the
Real Estate and showing the location of any improvements, and showing the size
and location of all easements, encroachments and encumbrances listed on the
Commitment (identifying each by volume and page or document number, if
applicable), reciting the exact area of the Real Estate in acres and square
feet, reciting the exact area of
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<PAGE>
each easement, encroachment and encumbrance, showing no portion of the Real
Estate situated in an area designated by the U.S. Secretary of Housing and Urban
Development (or by any other governmental or quasi-governmental agency or
authority having jurisdiction over the Real Estate) as a flood plain, special
flood hazard area or general hazard area, showing all visible utility lines upon
the Real Estate, and indicating such other information reasonably requested by
Brookdale in writing prior to the expiration of the Feasibility Period. The
Survey shall meet the accuracy requirements of an ALTA/ASCM Urban survey, and
contain a certificate specifically addressed to Brookdale, the Title Company,
the General Contractor and any other party or parties designed by Brookdale,
reading as follows:
"The undersigned does hereby certify that (i) this survey was
this day made upon the ground of the property reflected herein,
for the benefit of and reliance by NDEA, Brookdale, the General
Contractor the Title Company and all other parties listed above;
(ii) the description contained hereon is correct; (iii) the
property and each parcel thereof has access to and from a
dedicated roadway as shown hereon; (iv) except as shown hereon,
there are no discrepancies, conflicts, shortages in area,
encroachments, improvements, overlapping of improvements, setback
lines, easements, or roadways; (v) the total acreage and the
gross square footage and the square footage net of any portion of
the property lying within public roadways shown hereon are
correct; (vi) none of the property lies within the 100-year flood
plain or any special flood hazard area or general hazard area as
designated by any governmental agency; and (vii) this survey
satisfies the requirements of an ALTA/ASCM "Urban" survey."
The Survey must be satisfactory to the Title Company so as to permit it
to delete, or affirmatively insure over, the standard survey exceptions in the
Title Policy and issue the endorsements required hereunder.
(C) Searches, dated not more than one (1) week prior to delivery, of
all Uniform Commercial Code financing statements and tax liens related to the
Real Estate filed against the LeDonnes, as debtor, with the appropriate
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<PAGE>
public official of the Commonwealth of Pennsylvania, the appropriate public
official of Allegheny County, Pennsylvania, or with any other governmental
agency or authority or in any public record (the "Searches").
(D) The Feasibility Period shall be extended one day for each day
beyond said 10 day period that NDEA fails to deliver the last of the Commitment,
the Survey or Searches.
(10) Notification of Defects. During the Feasibility Period, Brookdale
------------------------
shall determine in its sole discretion whether any matter shown in the
Commitment, the Survey or the Searches adversely affects Brookdale's intended
development of the Project. Brookdale shall notify NDEA of any such matter prior
to the expiration of the Feasibility Period.
(11) Correction of Defects. Upon receipt of written notice from Brookdale
---------------------
under paragraph (10) then NDEA shall use its best efforts to cause the LeDonnes
to cause such exceptions or other matters to be corrected, removed or otherwise
waived, within fifteen (15) business days from the date of said written notice
of objection from Brookdale (the "Cure Period"). Notwithstanding anything in
this Agreement to the contrary, the Feasibility Period shall not end before the
day which is five (5) Business Days following the day within the Cure Period on
which Brookdale receives written evidence, reasonably satisfactory to Brookdale,
that such exceptions or other matters have been corrected, removed or otherwise
waived to Brookdale's reasonable satisfaction. In the event that, prior to the
expiration of the Cure Period said matters remain uncured, then Brookdale may,
upon written notice delivered to NDEA, terminate this Agreement, or extend the
Feasibility Period to permit such cure. Any extension or extensions of time
permitted by this Paragraph shall not affect any of Brookdale's rights under
this Agreement.
12) NDEA's Deliveries; Inspection.
-----------------------------
(A) NDEA shall deliver to Brookdale or, if such items are not in the
possession or control of NDEA, obtain, if available, from the LeDonnes, and
deliver to Brookdale, no later than ten (10) days after the Agreement Date:
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(i) if available, a true and correct copy of the real estate and
personal property tax bills and notices of assessed valuation pertaining to the
Real Estate for the five (5) most recent years, including any pending or past
tax protests or appeals, if any, and all documents, correspondence, pleadings
and all other information relating to any and all pending or past tax protests
and appeals relating to the Real Estate;
(ii) if applicable and available, true and correct copies of all
leases, contracts and agreements, if any, and all amendments or modifications
thereto, which NDEA,the LeDonnes or their agents have entered into in connection
with or related to the ownership, development, construction, operation,
management or use of the Real Estate and of all guarantees and warranties
extended or assigned to NDEA or the LeDonnes in connection therewith which are
currently in effect;
(iii) true and correct copies of all permits, licenses,
authorizations and other approvals issued to NDEA or the LeDonnes with respect
to the Real Estate or any proposed development thereof;
(iv) to the extent in NDEA's possession, "as-built" drawings of
any underground utilities (including storm sewer, sanitary sewer, water, and
telephone and electric service cables) located under the Real Estate, and all
other materials reflecting the current status of the zoning classification
applicable to the Real Estate and the availability of utilities (including
water, waste water, electricity, gas and telephone service) to the Real Estate;
and
(v) any and all existing soil studies and reports, any
environmental assessments, studies, tests, reports and analyses, and all other
studies, reports, permits, subdivision and planned unit development plats,
approvals and plans, surveys, zoning information, topographical and engineering
studies, any correspondence related to any of the foregoing, and all other data
and information relating to the Real Estate or any portion thereof, or any
proposed development or operation thereof, which NDEA or the LeDonnes has in
their respective possession or control.
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<PAGE>
(B) NDEA shall request the LeDonnes to agree that Brookdale, its
agents, representatives and employees may, during reasonable business hours,
between the date of Brookdale's execution of this Agreement and the date of the
Settlement:
(i) inspect, audit and transcribe or copy the books and records,
contracts, agreements, and all other instruments of any nature maintained by the
LeDonnes in connection with the Real Estate; and
(ii) inspect the Real Estate, and any portion thereof, and
conduct studies, tests and analyses with respect thereto.
(13) NDEA's Covenants. Between the Agreement Date and the date of the
----------------
Settlement, NDEA shall:
(A) Keep and perform all of the obligations to be performed by NDEA
under each and every agreement relating to or affecting the Real Estate or any
portion thereof including, without limitation, the LeDonne Agreement and the
Assignment;
(B) Except pursuant to the terms of the LeDonne Agreement, this
Agreement and the Assignment, not enter into, execute, extend or renew any
agreement or contract relating to or affecting the Real Estate or any portion
thereof, or modify, amend or terminate any contract or agreement to be assigned
to Brookdale by NDEA without, in each case, Brookdale's prior written consent
and approval;
(C) Not assign, transfer or encumber its interest in the LeDonne
Agreement or this Agreement; and
(D) Provide weekly status reports to Brookdale in respect of the
Additional Permits and Approvals.
(14) Representations and Warranties.
------------------------------
(A) In order to induce Brookdale to enter into this Agreement, NDEA
represents and warrants to Brookdale that on the date hereof and on the date of
the Settlement:
(i) NDEA has all necessary and requisite authority to enter into
this Agreement and to consummate all of the transactions contemplated hereby,
and the persons
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executing this Agreement and all other documents required to consummate the
transactions contemplated hereby on behalf of NDEA are duly authorized to
execute this Agreement and such other documents on behalf of NDEA, and are
authorized to bind NDEA.
(ii) NDEA is a corporation duly formed and validly existing under
the laws of the Commonwealth of Pennsylvania.
(iii) NDEA is a "United States person", as defined by Internal
Revenue code Section 1445 and Section 7701.
(iv) The execution of this Agreement by NDEA does not, and the
performance by NDEA of the transactions contemplated by this Agreement will not
violate or constitute a breach of the articles of incorporation, bylaws or any
shareholders' or directors' resolution of NDEA, or any contract, permit,
license, order or decree to which NDEA is a party or by which NDEA or its assets
are bound, in writing without limitation the LeDonne Agreement.
(v) The LeDonne Agreement is in full force and effect and
unmodified and there are no defaults existing thereunder nor any events, which,
with the passage of time or giving of notices, or both, would constitute a
default thereunder;
(vi) To NDEA's knowledge, except for the certain special
transportation district assessment as previously disclosed to Brookdale, no
proceedings of any type (including condemnation or similar proceedings) have
been instituted or are pending or contemplated against the Real Estate or any
part thereof.
(vii) To NDEA's knowledge, except for the certain special
transportation district assessment as previously disclosed to Brookdale, there
are not presently pending any special assessments of any nature with respect to
the Real Estate or any portion thereof, nor has NDEA knowledge of any such
special assessment being contemplated.
(viii) A true, correct and complete copy of each agreement,
contract, lease, commitment, the existing Permits and Approvals and other
documents, together with all amendments thereto and modifications thereof, which
NDEA has
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in its possession or control, relating or pertaining, in any way, to the Real
Estate or any portion thereof, or to its ownership or operation, has been
delivered to Brookdale or will be delivered to Brookdale within the time period
provided herein, and all subsequent amendments or modifications to any such
agreement, contract, lease, commitment, Existing Permits and Approvals or other
documents shall be delivered to Brookdale.
(ix) There are no outstanding contracts or commitments made by
NDEA (or any of its agents or affiliates) or to NDEA's knowledge, the LeDonnes,
for work or materials in connection with the Real Estate or for any improvements
to the Real Estate which have not been or will not be, on or before the date of
the Settlement, fully paid for on a timely basis and there are no leases,
contracts, commitments or agreements which will bind Brookdale or the Real
Estate from and after the Settlement.
(x) NDEA has not granted any right or option to acquire all or
any portion of the Real Estate or the LeDonne Agreement, other than to Brookdale
pursuant to the Assignment.
(xi) To the best of Seller's knowledge, there are no violations of
any restrictive covenants or other matters affecting the Real Estate.
(xii) NDEA has no knowledge of environmental conditions under or
upon the Real Estate other than as contained in the certain "Phase I
Environmental Assessment" dated March 20, 1997, prepared by Civil and
Environmental Consultants, and except as herein stated NDEA makes no
representations or warranties as to the environmental condition of the Real
Estate.
(B) In the event at any time prior to Settlement, NDEA learns or has
reason to believe that any of the aforesaid representations and warranties are
no longer true or valid, NDEA shall immediately notify Brookdale in writing and
therein specify the factors rendering or likely to render such representations
or warranties untrue or invalid. All representations and warranties contained
in Paragraph (14)or elsewhere in this Agreement shall be deemed remade as of the
date of Settlement and shall survive the Settlement.
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<PAGE>
(C) Each party hereunder represents to the other party that no party
has relied upon any real estate broker or other finder to consummate the
transactions contemplated by this Agreement other than Howard Hanna Commercial
("Howard Hanna") who acted on behalf of Brookdale and Langholz/Wilson and
Associates ("Langholz/Wilson") who acted on behalf of NDEA. Brookdale shall pay
any commission or fee due to Howard Hanna on account of the transaction
contemplated hereby pursuant to a separate agreement and NDEA shall pay a
commission of $20,000.00 to Langholz/Wilson. Each party shall indemnify, defend
and hold the other harmless from and against any and all losses, damages, costs
and claims suffered or incurred by the indemnified party as a result or by
reason of any claim by any person or entity for any such commission or fee
arising out of the acts of the indemnifying party.
(15) Conditions to Brookdale's Obligation to Purchase the Real Estate. The
----------------------------------------------------------------
obligations of Brookdale to accept the Assignment, purchase the Real Estate and
to pay the sums described herein are conditioned upon and subject to the
satisfaction on or before the date of Settlement (or such other period specified
below), or the waiver by Brookdale, of each of the following conditions:
(A) NDEA and the LeDonnes shall have performed and complied with all
agreements, covenants and conditions to be performed or complied with prior to
the date of the Settlement.
(B) All of NDEA's representations and warranties set forth in this
Agreement, and the LeDonnes' representations and warranties set forth in the
LeDonne Agreement, shall be true and correct as of the date of the Settlement.
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<PAGE>
(C) The LeDonnes shall have complied with all procedures reasonably
required by the Title Company or which are customary or appropriate in
transactions similar to the transactions contemplated hereby in connection with
the conveyance of the Real Estate to Brookdale and for the Title Company to
issue its Owner's Title Policy.
(D) The Title Company shall be prepared to issue the Title Policy in
accordance with this Agreement upon conveyance of the Real Estate to Brookdale
and payment of the Purchase Price to the LeDonnes pursuant to the LeDonne
Agreement.
(16) Provisions with Respect to Settlement.
-------------------------------------
(A) On the date of the Settlement, and provided that all conditions
precedent to Brookdale's obligations under this Agreement are satisfied,
Brookdale shall deliver to the Title Company, as escrowee, the amount of the
Purchase Price under the LeDonne Agreement, the PUD Cost Reimbursement, and the
other sums payable under Section (5)(B) of this Agreement by wire transfer or
other immediately available funds.
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<PAGE>
(B) On the date of Settlement, the Title Company shall disburse the
Purchase Price to the LeDonnes, refund the Earnest Money to Brookdale and pay
the PUD Cost Reimbursement and the other sums payable under Section (5)(B) of
this Agreement to NDEA.
17) Remedies.
--------
(A) If NDEA should breach any of its representations, warranties,
covenants or agreements contained in this Agreement or the Assignment or in any
other agreement or other document delivered pursuant to this Agreement or the
Assignment for any reason other than Brookdale's default, Brookdale may (1)
cancel this Agreement and receive the prompt return of the Earnest Money,
together with all interest and earnings accrued thereon; or (2) enforce specific
performance of this Agreement and the Assignment. The exercise of (or failure
to exercise) any one of Brookdale's rights or remedies under this Agreement
shall not be deemed to be in lieu of, or a waiver of, any other right or remedy
contained herein.
(B) If Brookdale shall breach its obligation under this Agreement or
the Assignment, NDEA may cancel this Agreement and retain the Earnest Money and
Brookdale shall pay to NDEA the sum of (i) $200,000.00 less the amount of
Earnest Money received and retained by NDEA, plus (ii) the total amount of
actual reimbursable costs incurred by NDEA as described in paragraph 5(B) above,
up to the date of said breach by Brookdale, as liquidated damages, it being
acknowledged that such amount constitutes a reasonable estimate of NDEA's
damages and actual damages would be difficult to ascertain. NDEA waives all
rights and remedies other than as set forth herein.
(C) If either Brookdale or NDEA brings an action to enforce its rights
under this Agreement, the successful party shall be reimbursed by the
unsuccessful party for all costs of enforcement, including reasonable attorneys'
fees and court costs.
(18) Modification, Waiver, etc.
--------------------------
No waiver of any condition under, and no modification, amendment,
discharge or changes of or to this Agreement shall be valid unless the same is
in writing and signed by the party against which the enforcement of such
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modification, waiver, amendment, discharge, or change is sought.
(19) Notices. All notices, demands, requests and other communications
-------
under this Agreement shall be in writing and shall be deemed properly served
when delivered, if delivered by hand to the party to whose attention it is
directed, or three (3) Business Days after deliver to a United States Post
Office properly addressed, if mailed postage prepaid or one (1) Business Day
after guaranteed next day delivery, delivery charges prepaid, or upon
transmittal if delivered by facsimile, provided receipt of the notice is
confirmed, as the case may be, and in each case, addressed as follows:
(A) If intended for NDEA, to:
Gregory Hand
National Development Eastern
Associates, Inc.
4415 Fifth Avenue,
Pittsburgh, Pennsylvania 15213
Facsimile No.: (412) 621-4780
with a copy to:
Philip M. Bell
Attorney at Law
4415 Fifth Avenue,
Pittsburgh, Pennsylvania 15213
Facsimile No.: (412) 621-8403
(B) If intended for Brookdale, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive, Suite 4800
Chicago, Illinois 60601
Attention: Mark J. Iuppenlatz
Facsimile No.: (312) 977-3699
with a copy to:
Brookdale Living Communities, Inc.
77 West Wacker Drive, Suite 4800
Chicago, Illinois 60601
Attention: Robert J. Rudnik, Esq.
Facsimile No.: (312) 977-3699
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and a further copy to:
Burke Warren MacKay & Serritella, P.C.
330 North Wabash
22nd Floor - IBM Plaza
Chicago, Illinois 60611
Attention: Douglas E. Wambach, Esq.
Facsimile No.: (312) 840-7900
or at such other address or to such other party which any party entitled to
receive notice hereunder designates to the others in writing.
(20) Governing Law. The validity, meaning and effect of this Agreement
-------------
shall be determined in accordance with the laws of the Commonwealth of
Pennsylvania, applicable to contracts made and to be performed in that
Commonwealth.
(21) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(22) Captions. The captions of this Agreement are inserted for convenience
--------
of reference only and in no way define, describe or limit the scope or intent of
this Agreement or any of the provisions hereof.
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(23) Construction. As used herein, the terms (a) "person" shall mean an
------------
individual, a corporation, a partnership, a trust, an unincorporated
organization or any agency or political subdivision thereof; (b) "including"
shall mean including, without limiting the generality of the foregoing; (c) the
masculine shall include the feminine and the neuter; (d) "the best knowledge" or
any similar phrase shall mean best knowledge with independent investigation; and
(e) "Business Day" shall mean any calendar day other than Saturday, Sunday, and
any day on which national banks in Chicago, Illinois are authorized to close.
(24) Assignability by Brookdale. This Agreement and the Assignment and any
--------------------------
of Brookdale's rights hereunder or thereunder may be assigned by Brookdale to
any entity affiliated with Brookdale prior to the Settlement upon written notice
to NDEA and without the prior consent of NDEA. Any such assignment may provide
that Brookdale's nominee or assignee assumes all of the provisions of the
Agreement to be performed by Brookdale, and in such event Brookdale shall be
released and discharged of all further liability under the Agreement. All
references to Brookdale in this Agreement shall be deemed to include references
to Brookdale's nominee.
-20-
<PAGE>
(25) Binding Effect. This Agreement shall be binding upon and shall
--------------
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors and assigns.
(26) Partial Invalidity. If any provision or provisions, or any portion of
------------------
any provision or provisions, of this Agreement is found by a court of law to be
in violation of any applicable local, state or federal ordinance, statute, law,
administrative or judicial decision, or public policy, and if such court should
declare such portion, provision or provisions of this Agreement to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent both
of NDEA and Brookdale that any portion, provision or provisions shall be given
force to the fullest possible extent that they are legal, valid and enforceable,
that the remainder of this Agreement shall be construed as if such illegal,
invalid, unlawful, void or unenforceable portion, provision or provisions were
not contained herein, and that the rights, obligations and interest of NDEA and
Brookdale under the remainder of this Agreement shall continue in full force and
effect.
-21-
<PAGE>
(27) Time is of the Essence. Time is of the essence of this Agreement.
----------------------
(28) Acceptance of Offer. The offers made by NDEA by the delivery of a
-------------------
copy of this Agreement as executed on behalf of NDEA shall automatically
terminate and expire at 5:00 p.m. C.S.T. on _________________________, 1998,
unless said offer is accepted earlier by Brookdale's execution of this
Agreement, or a counterpart hereof, and by the return to NDEA of a fully
executed copy of this Agreement on or before the date and time aforementioned.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth on page 1, above. ("Agreement Date").
"BROOKDALE"
Brookdale Living Communities, Inc.
Attest:_________________ By:_____________________________
Title:__________________________
"NDEA"
National Development
Eastern Associates, Inc.
Attest:_________________ By:_____________________________
Title:__________________________
-22-
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
-23-
<PAGE>
Exhibit 10.22
AGREEMENT TO ASSIGN
AGREEMENT OF SALE AND PURCHASE
THIS AGREEMENT TO ASSIGN AGREEMENT OF SALE AND PURCHASE (the "Agreement")
is made and entered into as of the ______ day of _______________, 1998,
BY AND AMONG
Brookdale Living Communities, Inc.,
a Delaware corporation ("Brookdale")
AND
National Development Eastern Associates, Inc.,
a Pennsylvania corporation ("NDEA")
AND
Kenneth A. LeDonne, Robert A. LeDonne,
Karen A. LeDonne, Peter O. LeDonne,
and Dorthea J. LeDonne
(together, the "LeDonnes")
BACKGROUND
----------
WHEREAS, NHM Properties, Inc. (as the "Buyer") entered into a certain
Agreement of Sale and Purchase with the LeDonnes (or their predecessor in
interest in the case of Kenneth A. LeDonne, Robert A. LeDonne and Karen A.
LeDonne) (as the "Seller") dated November 4, 1996, relating to the sale and
purchase of certain parcels of land containing approximately 9.165 acres located
in the Town of McCandless, Allegheny County, Pennsylvania (the "Real Estate", as
more fully described in the attached Exhibit "A"), said Agreement of Sale and
Purchase having been subsequently amended by an "Amendment to Agreement of Sale
and Purchase" dated May 16, 1997, an "Amendment to Agreement of Sale and
Purchase" dated May 20, 1997, a "Third Amendment to Agreement of Sale and
Purchase" dated August 27, 1997, and a "Fourth Amendment to
<PAGE>
and Assignment of Agreement of Sale and Purchase" of even date herewith
(collectively referred to herein as the "LeDonne Agreement"). A copy of the
LeDonne Agreement, including all amendments, is attached hereto as Exhibit "B";
and
WHEREAS, the parties desire to cause the assignment of the LeDonne
Agreement, from NDEA to Brookdale, subject to the terms and conditions set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, the parties agree as follows:
(1) Conditional Agreement to Assign LeDonne Agreement. Subject to the
-------------------------------------------------
terms and conditions set forth herein, NDEA hereby agrees to sell, transfer, and
assign to Brookdale all of NDEA's rights, title and interest in, to and under
the LeDonne Agreement, and agrees to delegate to Brookdale all of its duties
under the LeDonne Agreement, pursuant to the terms of an Assignment and
Assumption Agreement in the form attached hereto, and made a part hereof, as
Exhibit "C".
-2-
<PAGE>
(2) Conditional Agreement to Accept Assignment of LeDonne Agreement.
---------------------------------------------------------------
Subject to the terms and conditions set forth herein, Brookdale agrees to accept
the above described assignment of NDEA's rights and assume NDEA's duties under
the LeDonne Agreement.
(3) Conditional Consent to Assignment of LeDonne Agreement. Subject to the
------------------------------------------------------
terms and conditions set forth herein, the LeDonnes consent to the above
described assignment of the LeDonne Agreement to Brookdale as the "Buyer"
thereunder and agree to release NDEA from all obligations thereunder, from and
after the "Effective Date" (as defined below). Any notice given by the LeDonnes
under the LeDonne Agreement to Buyer from and after the date of this Agreement
shall be given to both NDEA and Brookdale. Notwithstanding that the assignment
provided for herein is not effective until the Effective Date, in the event
Buyer defaults under the LeDonne Agreement, Brookdale shall be entitled to an
opportunity to cure such default, ending ten (10) days after notice of such
default is given to Brookdale.
(4) Assignment Effective Upon Project Approval and Settlement. The
---------------------------------------------------------
assignment of rights and delegation of duties to Brookdale, acceptance by
Brookdale, and release of NDEA by the LeDonnes as described above, shall become
fully effective, without further notice, documentation, or action of the
parties, upon tender of the deed to convey the Real Estate by the LeDonnes to
Brookdale at the Settlement as described in the LeDonne Agreement (the
"Effective Date"); provided, however, that NDEA has obtained and provided the
"Project Approvals" to Brookdale. "Project Approvals" means all permits or
approvals (other than building permits, or operating licenses) needed to permit
the construction on the Real Estate of the "Project". The "Project" means a
five (5) story building and containing approximately 242,000 gross square feet,
containing approximately 220 residential units, some of which, (but not all)
will be licensed for personal care together with all necessary and related
utilities, parking, curb cuts, storm water management facilities, and site
improvements. The LeDonnes hereby agree to convey title to the Real Estate
pursuant to and in accordance with the terms of the LeDonne Agreement to
Brookdale or its assignee. Until the Effective Date, the within assignment
shall not become effective, and NDEA shall continue to be the "Buyer" under the
terms of the LeDonne Agreement, subject to the terms hereof.
-3-
<PAGE>
(5) Notices. All notices, demands, requests and other communications under
-------
this Agreement shall be in writing and shall be deemed properly served when
delivered, if delivered by hand to the party to whose attention it is directed,
or three (3) Business Days after deliver to a United States Post Office properly
addressed, if mailed postage prepaid or one (1) Business Day after guaranteed
next day delivery, delivery charges prepaid, or upon transmittal if delivered by
facsimile, charges prepaid, or upon transmittal if delivered by facsimile
provided receipt of the notice is confirmed, as the case may be, and in each
case, addressed as follows:
(A) If intended for the LeDonnes, to:
c/o John Michael Studeny, Esq.
Kabala & Geeseman
200 Fourth Avenue
Pittsburgh, Pennsylvania 15222
(B) If intended for NDEA, to:
Gregory Hand
National Development Eastern
Associates, Inc.
4415 Fifth Avenue,
Pittsburgh, Pennsylvania 15213
Facsimile No.: (412) 621-4780
with a copy to:
Philip M. Bell
Attorney at Law
4415 Fifth Avenue,
Pittsburgh, Pennsylvania 15213
Facsimile No.: (412) 621-8403
-4-
<PAGE>
(C) If intended for Brookdale, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive, Suite 4800
Chicago, Illinois 60601
Attention: Mark J. Iuppenlatz
Facsimile No.: (312) 977-3699
with a copy to:
Brookdale Living Communities, Inc.
77 West Wacker Drive, Suite 4800
Chicago, Illinois 60601
Attention: Robert J. Rudnik, Esq.
Facsimile No.: (312) 977-3699
and a further copy to:
Douglas E. Wambach, Esq.
Burke Warren MacKay & Serritella, P.C.
330 North Wabash
22nd Floor - IBM Plaza
Chicago, Illinois 60611
Facsimile No.: (312) 840-7900
or at such other address or to such other party which any party entitled to
receive notice hereunder designates to the others in writing.
-5-
<PAGE>
6) Counterparts. This Agreement may be executed in two or more
------------
counterparts, reach of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date the last party signs ("Effective Date").
"BROOKDALE"
Brookdale Living Communities, Inc.
Attest:________________________________ By:_____________________________
Title:__________________________
"NDEA"
National Development Eastern
Associates, Inc.
Attest:________________________________ By:_____________________________
Title:__________________________
"LeDONNES"
Witness:_______________________________ _______________________________
Kenneth A. LeDonne*
Witness:_______________________________ _______________________________
Robert A. LeDonne*
Witness:_______________________________ _______________________________
Karen A. LeDonne*
Witness:_______________________________ _______________________________
Peter O. LeDonne, by Emile
LeDonne, his attorney in fact
Witness:_______________________________ ________________________________
Dorthea J. LeDonne, by Emile
LeDonne, her attorney in fact
*Successors in interest to Anna Marie LeDonne and Robert A. LeDonne, Co-Trustees
of the Anthony H. LeDonne Trust.
-6-
<PAGE>
EXHIBIT A
---------
The Real Estate consists of approximately 9.165 acres consisting of Parcel
B and Parcel C in the certain LeDonne Plan of Lots as recorded on April 25, 1997
in Plan Book Volume 202, Pages 183 and 184 in the Allegheny County Recorder of
Deeds Office.
Note: The "Third Amendment to Agreement of Sale and Purchase" dated August 27,
1997 incorrectly referred (in the first recital paragraph on page 1) to the Real
Estate as Parcel "A" and Parcel "B" in said LeDonne Plan of Lots instead of
Parcel "B" and Parcel "C", and said incorrect reference is hereby corrected.
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,935
<SECURITIES> 0
<RECEIVABLES> 763
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,894
<PP&E> 113,880
<DEPRECIATION> 3,048
<TOTAL-ASSETS> 191,738
<CURRENT-LIABILITIES> 12,099
<BONDS> 95,822
0
0
<COMMON> 95
<OTHER-SE> 63,571
<TOTAL-LIABILITY-AND-EQUITY> 191,738
<SALES> 15,657
<TOTAL-REVENUES> 16,898
<CGS> 0
<TOTAL-COSTS> 14,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 922
<INCOME-PRETAX> 1,725
<INCOME-TAX> (614)
<INCOME-CONTINUING> 1,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,111
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
