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 September 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Transition Period from ____ to _____.
Commission File Number 0-22253
-----------
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 60601
Chicago, IL
- -------------------------------- -----------------------------------
(Address of principal (Zip Code)
executive offices)
(312) 977-3700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(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 November 13, 1998, 9,572,082 shares of the registrant's Common Stock,
$0.01 par value per share, were outstanding.
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC.
FORM 10-Q
INDEX
-----
<S> <C> <C>
PART I: FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited). 3
Consolidated Balance Sheets of Brookdale Living Communities, Inc. as of September 30, 1998 and
as of December 31, 1997 4
Consolidated Statements of Operations of Brookdale Living Communities, Inc. for the three months
ended September 30, 1998 and 1997 5
Consolidated Statements of Operations of Brookdale Living Communities, Inc. for the nine months
ended September 30, 1998 and for the period from May 7, 1997 through September 30, 1997 and
Combined Statement of Operations of Predecessor Properties (the predecessor to Brookdale Living
Communities, Inc.) for the period from January 1, 1997 through May 6, 1997 6
Consolidated Statements of Cash Flows of Brookdale Living Communities, Inc. for the nine months
ended September 30, 1998 and for the period from May 7, 1997 through September 30, 1997 and
Combined Statement of Cash Flows of Predecessor Properties (the predecessor to Brookdale Living
Communities, Inc.) for the period from January 1, 1997 through May 6, 1997 7
Notes to Consolidated and Combined Financial Statements of Brookdale Living Communities, Inc.
and Predecessor Properties (the predecessor to Brookdale Living Communities, Inc.) 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 16
PART II: OTHER INFORMATION 17
Item 1. Legal Proceedings. 17
Item 2. Changes in Securities and Use of Proceeds. 17
Item 3. Defaults Upon Senior Securities. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K. 17
Signatures 20
</TABLE>
-2-
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
The information furnished in the accompanying unaudited 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") 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
Brookdale and Subsidiaries (the "Company") represent the results of operations
of 16 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 represent the results of operations of the entities (five
facilities) which comprised the Predecessor Properties for the period from
January 1, 1997 to May 6, 1997.
The aforementioned financial statements should be read in conjunction with
the notes to the consolidated and combined 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 as filed with the Securities and Exchange
Commission on March 31, 1998.
-3-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(In Thousands)
(Unaudited)
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Assets
Cash and cash equivalents.............................................. $ 410 $ 13,292
Accounts receivable.................................................... 601 214
Notes receivable....................................................... 6,028 -
Prepaid expenses and other............................................. 9,947 3,077
-------------- --------------
Total current assets............................................. 16,986 16,583
-------------- --------------
Property, plant and equipment.......................................... 115,727 113,294
Accumulated depreciation............................................... (4,787) (2,164)
-------------- --------------
Property, plant and equipment, net..................................... 110,940 111,130
-------------- --------------
Property under development............................................. 9,083 11,427
Cash and investments - restricted...................................... 7,470 5,920
Investment certificates - restricted .................................. 13,132 -
Letter of credit deposits.............................................. 13,471 12,138
Lease security deposits................................................ 37,919 18,542
Other.................................................................. 9,411 7,429
-------------- --------------
Total assets..................................................... $ 218,412 $ 183,169
============== ==============
Liabilities and Stockholders' Equity
Current portion of long-term debt...................................... $ 3,304 $ 286
Unsecured line of credit............................................... 20,650 -
Current portion of deferred gain on sale of property................... 806 806
Accrued interest payable............................................... 878 566
Accounts payable and accrued expenses.................................. 6,971 4,256
Other.................................................................. 509 344
-------------- --------------
Total current liabilities........................................ 33,118 6,258
-------------- --------------
Long-term debt, less current portion................................... 92,650 95,881
Tenant refundable entrance fees and security deposits.................. 5,007 4,377
Deferred lease liability............................................... 2,637 1,811
Deferred gain on sale of property, less current portion................ 16,318 16,922
-------------- --------------
Total liabilities................................................ 149,730 125,249
-------------- --------------
Stockholders' Equity
Common stock, $.01 par value, 75,000 shares authorized, 9,572
and 9,175 shares issued and outstanding at September 30, 1998
and December 31, 1997, respectively................................ 96 92
Additional paid-in-capital............................................. 63,696 57,383
Retained earnings...................................................... 4,890 445
-------------- --------------
Total stockholders' equity....................................... 68,682 57,920
-------------- --------------
Total liabilities and stockholders' equity....................... $ 218,412 $ 183,169
============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three months ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenue
Resident fees............................................... $ 18,868 $ 11,192
Development fees............................................ 1,542 -
Management fees............................................. 72 50
--------------- --------------
Total revenue........................................ 20,482 11,242
--------------- --------------
Expenses
Facility operating.......................................... 10,715 5,795
General and administrative.................................. 1,280 659
Lease expense............................................... 4,790 2,566
Depreciation and amortization............................... 1,146 1,158
--------------- --------------
Total operating expenses............................. 17,931 10,178
--------------- --------------
Income from operations............................... 2,551 1,064
Interest income............................................. 1,277 274
Interest expense............................................ (1,033) (1,158)
--------------- --------------
Income before income tax (expense) benefit........... 2,795 180
Income tax (expense) benefit................................ (982) 10
--------------- --------------
Net income........................................... $ 1,813 $ 190
=============== ==============
Basic earnings per common share............................. $ 0.19 $ 0.03
=============== ==============
Weighted average shares used for computing
basic earnings per common share......................... 9,569 7,175
=============== ==============
Diluted earnings per common share........................... $ 0.19 $ 0.03
=============== ==============
Weighted average shares used for computing
diluted earnings per common share....................... 9,771 7,317
=============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
Brookdale Living Predecessor
Brookdale Living Communities, Inc. Properties
Communities, Inc. period from period from
nine months May 7, 1997 January 1, 1997
ended through through
September 30, 1998 September 30, 1997 May 6, 1997
------------------ ------------------- ----------------
<S> <C> <C> <C>
Revenue
Resident fees............................................... $ 51,723 $ 17,731 $ 10,473
Development fees............................................ 4,120 - -
Management fees............................................. 188 82 -
--------------- ------------- --------------
Total revenue........................................ 56,031 17,813 10,473
--------------- ------------- --------------
Expenses
Facility operating.......................................... 28,993 9,278 5,872
General and administrative.................................. 3,776 1,137 -
Lease expense............................................... 12,782 4,110 3,042
Depreciation and amortization............................... 3,577 1,849 857
Property management fees.................................... - - 230
--------------- ------------- --------------
Total operating expenses............................. 49,128 16,374 10,001
--------------- ------------- --------------
Income from operations............................... 6,903 1,439 472
Interest income............................................. 2,918 400 68
Interest expense............................................ (2,891) (1,873) (830)
--------------- ------------- --------------
Income (loss) before minority interest and income
tax (expense) benefit............................. 6,930 (34) (290)
Minority interest........................................... - - (138)
Income tax (expense) benefit................................ (2,485) 143 (236)
--------------- ------------- --------------
Net income (loss).................................... $ 4,445 $ 109 $ (664)
=============== ============== ==============
Basic earnings per common share............................. $ 0.47 $ 0.02
=============== ==============
Weighted average shares used for computing
basic earnings per common share......................... 9,489 7,051
=============== ==============
Diluted earnings per common share........................... $ 0.46 $ 0.02
=============== ==============
Weighted average shares used for computing
diluted earnings per common share....................... 9,738 7,144
=============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
Brookdale Living Predecessor
Brookdale Living Communities, Inc. Properties
Communities, Inc. period from period from
nine months May 7, 1997 January 1, 1997
ended through through
September 30, 1998 September 30, 1997 May 6, 1997
------------------ ------------------ ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)........................................... $ 4,445 $ 109 $ (664)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 3,577 1,849 857
Deferred income taxes................................ 2,437 (143) -
Minority interest.................................... - - 138
Change in deferred lease liability................... 826 560 419
Deferred gain on sale of property.................... (604) (323) (281)
Changes in:
Accounts receivable............................... (387) (253) (61)
Prepaid expenses and other........................ (6,034) (2,587) (110)
Accrued interest payable.......................... 312 170 111
Accounts payable and accrued expenses............. 1,815 863 431
Other current liabilities......................... (1,333) (1,275) 1,022
Tenant refundable entrance fees
and security deposits......................... (67) (9) 35
---------------- -------------- --------------
Net cash provided by (used in)
operating activities...................... 4,987 (1,039) 1,897
---------------- -------------- --------------
Cash Flows from Investing Activities
Lease security deposits and acquisitions................ (18,647) (30,266) -
Increase in cash - restricted........................... (280) (579) (1,180)
Increase in investments - restricted.................... (13,132) - -
Property under development, net of related payables..... (15,680) (4,546) (2)
Proceeds from sale of property under development, net... 3,370 - -
Payments received on notes receivable................... 7,446 - -
Additions to property, plant and equipment
and reimbursable leasehold improvements................ (4,940) (575) (149)
---------------- -------------- --------------
Net cash used in investing activities......... (41,863) (35,966) (1,331)
---------------- -------------- --------------
Cash Flows from Financing Activities
Repayment of long-term debt............................. (213) (110) -
Proceeds from unsecured line of credit.................. 28,150 - -
Repayment of unsecured line of credit................... (7,500) - -
Increase in letter of credit deposit.................... (1,333) (11,702) -
Payment of deferred financing costs..................... (957) (50) (287)
Net distributions to partners........................... - - (2,594)
Proceeds from issuance of common stock, net............. 5,847 51,354 -
---------------- -------------- --------------
Net cash provided by (used in) financing
activities................................ 23,994 39,492 (2,881)
---------------- -------------- --------------
Net (decrease) increase in cash and cash
equivalents............................... (12,882) 2,487 (2,315)
Cash and cash equivalents at beginning
of period................................. 13,292 1,915 4,230
---------------- -------------- --------------
Cash and cash equivalents at end of period.... $ 410 $ 4,402 $ 1,915
================ ============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-7-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
Brookdale Living Predecessor
Brookdale Living Communities, Inc. Properties
Communities, Inc. period from period from
nine months May 7, 1997 January 1, 1997
ended through through
September 30, 1998 September 30, 1997 May 6, 1997
------------------ ------------------ ---------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized................... $ 3,056 $ 1,988 $ 723
================== ================== ===============
Income taxes paid........................................... $ 651 $ - $ -
================== ================== ===============
Supplemental Schedule of Noncash Investing
and Financing Activities:
In connection with property acquisitions and net lease
transactions, assets acquired and liabilities
assumed were as follows:
Fair value of assets acquired.......................... $ 19,516 $ 68,545 $ -
Less: Cash consideration paid.......................... 17,319 30,266 -
------------------ ------------------ ---------------
Liabilities assumed.................................... $ 2,197 $ 38,279 $ -
================== ================== ===============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-8-
<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") was incorporated in
Delaware on September 4, 1996 and commenced operations upon the completion of
its initial public offering (the "IPO"), which closed on May 7, 1997.
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
certain of its affiliates (collectively, "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 September 30, 1998 (collectively, the
"Properties").
Property Name Date Owned or Leased
- ------------- --------------------
Owned Facilities:
- -----------------
The Heritage (1) May 7, 1997
The Devonshire (1) May 7, 1997
Hawthorn Lakes May 7, 1997
Edina Park Plaza May 7, 1997
Leased Facilities:
- ------------------
The Hallmark (1) May 7, 1997
The Springs of East Mesa (1) May 7, 1997
The Gables at Brighton (1) May 7, 1997
The Park Place May 7, 1997
The Gables at Farmington November 24, 1997
The Classic at West Palm Beach December 18, 1997
The Brendenwood Retirement Community December 22, 1997
Harbor Village March 6, 1998
The Atrium of San Jose May 12, 1998
The Chatfield July 2, 1998
Managed Facilities:
- -------------------
The Island on Lake Travis (2)
The Kenwood (3)
Development Projects Under Construction(4):
- -------------------------------------------
Austin, Texas
Southfield, Michigan
Raleigh, North Carolina
Glen Ellyn, Illinois
New York (Battery Park City), New York
(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 developing these projects for third party owners.
-9-
<PAGE>
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 include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments 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 these estimates.
Development Fees
Development fees are recognized in the period earned.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
3. Recent Developments
On April 15, 1998, the Company purchased land in Raleigh, North Carolina
(the "Raleigh Project") 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 June 30, 1998, the
Company sold the Raleigh Project to an unaffiliated third party, at cost
including additional costs of development incurred prior to such sale. The sales
price for the Raleigh Project was $2,903, of which $1,000 was received in cash
and $1,903 was received by the delivery of a promissory note bearing interest at
9.0% per annum. The Company continues to develop the Raleigh Project pursuant to
a development agreement with the owner.
On July 2, 1998, the Company entered into an agreement to lease The
Chatfield, a 125-unit senior independent living facility located in West
Hartford, Connecticut. The lease is an operating lease with an initial five-
year term and five one-year renewal terms, and annual lease payment amounts of
approximately $1,025 through the initial lease term. In connection with the
lease, the Company funded a security deposit of approximately $5,300.
On July 16, 1998, the Company increased its unsecured revolving line of
credit with LaSalle National Bank to $25,000. The maturity date for the amended
line of credit was revised so that the loan must be paid down to $10,000 upon
the earlier of the completion of an offering of securities or November 30, 1998
(see Note 7). The remaining $10,000 line of credit will continue to bear
interest according to the original terms of the loan agreement at prime plus
1/2% per annum.
On July 23, 1998, the Company sold a development site located in Glen
Ellyn, Illinois (the "Glen Ellyn Project") to an unaffiliated third party, at
cost including additional costs of development incurred prior to such sale. The
sales price for the Glen Ellyn Project was $4,125, of which $1,400 was received
in cash and $2,725 was received by the delivery of a promissory note bearing
interest at 9.0% per annum. The Company will develop the Glen Ellyn Project
pursuant to a development agreement with the owner. On October 26, 1998,
construction financing of $31,125 was put into place for the Glen Ellyn Project.
On September 28, 1998, the Company transferred to an unafilliated third
party certain benefits associated with the Company's right to develop a site
located in Battery Park City, New York, New York (the "Battery Park Project").
The price received by the Company was $2,150, of which $750 was received in cash
and $1,400 was received by the delivery of a promissory note bearing interest at
9.0% per annum. The Company will develop the Battery Park Project pursuant to a
development agreement with the transferee.
-10-
<PAGE>
4. 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 sale of a
property and state income taxes.
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended September 30, 1998 and September
30, 1997, the nine months ended September 30, 1998 and the period from May 7,
1997 through September 30, 1997.
<TABLE>
<CAPTION>
Period from
Three Months Three Months Nine Months May 7, 1997
Ended Ended Ended Through
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per common share $ 1,813 $ 190 $ 4,445 $ 109
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per
share - weighted-average shares 9,569 7,175 9,489 7,051
Effect of dilutive securities:
Employee stock options 202 142 249 93
Warrants - - - -
-------- -------- -------- --------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions 9,771 7,317 9,738 7,144
======== ======== ======== ========
Basic earnings per share $ 0.19 $ 0.03 $ 0.47 $ 0.02
======== ======== ======== ========
Diluted earnings per share $ 0.19 $ 0.03 $ 0.46 $ 0.02
======== ======== ======== ========
</TABLE>
During the nine months ended September 30, 1998, certain employees
exercised stock options. The Company received a tax benefit with respect to the
exercise of non-qualified stock options and the disqualifying disposition of
incentive stock options of approximately $470 which was credited to additional
paid-in capital.
6. Pro Forma Information
On October 21, 1998, the Company entered into an agreement to lease the
Ponce de Leon facility, a 145-unit facility located in Santa Fe, New Mexico. The
lease is an operating lease with an initial five-year term and five one-year
renewal terms, and annual lease payment amounts of approximately $1,200 through
the initial lease term. In connection with the lease, the Company funded
approximately a lease security deposit of $4,750.
Without including the impact of the leasing of the Ponce de Leon facility
described above the pro forma operations, revenue, net income, basic earnings
per share and diluted earnings per share would be $20,491, $1,813, $0.19 and
$0.19, respectively, for the three months ended September 30, 1998 and $18,311,
$845, $0.12 and $0.12, respectively, for the three months ended September 30,
1997 and $60,660, $4,807, $0.51 and $0.49, respectively, for the nine months
ended September 30, 1998 and $54,016, $1,277, $0.18 and $0.18, respectively, for
the nine months ended September 30, 1997.
The 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 Company had leased the
Ponce de Leon facility and completed the December, 1997 follow-on offering of
2,300 shares of common stock at the beginning of each period presented, nor do
they purport to represent the results of operations of the Company for future
periods.
-11-
<PAGE>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue $21,340 $19,159 $63,206 $56,561
Net income 1,930 962 5,157 1,628
Basic earnings per share 0.20 0.13 0.54 0.23
Diluted earnings per share 0.20 0.13 0.53 0.23
7. Subsequent Events
On October 19, 1998, the Company entered into definitive agreements to
purchase both a 274-unit senior and assisted living facility located in Redwood
City, California and an approximate 300-unit senior and assisted living facility
in the northeastern United States. The closing of the purchases of these
facilities 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.
On November 13, 1998, the Company sold 2,000 shares of common stock at
$16.50 which is scheduled to close on November 18, 1998. The Company granted the
underwriters an option to purchase up to 300 additional shares at $16.50.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion is based on the Consolidated Financial Statements
of the Company as of September 30, 1998 and December 31, 1997, and for the nine
months ended September 30, 1998 and the period from May 7, 1997 through
September 30, 1997 and the Combined Statement of Operations of Predecessor
Properties for the period from January 1, 1997 to May 6, 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
Consolidated 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, leased or developed 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 September 30, 1998, the Company operated 16 senior independent and
assisted living facilities containing a total of 3,470 units. Four facilities
are owned by the Company, ten facilities are leased by the Company and two
facilities (one of which is owned by PGI) are managed by the Company 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 leasing units, providing
basic care services, and, in certain instances, providing supplemental care
services to residents. Basic care services include meal service, housekeeping
-12-
<PAGE>
services within the resident units, 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 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, and
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, bathing, eating and medication administration or
reminders. The Company plans to expand its supplemental service offerings, as
permitted by applicable licensing, in order to capture incremental revenue and
enable its residents to remain in its facilities longer. Resident fees typically
are paid monthly by residents, their families or other responsible parties. As
of September 30, 1998, over 99% 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 PGI and a
third party 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 such fees are recognized as revenues when management services are rendered.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses, which include facility 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 nine months ended September 30, 1998 to nine months ended
September 30, 1997
For the nine months ended September 30, 1998, results reflect the
operations of the Company's 16 facilities. For the nine months ended September
30, 1997, results reflect the operations of the Predecessor's five facilities,
the operations of the Company's three properties acquired at the IPO and the
management by the Company of two facilities after the IPO.
Revenue. Total revenue increased by $27.7 million, or 98.1%, to $56.0
million for the nine months ended September 30, 1998 when compared to the nine
months ended September 30, 1997. Resident fees increased by $23.5 million, or
83.4%, to $51.7 million. Of this increase, approximately $1.1 million (or a
"same store" increase of 4.7%) reflects an increase in resident fees at the
properties that have been operated during both periods, which resulted primarily
from increases in monthly charges under residency agreements. Approximately
$22.4 million of such increase reflects revenue from facilities acquired, leased
or managed subsequent to the IPO. The remaining $4.2 million of the total
revenue increase reflects revenue from development and management fees
associated with projects being developed and managed by the Company for
unaffiliated third parties.
Operating Expenses. Total operating expenses increased by $22.8 million, or
86.3%, to $49.1 million for the nine months ended September 30, 1998 when
compared to the nine months ended September 30, 1997. Facility operating
expenses increased by $13.8 million, or 91.4%, to $29.0 million primarily due to
the addition of the expenses of the facilities acquired or leased subsequent to
the IPO. From the commencement of its operations on May 7, 1997, the Company has
managed all of its facilities and, accordingly, incurred general and
administrative expenses of approximately $3.8 million for the nine months ended
September 30, 1998 compared to $1.1 million for the period from May 7, 1997
through September 30, 1997. For the period January 1, 1997 through May 6, 1997,
two of the Predecessor Properties incurred property management fees of
approximately $230,000.
Lease expense increased by approximately $5.6 million, or 78.7%, to $12.8
million for the nine months ended September 30, 1998 when compared to the nine
months ended September 30, 1997 due primarily to the addition of lease expense
for the facilities leased subsequent to the IPO. Depreciation and amortization
increased by approximately $871,000, or 32.2%, to $3.6 million for the nine
months ended September 30, 1998 when compared to the nine months ended September
30, 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 two of the IPO Properties acquired on May 7, 1997.
Interest income increased by approximately $2.5 million to $2.9 million for
the nine months ended September 30, 1998 when compared to the nine months ended
September 30, 1997 due to an increase in average cash balances and various
deposits and restricted investments.
Net Income. For the nine months ended September 30, 1998, the Company
generated net income of approximately $4.4 million, as compared to a net loss of
$555,000 for the nine months ended September 30, 1997, primarily due to the
changes in revenue and expenses described above.
-13-
<PAGE>
Comparison of three months ended September 30, 1998 to three months ended
September 30, 1997
For the three months ended September 30, 1998, results reflect the
operations of the Company's 16 facilities. For the three months ended September
30, 1997, results reflect the operations of the Company's ten facilities.
Revenue. Total revenue increased by $9.2 million, or 82.2%, to $20.5
million for the three months ended September 30, 1998 when compared to the three
months ended September 30, 1997. Resident fees increased by $7.7 million, or
68.6%, to $18.9 million. Of this increase, approximately $496,000 (or a "same
store" increase of 4.5%) reflects an increase in resident fees at the properties
that have been operated during both periods, which resulted primarily from
increases in monthly charges under residency agreements. Approximately $7.2
million of such increase reflects revenue from facilities acquired, leased or
managed subsequent to June 30, 1997. The remaining $1.5 million of the total
revenue increase reflects revenue from development and management fees
associated with projects being developed and managed by the Company for
unaffiliated third parties.
Operating Expenses. Total operating expenses increased by $7.8 million, or
76.2%, to $17.9 million for the three months ended September 30, 1998 when
compared to the three months ended September 30, 1997. Facility operating
expenses increased by $4.9 million, or 84.9%, to $10.7 million primarily due to
the addition of the expenses of the facilities acquired or leased subsequent to
June 30, 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
September 30, 1998 compared to $659,000 for the three months ended September 30,
1997.
Lease expense increased by approximately $2.2 million, or 86.7%, to $4.8
million for the three months ended September 30, 1998 when compared to the three
months ended September 30, 1997 due to the addition of lease expense for the
facilities leased subsequent to June 30, 1997.
Interest income increased by approximately $1.0 million to $1.3 million for
the three months ended September 30, 1998 when compared to the three months
ended September 30, 1997, due to an increase in average cash balances and
various deposits and restricted investments.
Net Income. For the three months ended September 30, 1998, the Company
generated net income of approximately $1.8 million, as compared to net income of
$190,000 for the three months ended September 30, 1997, primarily due to the
changes in revenue and expenses described above.
Liquidity and Capital Resources
Cash and cash equivalents (which does not include cash and
investments-restricted of $20.6 million, the letter of credit deposit of $13.5
million and lease security deposits of $37.9 million) decreased by $12.9 million
to $410,000 at September 30, 1998 as compared to December 31, 1997 primarily due
to cash utilized for the acquisition, leasing and development of facilities
offset in part by the proceeds from equity offerings and borrowings under the
unsecured line of credit.
Net cash provided by operating activities for the nine months ended
September 30, 1998 totaled approximately $5.0 million as a result of increased
property operations before depreciation and amortization and properties acquired
and leased subsequent to December 31, 1997.
Net cash used in investing activities totaled approximately $41.9 million
for the nine months ended September 30, 1998. Investing activities included cash
paid for lease security deposits in connection with the lease of four facilities
of $18.6 million, cash paid for property under development of $15.7 million, net
of sale proceeds, payments received on notes receivable of $7.4 million, an
increase in cash and investments-restricted of $13.4 million and other uses of
$1.6 million.
Net cash provided by financing activities was approximately $24.0 million
for the nine months ended September 30, 1998. Financing activities included
proceeds from equity offerings of $4.7 million, $1.1 million from the exercise
of employee stock options and net proceeds from an unsecured line of credit of
$20.7 million offset by other net uses of approximately $2.5 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 at least three
new facilities per year containing approximately 220 units. 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 September
30, 1998, the Company had five facilities under construction and several sites
under consideration for development for new senior independent and assisted
living facilities. Capital expenditures related to the Company's existing
facilities are estimated to be approximately $5.0 million to $10.0 million in
the aggregate in 1998. The Company anticipates that it will use a combination of
cash on hand, additional equity financing and debt financing, lease transactions
and cash generated from operations to fund its acquisition and development
activities. 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
-14-
<PAGE>
commitment, arrangement or understanding regarding financing to fund the debt
portion of the Company's acquisition and development plans other than the
follow-on offering of common stock scheduled to be completed November 18, 1998,
and the $100.0 million commitment from The Capital Company of America (successor
to Nomura Asset Capital Corporation) for development projects of which
approximately $51 million is committed to the Austin, Texas and Southfield,
Michigan 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 September 30, 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 3.6%
during the nine months ended September 30, 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.
As of September 30, 1998, the Company also had $20.7 million outstanding
under its unsecured line of credit at a floating rate of prime plus 1/2%. The
interest rate on the line was at 9% during the three months ended September 30,
1998.
The Company is dependent on third-party financing for its acquisition,
leasing and development programs. Financing obtained in the future is generally
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 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 future results of operations.
Impact of Recently Issued Accounting Standards
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Cost of Start-Up Activities" (SOP
98-5) which is effective for fiscal years beginning after December 15, 1998. SOP
98-5 provides guidance on financial reporting of start-up costs and organization
costs. Adoption of SOP 98-5 is not anticipated to affect the financial position
or results of operations of the Company.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
FASB 133, "Accounting for Derivative Investments and Hedging Activities" which
is effective for fiscal years beginning after June 15, 1999. FASB 133 provides
guidance for the recognition and measurement of derivatives and hedging
activities. Adoption of FASB 133 is not anticipated to affect the financial
position or results of operations of the Company.
Impact of Inflation
Resident fees from senior independent and assisted living facilities owned
or leased by the Company, management fees from facilities managed by the Company
for third parties and development fees from facilities developed by the Company
for third parties are the Company's 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
allow for adjustments in the monthly fees payable thereunder upon each
anniversary of the commencement of the residency agreement, thereby enabling the
Company to seek increases in monthly fees due to inflation, demand or other
factors. Any such increase would be subject to market and competitive
conditions. The Company believes, however, that the ability to adjust the
monthly fees payable under the residency agreements on an annual basis 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 September 30, 1998, approximately
$85.7 million in principal amount of the Company's indebtedness bore interest at
floating rates (including $65.0 million at the tax-exempt bond floating rate of
approximately 3.6% for nine months ending September 30, 1998) 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 has implemented a program to assess, remediate and mitigate the
potential impact of the Year 2000 Issue throughout the Company. The Company's
program has been structured to address its internal computer systems and
applications, network services operations, facilities operations and third-party
vendors and suppliers. The Company believes that it is taking the necessary
steps within its control to mitigate the potential impact of the Year 2000 Issue
on the Company.
-15-
<PAGE>
Information Systems
The Company intended to replace its accounting system prior to the
assessment of its Year 2000 Issue. The Company expects that the replacement of
its current system will mitigate the impact of the Year 2000 Issue on its
accounting operations. The corporate software selection has been completed and a
contract has been signed in the third quarter of 1998 to commence development
and implementation in the fourth quarter 1998. The Company is in the process of
identifying replacement software at the facilities it owns or operates and is
expected to select a replacement in the first quarter 1999. The Company
anticipates completing the corporate project no later than the second quarter
1999 and the facilities' project no later than the second quarter 1999.
Facilities
The Company has commenced an assessment of each facility, including an
assessment of infrastructure equipment such as elevators, HVAC and security
systems, and other critical service provider readiness issues. The Company
anticipates completing its preliminary assessment by December 31, 1998. During
the first half of 1999, the Company will undertake contingency planning for its
facilities as necessary.
Third-Party Vendors and Suppliers
The Company's approach to third-party suppliers involves the process of
identification and prioritization critical suppliers and communicating with them
about their plans and progress in addressing the Year 2000 Issue. This
evaluation and the subsequent contingency planning will be undertaken during the
first half of calendar 1999.
Costs
The final cost to complete the project has not yet been determined.
However, the estimated total cost is not expected to be material to the
Company's financial position.
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. Although the
Company intends to continue preparations for Year 2000, it is not possible to
quantify potential indirect effects resulting from the lack of readiness of any
third party with whom the Company conducts its business.
Readers are cautioned that forward-looking statements contained in the Year
2000 disclosure should be read in conjunction with the Company's disclosure
under the heading "Cautionary Statements" on page 12.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
-16-
<PAGE>
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 and Use of Proceeds.
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
-17-
<PAGE>
Exhibit
Number Description
------- -----------
10.1 Lease, dated as of July 1, 1998, by and between Brookdale
Living Communities of Connecticut-WH, Inc., as lessee, and The
Chatfield Business Trust, S.T., as lessor-owner, as filed with
the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.1 to the Company's Form 8-K dated July 2, 1998 (File
No. 0-22253) and incorporated herein by reference
10.2 Fixed Rate Program Promissory Note Secured by Mortgage, dated
July 1, 1998, from The Chatfield Business Trust, S.T., as
maker, payable to the order of Heller Financial, Inc., as filed
with the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.2 to the Company's Form 8-K dated July 2, 1998 (File
No. 0-22253) and incorporated herein by reference
10.3 Guaranty, dated as of July 1, 1998, issued by Brookdale Living
Communities of Connecticut-WH, Inc. in favor of Heller
Financial, Inc., as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.3 to the Company's
Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated
herein by reference
10.4 Certificate A Pledge Agreement, dated as of July 1, 1998, by
Brookdale Living Communities of Connecticut-WH, Inc. in favor
of The Chatfield Business Trust, S.T., Wilmington Trust Company
and LaSalle National Bank, as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.4 to the
Company's Form 8-K dated July 2, 1998 (File No. 0-22253) and
incorporated herein by reference
10.5 Certificate B Pledge Agreement, dated as of July 1, 1998, by
Brookdale Living Communities of Connecticut-WH, Inc. in favor
of The Chatfield Business Trust, S.T., Wilmington Trust Company
and LaSalle National Bank, as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.5 to the
Company's Form 8-K dated July 2, 1998 (File No. 0-22253) and
incorporated herein by reference
10.6 Hazardous Substance Indemnification Agreement, dated as of July
1, 1998, from Brookdale Living Communities of Connecticut-WH,
Inc. and Brookdale Living Communities, Inc. in favor of Heller
Financial, Inc., as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.6 to the Company's
Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated
herein by reference
10.7 Indemnity Agreement, dated as of July 1, 1998, from Brookdale
Living Communities, Inc. in favor of Wilmington Trust Company
and Bank Hapoalim, B.M., as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.7 to the
Company's Form 8-K dated July 2, 1998 (File No. 0-22253) and
incorporated herein by reference
10.8 Letter Agreement regarding liability for carve-outs to
non-recourse provisions, dated July 1, 1998, issued by
Brookdale Living Communities, Inc. in favor of Heller
Financial, Inc., as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.8 to the Company's
Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated
herein by reference
10.9 First Amendment to Loan Agreement and Documents, dated as of
July 16, 1998, by and between the Company and LaSalle National
Bank
10.10 Amended and Restated Note dated July 16, 1998 issued by the
Company payable to the order of LaSalle National Bank
12 Computation of Ratio of Earnings to Combined Fixed Charges
27 Financial Data Schedule
-18-
<PAGE>
(b) Reports on Form 8-K:
On July 14, 1998, the Company filed a Current Report on Form 8-K/A
dated May 12, 1998 with the Securities and Exchange Commission including
pursuant to Item 7 of Form 8-K/A the audited statements of The Atrium of San
Jose which was leased by the Company on May 12, 1998 and the unaudited pro forma
statements of the Company reflecting all acquisitions and leases through The
Atrium of San Jose.
On July 16, 1998, the Company filed a Current Report on Form 8-K dated
June 25, 1998 with the Securities and Exchange Commission announcing pursuant to
Item 5 of Form 8-K the Company's $100,000,000 financing agreement with Nomura
Asset Management Corporation, providing financing for the development and
construction of senior living facilities to be owned or developed and managed by
the Company or an affiliate of the Company.
On July 16, 1998, the Company filed a Current Report on Form 8-K dated
July 2, 1998 with the Securities and Exchange Commission announcing pursuant to
Item 2 of Form 8-K the lease of The Chatfield which commenced on July 2, 1998.
On July 17, 1998, the Company filed a Current Report on Form 8-K dated
June 30, 1998 with the Securities and Exchange Commission announcing pursuant to
Item 5 of Form 8-K the Development Agreement for a construction site in Raleigh,
North Carolina.
-19-
<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: November 16, 1998 /s/ Mark J. Schulte
----------------- ----------------------------------
Mark J. Schulte
President and
Chief Executive Officer
Date: November 16, 1998 /s/ Darryl W. Copeland, Jr.
----------------- ----------------------------------
Darryl W. Copeland, Jr.
Executive Vice President and
Chief Financial Officer
-20-
FIRST AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS
THIS FIRST AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS, dated as of July
, 1998 (this "Amendment"), is entered into by and between BROOKDALE LIVING
COMMUNITIES, INC., a Delaware corporation (the "Borrower"), and LaSALLE NATIONAL
BANK, a national banking association (the "Bank").
WITNESSETH
WHEREAS, Borrower has previously executed and delivered to the Bank a
certain Note dated April 27, 1998 in the original principal amount of up to
Fifteen Million Dollars ($15,000,000.00) evidencing a certain loan (the "Loan")
set forth more fully in and governed by a certain Loan Agreement of that same
date to which the Bank is also a party ("Loan Agreement");
WHEREAS, subject to the terms and conditions of this Amendment,
Borrower has requested the Bank (a) to increase the principal amount of the Loan
by $10,000,000, on an interim basis only, from $15,000,000 to $25,000,000, and
(b) to permit a portion of the Loan to be reserved for the issuance of standby
letters of credit by the Bank to and for the benefit municipalities and other
governmental units in connection with projects developed by Borrower from time
to time.
WHEREAS, Borrower and the Bank desire to modify the Loan Agreement and
the Documents to reflect the modified terms of the Loan as set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
Incorporation of Recitals. The above and foregoing recitals are
incorporated into and made a part of this Amendment. All capitalized terms used
herein, if not otherwise specifically defined, shall have the meanings and
definitions prescribed in the Loan Agreement and the Documents referred to
therein.
Interim Maturity Date. For purposes of this Amendment and the
Documents, the term "Interim Maturity Date" shall mean the earlier of (a) a date
certain which is ninety (90) days after the date of this Amendment, or (b) a
date certain which is the date on which Borrower closes on an offering of
Borrower's convertible preferred stock or convertible debt securities with a
minimum aggregate sales price (before underwriting commissions and discounts and
other expenses relating to such sale) of $50,000,000.00 which in all cases shall
be subordinate to the Loan (the "Offering").
Increased Loan Commitment. As of the date of this Amendment, the Loan
Agreement and the Documents are hereby amended to increase the principal amount
of the Loan and Maximum Revolving Loan Commitment from $15,000,000.00 to an
amount not to exceed $25,000,000.00 until the Interim Maturity Date on which
date, without further notice or demand (a) Borrower shall pay amounts necessary
to reduce the outstanding principal balance of the Loan, including any portion
of the Loan comprised of an LC Reserve (as hereafter defined) to (i)
$10,000,000.00 or less if the Offering has occurred, or (ii) $15,000,000.00 if
the Offering has not occurred, and (b) the Maximum Revolving Loan Commitment
shall be permanently reduced to an amount not to exceed (i) $10,000,000.00 if
the Offering has occurred, or (ii) $15,000,000.00 if the Offering has not
occurred.
-1-
<PAGE>
Letters of Credit. Provided Borrower is otherwise in compliance with
all terms and conditions of the Loan Agreement, the Documents and this
Amendment, the Bank agrees to issue from time to time from the date of this
Amendment to and including April 1, 1999, standby letters of credit (a "Letter
of Credit" and, collectively, the "Letters of Credit") for the account of
Borrower to and for the benefit of municipalities and other units of government
in order to guarantee Borrower's completion of public improvements required by
those entities in connection with Borrower's development projects, all subject
to the conditions of this Section 4 and which, when added to: (a) the aggregate
amount of all other Letters of Credit outstanding, issued or approved by the
Bank as of the proposed issuance date, and (b) the aggregate amount of Loan
Advances outstanding as of the proposed issuance date, will not exceed the
Maximum Revolving Loan Commitment in effect as of the proposed issuance date.
The Letters of Credit shall also be subject to the following conditions:
Application and Agreement. As a condition of the Bank's
obligation to issue a particular Letter of Credit, Borrower, through
the Authorized Borrower Representative, shall notify the Bank of the
particulars of the Letter of Credit not less than three (3) business
days in advance, and Borrower shall provide such borrowing resolutions
and information, and execute such applications, documents and
agreements as are required by the Bank, including without limitation,
the Bank's standard form of application and credit agreement. ("LC
Documents").
Reserve. The stated amount of each Letter of Credit issued by
the Bank shall reduce the amount of the Maximum Revolving Loan
Commitment then in effect in accordance with the terms of this
Agreement on a dollar for dollar basis ("LC Reserve").
Expiry. The Bank shall not issue any Letter of Credit with an
expiry date later than April 1, 1999.
Fee. Borrower shall pay the Bank a fee in the amount of one
percent (1%) per annum of the stated amount of each Letter of Credit
issued by the Bank at the request of Borrower, fully earned and payable
quarterly in advance. If the Letter of Credit expires during the
quarter, the fee shall be pro-rated based upon the number of days in
the quarter that the Letter of Credit is outstanding. As a condition to
the issuance of each Letter of Credit, Borrower shall pay the Bank the
quarterly portion of the Letter of Credit fee stated in the preceding
sentence.
Payment. Each drawing under the Letter of Credit (an "LC
Drawing") shall constitute a Loan advance under the Loan Agreement and
shall be payable in accordance with the terms and provisions of the
Loan Agreement with respect to other Loan Advances. Borrower's
obligation to pay all LC Drawings shall be absolute, irrevocable,
unconditional and without setoff under any and all circumstances
whatsoever, including, without limitation, any of the following,
whether or not with notice to, or the consent of, Borrower:
Any lack of validity or enforceability of a Letter of
Credit, the Loan Agreement, the LC Documents or any of the LC
Documents;
The existence of any claim, set-off, defense or other
right which Borrower may have at any time against the
beneficiary of a Letter of Credit, the Bank or any other
person or entity, whether in connection with the transactions
contemplated herein or therein or any unrelated transaction;
-2-
<PAGE>
Any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
Payment by the Bank under a Letter of Credit against
presentation of a draft or certificate which does not comply
with the terms of the Letter of Credit;
Any failure, omission, delay or lack on the part of
the Bank or any party to any of the LC Documents to enforce,
assert or exercise any right, power or remedy conferred upon
the Bank or any such party under the LC Documents, or any
other acts or omissions on the part of the Bank or any such
party;
The voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially
all the assets of Borrower, the receivership, insolvency,
bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or
readjustment or other similar proceedings affecting Borrower
or any of the assets of Borrower, or any allegation or contest
of the validity of this Amendment, the Loan Agreement, the
Letter of Credit or any of the LC Documents, in any such
proceeding; or
Any other event or action that would, in the absence
of this clause, result in the release or discharge by
operation of law of Borrower from the performance or
observance of any obligation, covenant or agreement contained
in this Amendment, the Loan Agreement, the Letter of Credit or
any of the LC Documents.
LC Documents Control. Each Letter of Credit shall be governed
by and subject to the LC Documents required to be executed by Borrower
for each such Letter of Credit. In the event of any conflict between
any of the terms of the LC Documents and any of the terms of this
Amendment, the terms of this Amendment shall control.
Maturity Date. The definition of Maturity Date in the Loan Agreement is
amended and restated to mean (a) the Interim Maturity Date as to any and all
amounts of the Loan in excess of (i) $10,000,000.00 or less if the Offering has
occurred, or (ii) $15,000,000.00 or less if the Offering has not occurred, on
which date Borrower shall pay all amounts necessary to reduce the outstanding
principal balance of the Loan, including the amount of the LC Reserve, to (A)
$10,000,000.00 or less if the Offering has occurred or (B) $15,000,000.00 or
less if the Offering has not occurred, and on which date the Maximum Revolving
Loan Commitment shall be permanently reduced to an amount not to exceed (C)
$10,000,000.00 or less if the Offering has occurred or (D) $15,000,000.00 or
less if the Offering has not occurred, and (b) April 26, 1999 as to the balance
of the Loan and all outstanding Loan Advances together with any accrued but
unpaid interest thereon and any other costs or amounts owed to the Bank under
the Loan Agreement as amended hereby.
-3-
<PAGE>
Interim Maturity Default Rate. If the outstanding principal balance of
the Loan, including the amount of the LC Reserve, is not reduced to (a)
$10,000,000.00 or less if the Offering has occurred or (b) $15,000,000.00 or
less if the Offering has not occurred by the Interim Maturity Date as required
under this Amendment, Borrower shall be considered in default under the Loan
Agreement and, in addition to all other rights and remedies available to the
Bank under the Loan Agreement, the Documents, at law or equity, any and all
amounts outstanding under the Loan Agreement shall, without notice, bear
interest payable on demand at the interest rate then in effect with respect
thereto plus four percent (4%) ("Preliminary Default Rate"), further provided
that if, within 30 days after the Interim Maturity Date as required above, the
outstanding principal balance of the Loan, including the amount of the LC
Reserve, is not reduced to (i) $10,000,000.00 or less if the Offering has
occurred, or (ii) $15,000,000.00 or less if the Offering has not occurred, any
and all amounts outstanding under the Loan Agreement shall, without notice, bear
interest payable on demand at the Preliminary Default Rate plus two percent (2%)
(Modified Default Rate"). The Preliminary Default Rate and the Modified Default
Rate are, during their pendency, in lieu of the default rate of interest set
forth in Section 2.03 of the Loan Agreement.
Execution Note. Contemporaneous with the execution of this Amendment,
Borrower has executed and delivered an Amended and Restated Note in the
principal sum of up to $25,000,000.00 evidencing the Loan as amended by and
subject to this Amendment, which Amended and Restated Note shall replace and
supersede the Note.
Payment of Fees. Contemporaneous with and as a condition of the
execution of this Agreement, Borrower shall pay the Bank a fee in the amount of
$50,000.00, which fee is deemed fully earned at the time Borrower and the Bank
execute this Amendment, as additional consideration for increasing the amount of
the Loan. Borrower shall also pay the legal fees of Bank counsel in connection
with the preparation of this Amendment and matters related thereto. In addition
to the $50,000.00 closing fee, Borrower shall continue to be obligated to pay
the Bank the Unused Commitment Fee in the amount of one-quarter of one percent
(1/4%) per annum of the average unused Maximum Revolving Loan Commitment,
excluding the LC Reserve, and as otherwise set forth in the Loan Agreement, as
amended by this Amendment.
Year 2000 Problem. Borrower and its Subsidiaries have reviewed the
areas within their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer applications used by
Borrower and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), and have made related appropriate inquiry of material
suppliers and vendors. Based on such review and program, Borrower believes that
the "Year 2000 Problem" will not have a material adverse effect on Borrower.
From time to time, at the request of the Bank, Borrower and its Subsidiaries
shall provide to the Bank such updated information or documentation as is
requested regarding the status of their efforts to address the Year 2000
Problem.
Reaffirmation. To the extent any term(s) or condition(s) in any of the
Documents shall contradict or be in conflict with the amended terms of the Loan
as set forth herein, such terms and conditions are hereby deemed modified and
amended accordingly, upon the effective date hereof, to reflect the terms of the
Loan as so amended herein. All terms of the Documents, as amended hereby, shall
be and remain in full force and effect and shall constitute the legal, valid,
binding and enforceable obligations of Borrower to the Bank. As of the date of
this Amendment, Borrower herein restates, ratifies and reaffirms each and every
term and condition set forth in the Documents as amended herein. There are no
other changes to the Documents except for the changes specifically set forth
herein.
-4-
<PAGE>
Certification. To further induce the Bank to enter into this Amendment,
Borrower represents and warrants to the Bank as follows: (a) Borrower is
empowered to perform all acts and things undertaken and done pursuant to this
Amendment and the Amended and Restated Note and has taken all corporate or other
action necessary to authorize the execution, delivery and performance of the of
this Amendment and the Amended and Restated Note; (b) the officers of Borrower
executing this Amendment and the Amended and Restated Note have been duly
elected or appointed and have been fully authorized to execute the same at the
time executed; (c) this Amendment and the Amended and Restated Note, when
executed and delivered, will be the legal, valid and binding obligation of
Borrower, enforceable against it in accordance with its respective terms; and
(d) Borrower is delivering to the Bank contemporaneously herewith, a certificate
of Borrower's Secretary certifying as to the resolutions of the Executive
Committee of Borrower's Board of Directors approving this Amendment and the
Amended and Restated Note and the incumbency and signatures of the officers of
Borrower signing this Amendment and the Amended and Restated Note.
Consent to Offering. The Bank hereby consents to the Offering and
acknowledges that the Offering shall not constitute an Event of Default under
the Loan Agreement conditioned upon the Offering being subordinate to the Loan.
Absence Of Claim. To further induce the Bank to enter into this
Amendment, Borrower hereby acknowledges and agrees that, as of the date hereof,
there exists no right of offset, defense, counterclaim or objection in favor of
Borrower as against the Bank with respect to the Obligations to the Bank.
Illinois Law To Govern. This Amendment and each transaction
contemplated hereunder shall be deemed to be made under and shall be construed
and interpreted in accordance with the laws of the State of Illinois.
Binding Effect. The terms, provisions and conditions of this Amendment
shall be binding upon and inure to the benefit of each respective party and
their respective legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
BROOKDALE LIVING COMMUNITIES, INC.
By:
Print Name:
Title:
ATTEST:
By:
Print Name:
Title:
BANK:
LaSALLE NATIONAL BANK
By:
Print Name:
Title:
-5-
AMENDED AND RESTATED NOTE
$25,000,000.00 Chicago, Illinois
July 16, 1998
FOR VALUE RECEIVED, BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation (the "Maker"), with its principal place of business at 77 West
Wacker Drive, Suite 4800, Chicago, Illinois 60601, hereby promises to pay to the
order of LaSALLE NATIONAL BANK, a national banking association (the "Bank"), at
its office at 135 South LaSalle Street, Chicago, Illinois 60603, or such other
place as Bank may direct from time to time, in lawful money of the United States
and in available funds, the principal amount of TWENTY FIVE MILLION DOLLARS
($25,000,000.00), or such lesser amount as Bank advanced to Maker hereunder
which is outstanding as of the Maturity Date, as defined in that certain First
Amendment to Loan Agreement and Documents dated the date hereof by and between
Maker and the Bank.
Maker previously executed and delivered to the Bank a certain Note
dated April 27, 1998 in the original principal amount of $15,000,000.00 (the
"Original Note") pursuant to a Loan Agreement dated April 27, 1998 (the
"Original Loan Agreement") evidencing a Loan made by the Bank to the Maker
pursuant to such Original Loan Agreement. Maker has entered into a certain First
Amendment to Loan Agreement and Documents (the "First Amendment") with the Bank
dated the date hereof amending certain terms of the Original Loan Agreement and
Documents (as defined in the Original Loan Agreement). This Amended and Restated
Note is issued pursuant to the Original Loan Agreement and Documents, as amended
by the First Amendment (the Original Loan Agreement, as amended by the First
Amendment, is herein referred to as the "Loan Agreement"). The Original Note is
amended, restated and superseded in its entirety by this Amended and Restated
Note, and any amounts outstanding under the Original Note are transferred to
this Amended and Restated Note.
The Loan evidenced by this Note constitutes a revolving credit under
applicable Laws and Maker may repay and reborrow hereunder subject to the terms
and conditions of the Loan Agreement and Documents. All advances under this
Amended and Restated Note shall bear interest in accordance with and be governed
by the terms and provisions of the Loan Agreement. All payments received from
the Maker hereunder shall be applied by the Bank in accordance with the terms of
the Loan Agreement.
The Borrower may prepay the outstanding amounts of the Loan from time
to time in whole or in part on any business day without penalty or premium.
-1-
<PAGE>
This Amended and Restated Note is issued under the Loan Agreement, and
this Amended and Restated Note and the Bank are entitled to all of the benefits,
rights and remedies provided for by the Loan Agreement or referred to therein,
to which Loan Agreement reference is made for a statement thereof. All
capitalized terms used herein which are not defined herein, but which are
defined in the Loan Agreement, shall have the meaning prescribed in the Loan
Agreement.
All unpaid amounts owing on this Amended and Restated Note or on any
other Obligations under the Loan Agreement or the other Documents immediately
shall become due and payable at the option of the Bank, without notice or
demand, upon the occurrence of any Event of Default.
In the event of default in the payment of any sums due under this
Amended and Restated Note, the Maker hereby agrees that the Bank may offset all
of Maker's money, bank or other deposits or credits now or hereafter held by the
Bank or owed by the Bank to the Maker against all amounts due under this Amended
and Restated Note or against any other amounts which may be due the Bank from
the Maker.
No clause or provision contained in this Amended and Restated Note or
any documents related hereto shall be construed or shall so operate (a) to raise
the interest rate set forth in this Amended and Restated Note above the lawful
maximum, if any, in effect from time to time in the applicable jurisdiction for
loans to borrowers of the type, in the amount, for the purposes, and otherwise
of the kind contemplated, or (b) to require the payment or the doing of any act
contrary to law, but if any clause or provision contained shall otherwise so
operate to invalidate this Amended and Restated Note, in whole or in part, then
(i) such clauses or provisions shall be deemed modified to the extent necessary
to be in compliance with the law, or (ii) to the extent not possible, shall be
deemed void as though not contained and the remainder of this Amended and
Restated Note and such document shall remain operative and in full force and
effect.
All makers and any endorsers, guarantors, sureties, accommodation
parties and all other persons liable or to become liable for all or any part of
the indebtedness evidenced by this Amended and Restated Note, jointly and
severally waive, to the extent permitted by law, except as otherwise provided in
the Loan Agreement or the other Documents, diligence, presentment, protest and
demand, and also notice of protest, of demand, of nonpayment, of dishonor and of
maturity and also recourse or suretyship defenses generally; and they also
jointly and severally hereby consent to any and all renewals, extensions or
modifications of the terms of this Amended and Restated Note, including time for
payment, and further agree that any such renewals, extension or modification of
the terms of this Amended and Restated Note or the release or substitution of
any security for the indebtedness under this Amended and Restated Note or any
other indulgences shall not affect the liability of any of the parties for the
indebtedness evidenced by this Amended and Restated Note. Any such renewals,
extensions or modifications may be made without notice to any of said parties.
-2-
<PAGE>
The Maker shall be liable to the Bank for all costs and expenses
incurred in connection with collection, whether by suit or otherwise, of any
amount due under this Amended and Restated Note, including, without limitation,
reasonable attorneys' fees, as more fully set forth in the Loan Agreement.
This Amended and Restated Note shall be governed by and construed in
accordance with the laws of the State of Illinois.
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By:
Print Name:
Title:
-3-
Exhibit 12
BROOKDALE LIVING COMMUNITIES, INC. (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
STATEMENT REGARDING COMPUTATION OF RATIOS
OF EARNINGS TO COMBINED FIXED CHARGES
(In 000's)
<TABLE>
<CAPTION>
Predecessor
Brookdale Living Communities, Inc. Historical Brookdale Living Communities, Inc.
---------------------------------- ----------- ---------------------------------
Three Months Three Months January 1, 1997 May 7, 1997 Nine Months
Ended Ended to to Ended
September 30, 1997 September 30, 1998 May 6, 1997 September 30, 1997 September 30, 1998
------------------ ------------------ ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
- --------
Income (loss) before
income tax,
preferred share
dividends per
consolidated/combined
financial statements..... $ 180 $ 2,795 $ (290) $ (34) $ 6,930
Interest cost.............. 3,760 6,030 3,872 6,019 16,333
Interest cost
(capitalized)............ (36) (333) -- (36) (935)
Amortization of debt
expense.................. 240 332 287 444 949
Preferred share dividends.. -- -- -- -- --
-------- -------- --------- -------- --------
Earnings................... $ 4,144 $ 8,824 $ 3,869 $ 6,393 $ 23,277
======== ======== ========= ======== ========
FIXED CHARGES
- -------------
Interest cost.............. $ 3,760 $ 6,030 $ 3,872 $ 6,019 $ 16,333
Amortization of debt
expense.................. 240 332 287 444 949
Preferred share dividends.. -- -- -- -- --
-------- -------- --------- -------- --------
Total fixed charges........ $ 4,000 $ 6,362 $ 4,159 $ 6,463 $ 17,282
======== ======== ========= ======== ========
Ratio of earnings to
combined fixed charges
and preferred share
dividends................ 1.04 1.39 -- -- 1.35
======== ======== ========= ======== ========
Excess (deficit) of
earnings to combined
fixed charges and
preferred share
dividends................ $ 144 $ 2,462 $ (290) $ (70) $ 5,995
======== ======== ========= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRATED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 410
<SECURITIES> 0
<RECEIVABLES> 6,629
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,986
<PP&E> 115,727
<DEPRECIATION> 4,787
<TOTAL-ASSETS> 218,412
<CURRENT-LIABILITIES> 33,118
<BONDS> 92,650
0
0
<COMMON> 96
<OTHER-SE> 68,586
<TOTAL-LIABILITY-AND-EQUITY> 218,412
<SALES> 51,723
<TOTAL-REVENUES> 56,031
<CGS> 28,993
<TOTAL-COSTS> 49,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,891
<INCOME-PRETAX> 6,930
<INCOME-TAX> (2,485)
<INCOME-CONTINUING> 4,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,445
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.46
</TABLE>
