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 or 1934
For the quarterly period ended June 30, 1999
[ ] Transition report under Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-13445.
CAPITAL SENIOR LIVING CORPORATION
---------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2678809
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
----------------------------------------------------
(Address of principal executive offices)
972-770-5600
------------
(Registrant's telephone number, including area code)
Indicate by check 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
--- ---
As of August 13, 1999, the Registrant had outstanding 19,717,347 shares of its
Common Stock, $.01 par value.
1
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<CAPTION>
CAPITAL SENIOR LIVING CORPORATION
INDEX
PAGE
NUMBER
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Part I. Financial Information
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets - -
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income - -
Three and Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - -
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature
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2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
----------- --------------
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 19,214,014 $ 35,827,270
Accounts receivable, net................................................ 3,950,304 2,955,507
Accounts receivable from affiliates..................................... 13,033,951 7,217,127
Interest receivable..................................................... 563,097 189,482
Federal and state income taxes receivable............................... 596,156 --
Deferred taxes.......................................................... 287,040 287,040
Prepaid expenses and other.............................................. 388,631 448,790
------------ ------------
Total current assets.................................................... 38,033,193 46,925,216
Property and equipment, net................................................... 117,976,570 118,943,953
Deferred taxes................................................................ 9,906,895 10,108,715
Notes receivable from affiliates.............................................. 27,709,141 11,728,162
Investments in limited partnerships........................................... 14,025,943 14,536,972
Management contract rights, net............................................... 171,667 195,631
Goodwill, net................................................................. 1,192,017 1,213,876
Deferred financing charges, net............................................... 398,248 530,531
Other assets.................................................................. 2,314,907 1,083,679
------------ ------------
Total assets...................................................... $211,728,581 $205,266,735
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 2,130,708 $ 2,780,513
Accrued expenses........................................................ 1,997,872 2,231,895
Current portion of notes payable........................................ 48,459,703 48,419,050
Customer deposits....................................................... 840,480 851,375
Federal and state income taxes payable.................................. - 1,668,602
------------- -----------
Total current liabilities......................................... 53,428,763 55,951,435
Deferred income from affiliates............................................... 1,643,672 792,240
Deferred income............................................................... 198,978 115,062
Notes payable, net of current portion......................................... 13,283,972 13,696,797
Line of credit................................................................ 19,395,275 18,974,186
Minority interest in consolidated partnership................................. 11,426,343 11,220,836
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares 15,000,000; no shares issued or outstanding..... -- --
Common stock, $.01 par value:
Authorized shares 65,000,000; issued and outstanding
19,717,347 at June 30, 1999 and December 31, 1998................. 197,173 197,173
ADDITIONAL PAID-IN CAPITAL.............................................. 91,740,251 91,740,251
Retained earnings....................................................... 20,414,154 12,578,755
------------ ------------
Total shareholders' equity........................................ 112,351,578 104,516,179
------------ ------------
Total liabilities and shareholders' equity........................ $211,728,581 $205,266,735
============ ============
</TABLE>
See accompanying notes.
3
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<TABLE>
<CAPTION>
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Resident and healthcare revenue.............. $10,009,314 $ 5,108,841 $19,911,991 $10,043,736
Rental and lease income...................... 1,102,271 1,063,469 2,195,042 2,130,970
Unaffiliated management services revenue..... 644,849 569,875 1,342,253 1,207,803
Affiliated management services revenue....... 115,013 437,635 227,265 817,084
Unaffiliated development fees................ 294,896 307,553 847,499 778,271
Affiliated development fees.................. 3,496,250 1,515,270 6,301,335 2,154,982
Other........................................ 294,489 231,557 599,302 455,469
----------- ----------- ----------- -----------
Total revenues........................... 15,957,082 9,234,200 31,424,687 17,588,315
Expenses:
Operating expenses........................... 6,022,986 3,556,435 11,991,007 7,312,415
General and administrative expenses.......... 2,249,766 1,717,563 4,355,951 3,425,378
Depreciation and amortization................ 1,133,488 563,326 2,254,201 1,123,498
----------- ----------- ----------- -----------
Total expenses........................... 9,406,240 5,837,324 18,601,159 11,861,291
----------- ----------- ----------- -----------
Income from operations............................. 6,550,842 3,396,876 12,823,528 5,727,024
Other income (expense):
Interest income.............................. 1,659,757 1,103,070 3,392,372 2,195,889
Interest expense............................. (1,490,103) (181,912) (2,968,530) (359,889)
----------- ----------- ----------- -----------
Income before income taxes and minority interest in
consolidated partnerships.................... 6,720,496 4,318,034 13,247,370 7,563,024
Provision for income taxes......................... (2,473,306) (1,664,493) (4,988,493) (2,896,745)
----------- ----------- ----------- -----------
Income before minority interest in consolidated 4,247,190 2,653,541 8,258,877 4,666,279
partnerships.................................
Minority interest in consolidated partnerships..... (264,169) (142,960) (423,478) (229,532)
----------- ----------- ----------- -----------
Net income......................................... $ 3,983,021 $ 2,510,581 $ 7,835,399 $ 4,436,747
=========== =========== =========== ===========
Net income per share:
Basic and diluted............................ $ 0.20 $ 0.13 $ 0.40 $ 0.23
----------- ----------- ----------- -----------
Weighted average shares outstanding.......... 19,717,347 19,717,347 19,717,347 19,717,347
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 7,835,399 $ 4,436,747
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................................... 2,254,202 1,123,498
Amortization of deferred financing charges....................... 302,057 --
Minority interest in consolidated partnerships................... 423,478 229,532
Deferred tax expense............................................. 201,820 201,820
Deferred income from affiliated.................................. 851,432 --
Deferred income.................................................. 83,916 139,989
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable.......................................... (994,797) (365,642)
Accounts receivable from affiliates.......................... (5,816,824) (1,878,954)
Interest receivable.......................................... (373,615) --
Prepaid expenses and other................................... 60,159 54,264
Other assets and due to affiliates........................... (1,231,228) 106,854
Federal and state income taxes............................... (2,264,758) (398,303)
Accounts payable and accrued expenses........................ (883,828) 122,047
Customer deposits............................................ (10,895) 37,052
----------- -----------
Net cash provided by operating activities.............................. 436,518 3,808,904
Investing Activities
Capital expenditures................................................... (1,242,578) (2,871,310)
Advances to affiliates................................................. (15,980,979) (4,976,205)
Distribution from (investments in) limited partnerships................ 511,029 (1,944,586)
----------- -----------
Net cash used in investing activities.................................. (16,712,528) (9,792,101)
FINANCING ACTIVITIES
Proceeds from notes payable and line of credit......................... 48,917 3,146,582
Repurchase of HCP limited partnership interests........................ (216,389) (144,791)
Deferred loan charges paid............................................. (169,774) (59,061)
----------- -----------
Net cash (used in) provided by financing activities.................... (337,246) 2,942,730
----------- -----------
Decrease in cash and cash equivalents.................................. (16,613,256) (3,040,467)
Cash and cash equivalents at beginning of period....................... 35,827,270 48,125,225
----------- -----------
Cash and cash equivalents at end of period............................. $19,214,014 $45,084,758
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Interest........................................................ $ 2,670,544 $ 339,715
=========== ===========
Income taxes.................................................... $ 7,056,182 $ 2,890,993
=========== ===========
</TABLE>
See accompanying notes.
5
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
Capital Senior Living Corporation, a Delaware corporation, was incorporated on
October 25, 1996. The accompanying consolidated financial statements include the
financial statements of Capital Senior Living Corporation (the "Company") and
its subsidiaries and limited partnerships owned and controlled by it or under
common ownership prior to the transfer of ownership in connection with the
November 5, 1997 public offering and formation transactions. All intercompany
balances and transactions have been eliminated in consolidation.
The accompanying consolidated balance sheet, as of December 31, 1998, has been
derived from audited consolidated financial statements of the Company for the
year ended December 31, 1998, and the accompanying unaudited consolidated
financial statements, as of June 30, 1999 and 1998, have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. For
further information, refer to the financial statements and notes thereto for the
year ended December 31, 1998 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 31, 1999.
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (all of which were normal recurring accruals)
necessary to present fairly the Company's financial position as of June 30, 1999
and 1998, results of operations for the three and six months ended June 30, 1999
and 1998, respectively, and cash flows for the six months ended June 30, 1999
and 1998. The results of operations for the three and six month periods ended
June 30, 1999 are not necessarily indicative of the results for the year ending
December 31, 1999.
2. TRANSACTIONS WITH AFFILIATES
Effective April 1, 1998, the Company obtained a 19% limited partnership interest
in Triad Senior Living I, L.P. ("Triad") for $330,243 in cash. The Company is
accounting for this investment under the equity method of accounting based on
the provisions of the Triad I partnership agreement. The Company is developing
senior living communities for Triad I. Additionally, the Company loaned money to
Triad I pursuant to an unsecured loan facility not to exceed $10,000,000, which
was increased to $13,000,000 on March 31, 1999 and further increased to
$15,000,000 on June 30, 1999. The principal is due March 13, 2003. The first
draw under this loan facility was made on March 12, 1998. Interest is due
quarterly at 8% per annum. This loan may be prepaid without penalty. At June 30,
1999, $13,196,930 has been advanced to Triad I under this facility. The Company
has deferred
6
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 9999
(UNAUDITED)
interest income and development fees from Triad I of $146,598, and $351,721,
respectively, as of June 30, 1999.
Effective September 23, 1998, the Company obtained a 19% limited partnership
interest in Triad Senior Living II, L.P. ("Triad II") for $74,100 in cash. The
Company is accounting for this investment under the equity method of accounting
based on the provisions of the Triad II partnership agreement. The Company is
developing senior living communities for Triad II. Additionally, the Company
loaned money to Triad II pursuant to an unsecured loan facility not to exceed
$7,000,000, which was increased to $10,000,000 on January 15, 1999. The
principal is due September 25, 2003. The first draw under this loan facility was
made on September 25, 1998. Interest is due quarterly at 10.5% per annum. This
loan may be prepaid without penalty. At June 30, 1999, $5,361,115 has been
advanced to Triad II under this loan facility. The Company has deferred interest
income and development fees from Triad II of $45,730 and $141,871, respectively,
as of June 30, 1999.
Effective November 10, 1998, the Company obtained a 19% limited partnership
interest in Triad Senior Living III, L.P. ("Triad III") for $142,500 in cash.
The Company is accounting for this investment under the equity method of
accounting based on the provisions of the Triad III partnership agreement. The
Company is developing senior living communities for Triad III. Additionally, the
Company loaned money to Triad III pursuant to an unsecured loan facility not to
exceed $10,000,000. The principal is due February 8, 2004. The first draw under
this loan facility was made on February 9, 1999. Interest is due quarterly at
10.5% per annum. This loan may be prepaid without penalty. At June 30, 1999,
$5,725,812 has been advanced to Triad III under this loan facility. The Company
has deferred interest income and development fees from Triad III of $32,292 and
$272,935, respectively, as of June 30, 1999.
Effective December 22, 1998, the Company obtained a 19% limited partnership
interest in Triad Senior Living IV, L.P. ("Triad IV") for $142,500 in cash. The
Company is accounting for this investment under the equity method of accounting
based on the provisions of the Triad IV partnership agreement. The Company is
developing senior communities for Triad IV. Additionally, the Company loaned
money to Triad IV pursuant to an unsecured loan facility not to exceed
$10,000,000. The principal is due December 30, 2003. The first draw under this
loan facility was made on December 20, 1998. Interest is due quarterly at 10.5%
per annum. This loan may be prepaid without penalty. At June 30, 1999,
$3,425,283 has been advanced to Triad IV under this loan facility. The Company
has deferred interest income and development fees from Triad IV of $19,038 and
$233,829, respectively, as of June 30, 1999.
7
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 9999
(UNAUDITED)
The management agreements with the Triad entities provide the Company with an
option to purchase the communities developed by the Triad entities upon their
completion for an amount equal to the fair market value (based on a third-party
appraisal but not less than hard and soft costs and lease-up costs). The Company
also can purchase the partnership interests of the non-Company partners for an
amount equal to the amount such party paid for its interest, plus noncompounded
interest at 12% per annum. The Company has no commitments or obligations to
acquire any properties or additional partnership interests. Also, the Company
has no commitments relating to any of the secured loan facilities of any of the
above Triad entities, except that the Company provides, to the Triad entities, a
guarantee of its subsidiaries' development agreement and management agreement,
which includes an operating deficit obligation. These guarantees have been
collaterally assigned to the Triad entities' lenders.
3. NET INCOME PER SHARE
Basic net income per share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share considers the dilutive effect of outstanding options calculated
using the treasury stock method.
The average daily price of the common stock during the first half of 1999 did
not exceed the exercise price of the options, and therefore, the options are not
considered dilutive for purposes of calculating diluted net income per share.
4. CONTINGENCIES
On or about October 23, 1998, Robert Lewis filed a putative class action
complaint on behalf of certain holders of assignee interests (the "Assignee
Interests") in NHP Retirement Housing Partners I Limited Partnership ("NHP") in
the Delaware Court of Chancery against NHP, the Company, Capital Senior Living
Properties 2-NHPCT, Inc. and Capital Realty Group Senior Housing, Inc.
(collectively, the "Defendants"). Mr. Lewis purchased ninety Assignee Interests
in February 1993 for $180. The complaint alleges, among other things, that the
Defendants breached, or aided and abetted a breach of, the express and implied
terms of the NHP Partnership Agreement in connection with the sale of four
properties by NHP to Capital Senior Living Properties 2-NHPCT, Inc. The
complaint seeks, among other relief, rescission of the sale of those properties
and unspecified damages. The Company believes the complaint is without merit and
is vigorously defending itself in this action. The Company has filed a Motion to
Dismiss in this case, which is currently pending.
8
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 9999
(UNAUDITED)
The Company has pending claims incurred in the normal course of business, which,
in the opinion of management, based on the advice of legal counsel, will not
have a material effect on the financial statements of the Company.
5. PENDING MERGERS
On February 7, 1999, the Company entered into definitive Agreements and Plans of
Merger with ILM Senior Living, Inc. and ILM II Senior Living, Inc. for a
combined transaction value of approximately $174 million, which includes
approximately $4 million of net liabilities. The primary assets of ILM Senior
Living, Inc. and ILM II Senior Living, Inc. collectively are 13 senior living
communities that have been managed by the Company under management agreements
since 1996. Under the two merger agreements, both ILM Senior Living, Inc. and
ILM II Senior Living, Inc. would separately merge with and into a wholly owned
direct subsidiary of the Company with the aggregate issued and outstanding
shares of ILM Senior Living, Inc. and ILM II Senior Living, Inc. common stock
eligible to receive 65% of the merger consideration in cash (approximately
$110.5 million) and 35% in 8% convertible trust preferred securities (with a
liquidation value of approximately $59.5 million). Both mergers have been
approved by the boards of directors of each company and each transaction
requires the approval of the applicable shareholders of either ILM Senior
Living, Inc. or ILM II Senior Living, Inc. The mergers also are subject to
certain other customary conditions, including regulatory approvals, and are
expected to be completed during the second half of 1999.
The Company, ILM Senior Living, Inc. and ILM II Senior Living, Inc. entered into
a letter agreement, dated July 28, 1999, agreeing to amend both Agreements and
Plans of Merger in the following respects: (i) the aggregate merger
consideration to be paid in the mergers will be increased to approximately $176
million, including approximately $4 million of net liabilities; (ii) ILM Senior
Living, Inc. and ILM II Senior Living, Inc. shareholders will be entitled to
elect to receive consideration for their shares entirely in cash or may elect to
receive up to 35% of the consideration in the form of the 8% convertible trust
preferred securities; and (iii) the outside termination date of the Agreements
and Plans of Merger will be extended to September 30, 2000. The execution and
delivery of the amended Agreements and Plans of Merger will be subject to the
approval of the Board of Directors of each of the Company, ILM Senior Living,
Inc. and ILM II Senior Living, Inc.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis addresses (i) the Company's results of
operations for the three and six months ended June 30, 1999 and 1998,
respectively, and (ii) liquidity and capital resources of the Company and should
be read in conjunction with the Company's consolidated financial statements
contained elsewhere in this report.
The Company generates revenue from a variety of sources. For the three months
ended June 30, 1999, the Company's revenue was derived as follows: 62.7% from
the operations of eleven owned senior living communities that are operated by
the Company; 6.9% from lease rentals for triple net leases of three skilled
nursing communities and four physical rehabilitation centers; 4.7% from
management fees arising from management services provided for three affiliate
owned and operated senior living communities and fifteen third party owned and
operated senior living communities; and 23.7% derived from development fees
earned for managing the development and construction of new senior living
communities for affiliated and unaffiliated third parties, including the Triad
entities.
For the six months ended June 30, 1999, the Company's revenue was derived as
follows: 63.4% from the operation of eleven owned senior living communities that
are operated by the Company; 7.0% from lease rentals from triple net leases of
three skilled nursing communities and four physical rehabilitation centers; 5.0%
from management fees arising from management services provided for three
affiliate owned and operated senior living communities and fifteen third party
owned and operated senior living communities; and 22.8% derived from development
fees earned for managing the development and construction of new senior living
communities for third parties, including the Triad entities.
The Company believes that the factors affecting the financial performance of
communities managed under contracts with third parties do not vary substantially
from the factors affecting the performance of owned and leased communities,
although there are different business risks associated with these activities.
The Company's third-party management fees are primarily based on a percentage of
gross revenues. As a result, the cash flows and profitability of such contracts
to the Company are more dependent on the revenues generated by such communities
and less dependent on net cash flow than for owned communities. Further, the
Company is not responsible for capital investments in managed communities. While
the management contracts are generally terminable only for cause, in certain
cases the contracts can be terminated upon the sale of a community, subject to
the Company's rights to offer to purchase such community.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's triple net leases extend through the year 2000 for three of its
owned communities and through the year 2001 for four of its owned communities.
The base payments under these leases are fixed and are not subject to change
based upon the operating performance of these communities. Certain of these
leases have additional rent based on operating performance. Following
termination of the lease agreements, the Company may either convert and operate
the communities as assisted living and Alzheimer's care communities, sell the
communities or evaluate other alternatives.
The Company's current management contracts expire on various dates between
December 1999 and September 2009 and provide for management fees based generally
upon rates that vary by contract from 4% of net revenues to 7% of net revenues.
In addition, certain of the contracts provide for supplemental incentive fees
that vary by contract based upon the financial performance of the managed
community.
The Company's development fees are generally based upon a percentage of
construction costs and are earned over the period commencing with the initial
development activities and ending with the opening of the community. As of June
30, 1999, development fees have been earned for services performed on 46
communities under development or expansion for third parties.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated, selected statements of
income data in thousands of dollars and expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months Ended
JUNE 30, June 30,
------------------------------------------ ----------------------------------------
1999 1998 1999 1998
-------------------- -------------------- ------------------- -----------------
$ % $ % $ % $ %
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Resident and healthcare revenue $ 10,009 62.7% $5,109 55.3% $19,912 63.4% $10,044 57.1%
Rental and lease income...... 1,102 6.9 1,063 11.5 2,195 7.0 2,131 12.1
Unaffiliated management servic
revenue................. 645 4.0 570 6.2 1,342 4.3 1,208 6.9
Affiliated management services
revenue ..................... 115 0.7 438 4.7 227 0.7 817 4.6
Unaffiliated development fees 295 1.8 307 3.3 848 2.7 778 4.4
Affiliated development fees.. 3,496 21.9 1,515 16.4 6,302 20.1 2,155 12.3
Other ....................... 295 1.8 232 2.5 599 1.9 455 2.6
-------- ------ ------ ------ ------- ------ ------- ------
Total revenue................ 15,957 100.0 9,234 100.0 31,425 100.0 17,588 100.0
Expenses:
Operating expenses........... 6,023 37.7 3,556 38.5 11,991 38.2 7,312 41.6
General and administrative expenses 2,250 14.1 1,718 18.6 4,356 13.9 3,425 19.5
Depreciation and amortization 1,133 7.1 563 6.1 2,254 7.2 1,124 6.4
-------- ------ ------ ------ ------- ------ ------- ------
Total expenses....... 9,406 58.9 5,837 63.2 18,601 59.2 11,861 67.4
-------- ------ ------ ------ ------- ------ ------- ------
Income from operations ........... 6,551 41.1 3,397 36.8 12,824 40.8 5,727 32.6
Other income (expense):
Interest income.............. 1,659 10.4 1,103 11.9 3,392 10.8 2,196 12.5
Interest expense............. (1,490) (9.3) (182) (2.0) (2,969) (9.4) (360) (2.0)
-------- ------ ------ ------ ------- ------ ------- ------
Income before income taxes and
minority interest in
consolidated partnerships 6,720 42.1 4,318 46.8 13,247 42.2 7,563 43.0
Provision for income taxes... (2,473) (15.5) (1,664) (18.0) (4,988) (15.9) (2,897) (16.5)
-------- ------ ------ ------ ------- ------ ------- ------
Income before minority interest in
consolidated partnerships 4,247 26.6 2,654 28.7 8,259 26.3 4,666 26.5
Minority interest in consolidated
partnership.............. (264) (1.7) (143) (1.5) (424) (1.3) (229) (1.3)
-------- ------ ------ ------ ------- ------ ------- ------
Net income........................ $ 3,983 25.0% $2,511 27.2% $ 7,835 4.9% $ 4,437 25.2%
======== ====== ====== ====== ======= ====== ======= ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
Revenues. Total revenues were $15,957,000 in the three months ended June 30,
1999 compared to $9,234,000 for the three months ended June 30, 1998,
representing an increase of $6,723,000 or 72.8%. The primary components of this
increase were increases in resident and healthcare revenue of $4,900,000 and
development fee revenue of $1,981,000, offset by a decrease in affiliated
management services revenue of $323,000. The increase in resident and healthcare
revenue reflects revenue from six communities that were acquired in the third
and fourth quarters of 1998. The increase in development fee revenue reflects
the addition of 25 development contracts for managing the development and
construction of new senior living communities owned by third parties.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Expenses. Total expenses of $9,406,000 in the second quarter of 1999 compared to
$5,837,000 in the second quarter of 1998, representing an increase of $3,569,000
or 61.1%. This increase is primarily due to the acquisition of six communities
in 1998.
Other income and expense. Other income and expense decreased $752,000 due to an
increase in interest income of $556,000 offset by an increase in interest
expense of $1,308,000. Interest income increased primarily as a result of an
increase in interest earned, from loans to Triad I, Triad II, Triad III and
Triad IV along with investment income from NHP notes due to the partial
redemption of the NHP notes and payment of deferred interest. Interest expense
increased due to the financing of the acquisition of the six communities
acquired in 1998 and the funding of loans to Triad I, Triad II, Triad III and
Triad IV.
Provision for income taxes. Provision for income taxes in the second quarter of
1999 was $2,473,000 or 38.3% of income before taxes, compared to $1,664,000 or
39.9% of income before taxes in the second quarter of 1998. The effective tax
rates for the second quarter of 1999 and 1998, differ from the statutory tax
rates because of state income taxes and certain permanent tax differences.
Minority interest. Minority interest increased $121,000 primarily due to the
increase in net income at HealthCare Properties, L.P. ("HCP").
Net income. As a result of the foregoing factors, net income increased
$1,472,000 to $3,983,000 for the three months ended June 30, 1999, as compared
to $2,511,000 for the three months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Revenues. Total revenues were $31,425,000 in the six months ended June 30, 1999
compared to $17,588,000 for the six months ended June 30, 1998, representing an
increase of $13,837,000, or 78.7%. The primary components of this increase were
increases in resident and healthcare revenue of $9,868,000 and development fee
revenue of $4,217,000, offset by a decrease in affiliated management services
revenue of $590,000. The increase in resident and healthcare revenue reflects
revenue from six communities that were acquired in the third and fourth quarters
of 1998. The increase in development fee revenue reflects the addition of 25
development contracts for managing the development and construction of new
senior living communities owned by third parties.
Expenses. Total expenses of $18,601,000 in the six months ended June 30, 1999
compared to $11,861,000 in the six months ended June 30, 1998, representing an
increase of $6,740,000 or 56.8%. This increase is primarily due to the
acquisition of six communities in 1998.
Other income and expense. Other income and expense decreased $1,413,000 in the
first six months of 1999 due to an increase in interest income of $1,196,000
offset by an increase in interest expense
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of $2,609,000. Interest income increased primarily as a result of an increase in
interest earned from loans to Triad I, Triad II, Triad III and Triad IV along
with investment income from NHP notes due to the partial redemption of the NHP
notes and payment of deferred interest. Interest expense increase due to the
financing of the acquisition of the six communities acquired in 1998 and the
funding of loans to Triad I, Triad II, Triad III and Triad IV.
Provision for income taxes. Provision for income taxes for the first six months
of 1999 increased to $4,988,000 or 38.9% of income before taxes, compared to
$2,987,000 or 39.5% of income before taxes in the first six months of 1998. The
effective tax rates for the first six months of 1999 and 1998 differ from the
statutory tax rates because of state income taxes and certain permanent tax
differences.
Minority interest. Minority interest increased $195,000 primarily due to the
increase in income at HCP.
Net income. As a result of the foregoing factors, net income increased
$3,398,000 to $7,835,000 for the six months ended June 30, 1999, as compared to
$4,437,000 for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
In addition to approximately $19,214,000 of cash balances on hand as of June 30,
1999, the Company's principal sources of liquidity are expected to be cash flows
from operations and amounts available for borrowing under its revolving line of
credit, which was amended on April 8, 1999 to increase the commitment from $20
million to $34 million. The Company expects the funds available under its line
of credit along with its net income and cash flow from operations to be
sufficient to fund its short-term working capital requirements. The Company
plans to refinance $47,700,000 of short-term variable rate debt to a long-term
loan in the third quarter of fiscal 1999. The Company's long-term capital
requirements, primarily for acquisitions, development and other corporate
initiatives, will be dependent on the Company's ability to access additional
funds through the debt and/or equity markets. There can be no assurance that the
Company will continue to generate cash flows at or above current levels or that
the Company will be able to obtain the capital necessary to meet its long-term
capital requirements.
The Company derives the benefits and bears the risks attendant to the
communities it owns. The cash flows and profitability of owned communities
depends on the operating results of such communities and are subject to certain
risks of ownership, including the need for capital expenditures, financing and
other risks such as those relating to environmental matters.
The cash flows and profitability of the Company's owned communities that are
leased to third parties depend on the ability of the lessee to make timely lease
payments. At June 30, 1999, HCP was operating one of its properties and had
leased seven of its owned properties under triple net leases
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
to third parties until year 2000 or 2001. Four of these properties are leased
until year 2001 to HealthSouth Rehabilitation Corp. ("HealthSouth"), which
provides acute spinal injury intermediate care at the properties which are still
operating. HealthSouth closed one of these communities in 1994 and closed
another community in February of 1997 due to low occupancy. HealthSouth has
continued to make lease payments on a timely basis for all four properties.
Effective August 5, 1999, HealthSouth agreed to transfer control of the two
closed communities to HCP. HealthSouth agreed, however, to continue making its
full lease payments to HCP with no reduction in payment. HCP will explore its
options with regard to these two communities, including the possibility of a
sale of these assets. Should the operators of the leased properties default on
payment of their lease obligations prior to termination of the lease agreements,
six of the seven lease contracts contain a continuing guarantee of payment and
performance by the parent company of the operators, which the Company intends to
pursue in the event of default. Following termination of these leases, the
Company will either convert and operate the communities as assisted living and
Alzheimer's care communities, sell the communities or evaluate other
alternatives. HCP's communities' lessees are all current in their lease
obligations to HCP, except the lessee for one community has notified HCP that it
will be unable to make its full August 1999 lease payment. The lessee for
another property (other than HealthSouth) continues to fund a deficit between
the required lease payment and operator's cash flow.
The cash flows and profitability of the Company's third-party management fees
are dependent upon the revenues and profitability of the communities managed.
While the management contracts are generally terminable only for cause, in
certain cases contracts can be terminated upon the sale of a community, subject
to the Company's rights to offer to purchase such community.
The Company plans to continue to develop and acquire senior living communities.
The development of senior living communities typically involves a substantial
commitment of capital over a 12-month construction period during which time no
revenues are generated, followed by a 12- to 14-month lease-up period.
Effective April 1, 1998, Tri Point Communities, L.P. ("Tri Point"), a limited
partnership owned by the Company's founders (Messrs. Beck and Stroud ) and their
affiliates, was organized and the interests of Messrs. Beck and Stroud were sold
at their cost to Triad Senior Living, Inc. and its affiliates which are
unrelated third parties. Tri Point was renamed Triad I. The new general partner
of Triad I, owning 1%, is Triad Senior Living, Inc. The limited partners are
Blake N. Fail (principal owner of Triad Senior Living, Inc.) owning 80%, and the
Company, owning 19%. The development agreements between Triad I and the Company
provide for a development fee of 4% to the Company, as well as reimbursement of
expenses and overhead not to exceed 4%. Triad I has also entered into management
agreements with the Company providing for management fees in an amount equal to
the greater of 5% of gross revenues or $5,000 per month per community, plus
overhead reimbursement not to exceed 1% of gross revenues and a $500 per unit
lease up fee.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company has an option to purchase the partnership interests of Triad Senior
Living, Inc. and Blake N. Fail for an amount equal to the amount such party paid
for its interest, plus noncompounded interest of 12% per annum. The management
agreements also provide the Company with an option to purchase the communities
developed by Triad I upon their completion for an amount equal to the fair
market value (based on a third-party appraisal but not less than hard and soft
costs and, lease-up costs).
Triad I has entered into construction loan facilities aggregating approximately
$50,000,000 to fund its development activities and a take-out facility
aggregating approximately $50,000,000.
During 1998, the Company agreed to loan Triad I up to $10,000,000. On June 30,
1999, the loan amount was amended to $15,000,000. The principal is due March 12,
2003. The first draw under this loan facility was made on March 12, 1998.
Interest is due quarterly at 8% per annum. This loan may be prepaid without
penalty. At June 30, 1999, approximately $13,197,000 has been advanced to Triad
I under this loan facility.
Effective September 24, 1998, the Company and Triad II, a limited partnership,
entered into a Development and Turnkey Services Agreement in connection with the
development and management of the Company's planned new Waterford communities
where Triad II would own and finance the construction of the new communities.
Triad II was organized on September 23, 1998. The general partner of Triad II,
owning 1%, is Triad Partners II, Inc. The limited partners are Triad Partner II,
Inc., owning 80%, and the Company, owning 19%.
The Company has an option to purchase the partnership interests of Triad
Partners II, Inc. in Triad II for an amount equal to the amount such party paid
for its interest, plus noncompounded interest of 12% per annum. The management
agreements with Triad II also provide the Company with an option to purchase the
communities developed by Triad II upon their completion for an amount equal to
the fair market value (based on a third-party appraisal but not less than hard
and soft costs and lease-up costs).
Triad II has entered into construction and mini-perm loan facilities aggregating
approximately $27,600,000 to fund its development activities.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the third quarter of 1998, the Company agreed to loan Triad II up to
$7,000,000. On January 15, 1999, the loan amount was amended to up to
$10,000,000. The principal is due September 25, 2003. The first draw under this
loan facility was made on September 25, 1998.
Interest is due quarterly at 10.5% per annum. This loan may be prepaid without
penalty. At June 30, 1999, approximately $5,361,000 has been advanced to Triad
II under this loan facility.
Effective November 10, 1998, the Company and Triad III, a limited partnership,
entered into a Development and Turnkey Services Agreement in connection with the
development and management of the Company's planned new Waterford communities
where Triad III would own and finance the construction of the new communities.
Triad III was organized on November 10, 1998. The general partner of Triad III,
owning 1%, is Triad Partners III, Inc. The limited partners are Triad Partners
III, Inc., owning 80%, and the Company, owning 19%.
The Company has an option to purchase the partnership interests of Triad
Partners III, Inc. in Triad III for an amount equal to the amount such party
paid for its interest, plus noncompounded interest of 12% per annum. The
management agreements with Triad III also provide the Company with an option to
purchase the communities developed by Triad III upon their completion for an
amount equal to the fair market value (based on a third-party appraisal but not
less than hard and soft costs and lease-up costs).
Triad III has entered into construction and mini-perm loan facilities
aggregating approximately $56,000,000 to fund its development activities.
During the fourth quarter of 1998, the Company agreed to loan Triad III up to
$10,000,000. The principal is due February 8, 2004. Interest is due quarterly at
10.5% per annum. This loan may be prepaid without penalty. At June 30, 1999,
approximately $5,726,000 had been advanced to Triad III under this loan
facility.
Effective December 30, 1998, the Company and Triad IV, a limited partnership,
entered into a Development and Turnkey Services Agreement in connection with the
development and management of the Company's planned new Waterford communities
where Triad IV would own and finance the construction of the new communities.
Triad IV was organized on December 22, 1998. The general partner of Triad IV,
owning 1%, is Triad Partners IV, Inc. The limited partners are Triad Partners
IV, Inc., owning 80%, and the Company, owning 19%.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company has an option to purchase the partnership interests of Triad
Partners IV, Inc. in Triad IV for an amount equal to the amount such party paid
for its interest, plus noncompounded interest of 12% per annum. The management
agreements with Triad IV also provide the Company with an option to purchase the
communities developed by Triad IV upon their completion for an amount equal to
the fair market value (based on a third-party appraisal but not less than hard
and soft costs and lease-up costs).
Triad IV has commitments for loan facilities aggregating up to $27,000,000 (and
is currently negotiating for an additional $23,000,000) to fund its development
activities.
During the fourth quarter of 1998, the Company agreed to loan Triad IV up to
$10,000,000. The principal is due December 30, 2003. The first draw under this
loan facility was made on December 30, 1998. Interest is due quarterly at 10.5%
per annum. This loan may be prepaid without penalty. At June 30, 1999,
approximately $3,425,000 has been advanced to Triad IV under this loan facility.
The Company has made no determination as to whether it will exercise its
purchase options in Triad I, Triad II, Triad III and Triad IV. The Company will
evaluate the possible exercise of each purchase option based upon the business
and financial factors which may exist at the time those options may be
exercised.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize the year 2000 as a date other than the Year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
Based on ongoing assessments, the Company has developed a program to modify or
replace significant portions of its software and certain hardware, which are
generally PC-based systems, so that those systems will properly recognize and
utilize dates beyond December 31, 1999. The Company has substantially completed
software reprogramming and software and hardware replacement as of June 30,
1999, with 100% completion targeted for September 30, 1999. The Company
presently believes that these modifications and replacement of existing software
and certain hardware will mitigate the Year 2000 Issue. However, if such
modifications and replacements are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company. The Company
estimates that the remaining cost to upgrade its computer equipment and to
implement software updates required to be Year 2000 compliant will be under
$100,000.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company has assessed its exposure to operating equipment, and such exposure
is not significant due to the nature of the Company's business.
The Company is not aware of any external agency with a Year 2000 Issue that
would materially impact the Company's results of operations, liquidity or
capital resources. However, the Company has no means of determining whether or
ensuring that external agents will be Year 2000-ready. The inability of external
agents to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
completed most but not all necessary phases of its Year 2000 program. In the
event that the Company does not complete the current program or any additional
phases, the Company could incur disruptions to its operations. In addition,
disruptions in the economy generally resulting from Year 2000 Issues could also
materially adversely affect the Company. The Company could be subject to
litigation or computer systems failure. The amount of potential liability and
cost cannot be reasonably estimated at this time.
The Company currently has no contingency plans in place in the event it does not
complete all phases of its Year 2000 program. The Company plans to evaluate the
status of completion in the Fall of 1999 and determine whether such a plan is
necessary.
FORWARD-LOOKING STATEMENTS
Certain information contained in this report constitutes "Forward-Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate" or "continue" or the negative thereof
or other variations thereon or comparable terminology. The Company cautions
readers that forward-looking statements, including, without limitation, those
relating to the Company's future business prospects, revenues, working capital,
liquidity, capital needs, interest costs and income, are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements, due to several important
factors herein identified, among others, and their risks and factors identified
from time to time in the Company's reports filed with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is exposure to changes in interest rates on
debt instruments. As of June 30, 1999, the company had $81,139,000 in
outstanding debt comprised of various fixed and variable rate debt instruments
of $13,331,000 and $67,808,000, respectively.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Changes in interest rates would affect the fair market value of the company's
fixed rate debt instruments but would not have an impact on the Company's
earnings or cash flows. Fluctuations in interest rates on the Company variable
rate debt instruments, which are tied to either the LIBOR or the prime rate,
would affect the Company's earnings and cash flows but would not affect the fair
market value of the variable rate debt. For each percentage point change in
interest rates the Company's annual interest expense would increase by
approximately $758,000 based on its current outstanding variable debt. In the
third quarter of 1999, the Company expects to convert $47,700,000 of its
variable rate debt to a fixed rate loan which will be based on the 10 year
treasury rate on the date of the conversion plus an agreed to point spread.
The following table summarizes information on the Company's debt instruments
outstanding as of June 30, 1999. The table presents the principal due and
weighted average interest rates for the Company's various debt instruments by
fiscal year. Weighted average variable interest rates are based on the Company's
floating rate as of June 30, 1999.
<TABLE>
<CAPTION>
Interest Rate Risk
Principal Amount and Average Interest Rate by Expected Maturity Date
(dollars in thousands)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
-------- ---------- ----------- ---------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate debt $ 151 $343 $378 $ 415 $456 $11,588 $13,331 $13,331
Average interest rate 8.7% 8.7% 8.7% 8.7% 8.7% 8.6%
Variable rate debt $ 212 $333 $168 - - - $ 713 $ 713
Average interest rate 6.2% 6.2% 6.2% 0.0% 0.0% 0.0%
Short-term debt:
Variable rate debt $47,700 - - - - - $47,700 $47,700
Average interest rate 7.1% - - - - -
Lines of credit:
Variable rate debt - - - $19,395 - - $19,395 $19,395
Average interest rate - - - 6.9% - -
Total Debt $81,139 $81,139
</TABLE>
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On or about October 23, 1998, Robert Lewis filed a putative class action
complaint on behalf of certain holders of assignee interests (the "Assignee
Interests") in NHP Retirement Housing Partners I Limited Partnership ("NHP") in
the Delaware Court of Chancery against NHP, the Company, Capital Senior Living
Properties 2-NHPCT, Inc. and Capital Realty Group Senior Housing, Inc.
(collectively, the "Defendants"). Mr. Lewis purchased ninety Assignee Interests
in NHP in February 1993 for $180. The complaint alleges, among other things,
that the Defendants breached, or aided and abetted a breach of, the express and
implied terms of the NHP Partnership Agreement in connection with the sale of
four properties by NHP to Capital Senior Living Properties 2-NHPCT, Inc. The
complaint seeks, among other relief, rescission of the sale of those properties
and unspecified damages. The Company believes the complaint is without merit and
is vigorously defending itself in this action. The Company has filed a Motion to
Dismiss in this case, which is currently pending.
The Company has pending claims incurred in the normal course of business, which,
in the opinion of management, based on the advice of legal counsel, will not
have a material effect on the financial statements of the Company.
Item 2. CHANGES IN SECURITIES (And use of proceeds)
The Company's initial Registration Statement on Form S-1, file No. 333-33379,
was declared effective by the Securities and Exchange Commission on October 30,
1997 (the "Offering"). The Offering was managed by Lehman Brothers Inc., J. C.
Bradford & Co., Donaldson, Lufkin & Jenrette Securities Corporation and Smith
Barney Inc. A total of 10,350,000 shares of Common Stock, including 1,350,000
shares subject to an over-allotment option, were registered. The net proceeds to
the Company from the sale of such shares were approximately $128,407,000, after
deducting underwriting discounts and commissions of approximately $9,742,000 and
Offering expenses of approximately $1,576,000 paid by the Company. From the
effective date of the Registration Statement through the end date of the period
covered by this report, the Company has used approximately $1,600,000 of the net
proceeds of the Offering for expenses associated with the Offering. In addition,
the Company used a portion of such net proceeds as follows: (i) approximately
$70,800,000 to repay the indebtedness incurred by the Company to acquire assets
(including construction in progress) in the transactions undertaken at the
closing of the Offering (the "Formation Transactions"); (ii) approximately
$18,100,000 to repay certain notes issued in conjunction with the Formation
Transactions; (iii) approximately $5,800,000 to pay the balance of the purchase
price to an affiliate related to the purchase of assets on the Formation
Transactions; (iv) approximately $1,200,000 to repay indebtedness to affiliates;
(v) approximately $8,246,000 to acquire the four senior living communities from
NHP; (vi) approximately $505,000 of such net proceeds to purchase land in
Carmichael, California; and (vii) approximately $22,156,000 advanced to the
Triad entities. There has not been a material change in the use of proceeds
described in the Company's prospectus.
21
<PAGE>
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
10.1 Amended and Restated Draw Promissory Note dated June
30, 1999 of Triad Senior Living I, L.P. in favor of
Capital Senior Living Properties, Inc.
10.2 Amended and Restated Draw Promissory Note (Plano,
Texas) dated January 15, 1999 of Triad Senior Living
II, L.P. in favor of Capital Senior Living Properties,
Inc.
10.3 Letter Agreement dated July 28, 1999 among the Company
and ILM Senior Living, Inc. and ILM II Senior Living,
Inc.
27.1 Financial Data Schedule
(B) Reports on Form 8-K
None
22
<PAGE>
CAPITAL SENIOR LIVING CORPORATION
JUNE 30, 1999
Signature
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.
Capital Senior Living Corporation
(Registrant)
By: /s/ Ralph A. Beattie
--------------------
Ralph A. Beattie
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Date: August 13, 1999
23
AMENDED AND RESTATED DRAW PROMISSORY NOTE
Amount: $15,000,000.00 Date: June 30, 1999
----------------- ---------------
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior
Living Properties, Inc., a Texas corporation, the sum draw down up to Fifteen
Million and No/100 Dollars ($15,000,000.00), the principal due five (5) years
from the date of the first draw down and interest due quarterly at the rate of
eight percent (8%) per annum, both principal and interest payable at office at
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Draw Promissory Note dated April 1, 1998,
and the Amended and Restated Draw Promissory Note dated March 31, 1999, between
Maker and Capital Senior Living Properties, Inc.
The accrued interest on this note is payable quarterly after the first draw
down.
All past due principal and interest shall bear interest from maturity at
the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part
thereof, when due shall, at the election of the holder and without notice,
mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands
of an attorney for collection, or if collected by suit or through the Probate
Court or any other legal proceedings, the undersigned agrees to pay reasonable
attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for
payment of this note, notice of nonpayment, protest, notice of protest,
diligence, or any notice of, or defense on account of, any extension,
extensions, renewal, renewals, or change in any manner of or in this note, or in
any of its terms, provisions or covenants, or of any delay, indulgence or other
act of any holder of the aforesaid note.
TRIAD SENIOR LIVING I, L.P.,
a Texas limited partnership
By: Triad Senior Living, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
--------------------------
TITLE: President of GP
--------------------------
This Note is subject to that certain Subordination Agreement dated January 19,
1999, as amended, between Capital Senior Living Properties, Inc. and Key
Corporate Capital, Inc.
AMENDED AND RESTATED DRAW PROMISSORY NOTE
(Plano)
Amount: $3,725,000 Date: January 15, 1999
------------- -------------------
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior
Living Properties, Inc., a Texas corporation, the sum draw down up to Three
Million Seven Hundred Twenty-Five Thousand and No/100 Dollars ($3,725,000.00),
the principal due five (5) years from the date of the first draw down and
interest due quarterly at the rate of ten and one-half percent (10.5%) per
annum, both principal and interest payable at office at 14160 Dallas Parkway,
Suite 300, Dallas, Texas 75240.
This note amends and restates the Draw Promissory Note dated September
24, 1998, between Maker and Capital Senior Living Properties, Inc.
The accrued interest on this note is payable quarterly after the first
draw down.
All past due principal and interest shall bear interest from maturity
at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other
part thereof, when due shall, at the election of the holder and without notice,
mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the
hands of an attorney for collection, or if collected by suit or through the
Probate Court or any other legal proceedings, the undersigned agrees to pay
reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment
for payment of this note, notice of nonpayment, protest, notice of protest,
diligence, or any notice of, or defense on account of, any extension,
extensions, renewal, renewals, or change in any manner of or in this note, or in
any of its terms, provisions or covenants, or of any delay, indulgence or other
act of any holder of the aforesaid note.
TRIAD SENIOR LIVING II, L.P.,
a Texas limited partnership
By: Triad Partners II, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
------------------
TITLE: President
------------------
July 28, 1999
VIA FACSIMILE AND FEDERAL EXPRESS
- ---------------------------------
Mr. J. William Sharman, Jr.
Chairman of the Board, President and Chief Executive Officer
ILM Senior Living, Inc.
ILM II Senior Living, Inc.
8180 Greensboro Drive, Suite 850
McLean, Virginia 22102
Re: Amendments to Merger Agreements
Dear Bill:
Reference is made to each of that certain (i) Agreement and Plan of
Merger (the "ILM I Merger Agreement") dated February 7, 1999, among ILM Senior
Living, Inc., a Virginia corporation ("ILM I"), Capital Senior Living
Corporation, a Delaware corporation ("Capital"), Capital Senior Living
Acquisition LLC, a Delaware limited liability company and wholly-owned
subsidiary of Capital ("Capital Acquisition"), and Capital Senior Living Trust
I, a Delaware business trust and wholly-owned subsidiary of Capital ("Capital
Trust") and (ii) Agreement and Plan of Merger (the "ILM II Merger Agreement,"
and together with the ILM I Merger Agreement, the "Merger Agreements") dated
February 7, 1999, among ILM II Senior Living, Inc., a Virginia Corporation ("ILM
II", and together with ILM I, the "ILMs"), Capital, Capital Acquisition and
Capital Trust.
Upon the terms and subject to the conditions set forth in the Merger
Agreements (including, without limitation, the provisions of Articles II
thereof), each of the ILM I and ILM II has agreed to merge with and into Capital
Acquisition (the "Mergers") for consideration consisting of cash and convertible
trust preferred securities.
Due to the recent developments since the date on which the Merger
Agreements were entered into and because Capital and the ILMs continue to desire
to consummate the Mergers as promptly as reasonably practicable upon terms and
conditions that are fair to and in the best interests of their respective
stockholders, each of Capital and the ILMs, hereby agree as follows:
1. Capital and the ILMs, upon the advice of their respective legal and
financial advisors, shall undertake to enter into as promptly as
reasonably practicable after the date hereof appropriate amendments to
or restatements of the Merger Agreements (the "Amended Merger
Agreements") to provide, among other things, that all holders of the
common stock, $.01 par value, of each of ILM I and ILM II (together,
the "ILM Common Stock"), shall have the right to elect to receive in
the Merger in respect of their shares, consideration payable entirely
in cash representing total aggregate cash consideration to be paid by
Capital in the Mergers of approximately $172.0 million. The Amended
Merger Agreements will further provide that in lieu of such all-cash
<PAGE>
consideration, all holders of the ILM Common Stock shall have the
right to elect to receive in the Mergers in respect of their shares up
to 35% of the consideration to be paid by Capital and Capital Trust in
the form of 8.0% convertible trust preferred securities of Capital
Trust, and upon further conversion, into shares of Capital Common
Stock.
2. The outside termination date set forth in Section 7.1(e) of the Merger
Agreements will be extended to September 30, 2000.
3. The execution and delivery of the Amended Merger Agreements will be
subject to approval thereof by the Board of Directors of each of ILM
I, ILM II and Capital.
If the foregoing correctly sets forth our mutual understanding as to
the subject matter set forth above, kindly so confirm by executing the enclosed
duplicate of this letter in the space provided below for such purposes.
Very truly yours,
CAPITAL SENIOR LIVING CORPORATION
By: /s/ James A. Stroud
-------------------------
Name: James A. Stroud
Title: Chairman of the Company
ACCEPTED AND CONFIRMED as of the 29th day of July, 1999.
ILM SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
----------------------------
Name: J. William Sharman, Jr.
Title: Chairman of the Board, President and
Chief Executive Officer
ILM II SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
---------------------------
Name: J. William Sharman, Jr.
Title: Chairman of the Board, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Capital Senior Living Corporation
</LEGEND>
<CIK> 0001043000
<NAME> Capital Senior Living Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-04-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 19,214,014
<SECURITIES> 0
<RECEIVABLES> 17,885,297
<ALLOWANCES> (901,042)
<INVENTORY> 0
<CURRENT-ASSETS> 38,033,193
<PP&E> 136,478,135
<DEPRECIATION> (18,501,565)
<TOTAL-ASSETS> 211,728,581
<CURRENT-LIABILITIES> 53,428,763
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 112,351,578
<TOTAL-LIABILITY-AND-EQUITY> 211,728,581
<SALES> 0
<TOTAL-REVENUES> 15,957,082
<CGS> 0
<TOTAL-COSTS> 9,406,240
<OTHER-EXPENSES> 264,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,490,103
<INCOME-PRETAX> 6,456,327
<INCOME-TAX> 2,473,306
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,983,021
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
