FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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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
333-47411
-----------------------------------
CNL Health Care Properties, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 59-3491443
--------------------------- ------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ----------------------------- -------------------------
(Address of principal
executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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.
432,460 shares of common stock, $.01 par value, outstanding as of November 2,
1999.
<PAGE>
The Form 10-Q of CNL Health Care Properties, Inc. for the quarter and nine
months ended September 30, 1999, is being amended in order to revise the
disclosure regarding distributions to stockholders. The correction affects Part
I, Item I, Financial Statements and Part I, Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations; therefore, these
sections are amended to read as follows.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Operations 2
Condensed Statements of Stockholders' Equity 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 16
Part II
Other Information 17-18
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C>
ASSETS
Cash and cash equivalents $3,607,683 $ 92
Deferred offering costs -- 975,339
Other assets 272,422 1,148
----------------- ----------------
$3,880,105 $976,579
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to related parties $1,582,097 $685,372
Accounts payable and accrued expenses 4,016 91,207
----------------- ----------------
Total liabilities 1,586,113 776,579
----------------- ----------------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares -- --
Excess shares, $.01 par value per share.
Authorized and unissued 103,000,000
shares -- --
Common stock, $.01 par value per share.
Authorized 100,000,000 shares, issued and
outstanding 411,899 and 20,000 shares,
respectively 4,119 200
Capital in excess of par value 2,319,178 199,800
Accumulated deficit (29,305 ) --
----------------- ----------------
----------------- ----------------
2,293,992 200,000
----------------- ----------------
$3,880,105 $976,579
================= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
Quarter and Nine Months
Ended September 30,
1999 1998
----------- ------------
Revenues:
Interest income $31,845 $ --
----------- ------------
Expenses:
General operating and administrative 24,690 --
Organizational costs 20,000 --
----------- ------------
44,690 --
----------- ------------
Net Loss $ (12,845 ) $ --
=========== ============
Loss Per Share of Common Stock
(Basic and Diluted) $ (.04 ) $ --
=========== ============
Weighted Average Number of Shares of
Common Stock Outstanding 342,929 --
=========== ============
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1999 and
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Common stock
-------------------------- Capital in
Number Par excess of Accumulated
of Shares value par value deficit Total
------------ ---------- ------------- ---------------- --------------
<S> <C>
Balance at December 31, 1997 20,000 $ 200 $ 199,800 $ -- $ 200,000
Subscriptions received for common
stock through public offering 2,550 26 25,474 -- 25,500
Subscriptions held in escrow (2,550 ) (26 ) (25,474 ) -- (25,500 )
------------- ----------- -------------- ---------------- ----------------
Balance at December 31, 1998 20,000 200 199,800 -- 200,000
Subscriptions received for common
stock through public offering
and distribution reinvestment plan 414,399 4,144 4,139,847 -- 4,143,991
Subscriptions held in escrow (22,500 ) (225 ) (224,775 ) -- (225,000 )
Stock issuance costs -- -- (1,795,694 ) -- (1,795,694 )
Net loss -- -- -- (12,845 ) (12,845 )
Distributions declared and paid
($.050 per share) -- -- -- (16,460 ) (16,460 )
------------- ----------- -------------- ---------------- ----------------
Balance at September 30, 1999 411,899 $ 4,119 $ 2,319,178 $ (29,305 ) $ 2,293,992
============= =========== ============== ================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------------- ------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities $ 31,845 $ --
--------------- ------------
Cash Flows from Financing Activities:
Subscriptions received from stockholders 3,918,991 --
Distributions to stockholders (16,460 ) --
Reimbursement of stock issuance costs paid by
related parties on behalf of the Company -- (135,339 )
Payment of stock issuance costs (326,785 ) (64,569 )
--------------- ------------
Net cash provided by (used in) financing activities 3,575,746 (199,908 )
--------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents 3,607,591 (199,908 )
Cash and Cash Equivalents at Beginning of Period 92 200,000
--------------- ------------
Cash and Cash Equivalents at End of Period $3,607,683 $ 92
=============== ============
Supplement Schedule of Non-Cash and Financing
Activities:
Related parties paid certain acquisition,
deferring offering and stock issuance costs
on behalf of the Company as follows:
Acquisition costs $ 74,630 $ --
Deferred offering costs -- 316,203
Stock issuance costs 363,682 --
=============== ============
$ 438,312 $ 316,203
=============== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1999 and 1998
1. Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the management, necessary to a fair
statement of the results for the interim period presented. Operating
results for the quarter and nine months ended September 30, 1999 may
not be indicative of the results that may be expected for the year
ending December 31, 1999. Amounts as of December 31, 1998, included in
the financial statements, have been derived from audited financial
statements as of that date.
New Accounting Standard - In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which became effective
for the Company January 1, 1999. This SOP requires start-up and
organization costs to be expensed as incurred and also requires
previously deferred start-up costs to be recognized as a cumulative
effect adjustment in the statement of earnings. During the nine months
ended September 30, 1999, the Company expensed $20,000 of organization
costs.
The Company was a development stage enterprise from December 22, 1997
through July 13, 1999. Since operations had not begun, activities
through July 13, 1999, were devoted to organization of the Company.
Earnings per share are calculated based upon the weighted average
number of shares of common stock outstanding during the period the
Company was operational. The weighted average number of shares of
common stock outstanding for the period July 14, 1999 through September
30, 1999, was 342,929.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Health Care Properties, Inc. (the "Company") for the year ended
December 31, 1998.
2. Other Assets:
Other assets at September 30, 1999, consisted of acquisition fees and
miscellaneous acquisition expenses which will be allocated to future
properties and miscellaneous prepaid expenses.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1999 and 1998
3. Stock Issuance Costs:
The Company has incurred certain expenses associated with its offerings
of shares, including commissions, marketing support and due diligence
expense reimbursement fees, filing fees, legal, accounting, printing
and escrow fees, which have been deducted from the gross proceeds of
the offerings. Preliminary costs incurred prior to raising capital were
advanced by the affiliates of the Company. CNL Health Care Advisors,
Inc. (the "Advisor") has agreed to pay all offering expenses (excluding
commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company in connection
with the current offering.
During the nine months ended September 30, 1999 and the year ended
December 31, 1998, the Company incurred $838,355 and $875,009,
respectively in organizational and offering costs, including $329,479
and $2,040, respectively, in commissions and marketing support and due
diligence expense reimbursement fees (see Note 5). These amounts have
been treated as stock issuance costs and have been charged to
stockholders' equity subject to the three percent cap described above.
4. Distributions:
For the nine months ended September 30, 1999, 100 percent of the
distributions paid to stockholders were considered ordinary income for
federal income tax purposes. No amounts distributed to the stockholders
for the nine months ended September 30, 1999 are required to be or have
been treated by the Company as a return of capital for purposes of
calculating the stockholders' 8% return on their invested capital. The
characterization for tax purposes of distributions declared for the
nine months ended September 30, 1999 may not be indicative of the
results that may be expected for the year ending December 31, 1999.
5. Related Party Arrangements:
Certain affiliates of the Company will receive fees and compensation in
connection with the offering, and the acquisition, management and sale
of the assets of the Company.
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the offering of the shares, a substantial portion of
which will be paid as commissions to other broker-dealers. During the
nine months ended September 30, 1999, the Company incurred $292,012 of
such fees, of which $281,140 were or will be paid by CNL Securities
Corp. as commissions to other broker-dealers.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
5. Related Party Arrangements - Continued:
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, all or a portion of
which may be reallowed to other broker-dealers. During the nine months
ended September 30, 1999, the Company incurred $19,467 of such fees,
the majority of which will be reallowed to other broker-dealers and
from which all bona fide due diligence expenses will be paid.
In addition, the Company has agreed to issue and sell soliciting dealer
warrants ("Soliciting Dealer Warrants") to CNL Securities Corp. The
price for each warrant will be $0.0008 and one warrant will be issued
for every 25 shares sold by the managing dealer. All or a portion of
the Soliciting Dealer Warrants may be reallowed to soliciting dealers
with prior written approval from, and in the sole discretion of, the
managing dealer, except where prohibited by either federal or state
securities laws. The holder of a Soliciting Dealer Warrant will be
entitled to purchase one share of common stock from the Company at a
price of $12.00 during the five-year period commencing with the date
the offering begins. No Soliciting Dealer Warrant, however, will be
exercisable until one year from the date of issuance.
The Advisor is entitled to receive acquisition fees for services in
connection with finding, negotiating the leases of and acquiring
properties on behalf of the Company equal to 4.5% of gross proceeds,
loan proceeds from permanent financing and amounts outstanding on the
line of credit, if any, at the time of listing of the shares on a
national securities exchange or over-the-counter market, but excluding
that portion of the permanent financing used to finance secured
equipment leases. During the nine months ended September 30, 1999, the
Company incurred $175,207 of such fees. Such fees are included in other
assets at September 30, 1999.
The Company has incurred operating expenses which, in general, are
those expenses relating to administration of the Company on an ongoing
basis. Pursuant to the advisory agreement, the Advisor is required to
reimbursed the Company the amount by which the total operating expenses
paid or incurred by the Company exceed in any four consecutive fiscal
quarters (the "Expense Year"), the greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap").
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the offering), on
a day-to-day basis.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
5. Related Party Arrangements - Continued:
The expenses incurred for these services were classified as follows for
the nine months ended September 30:
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
<S> <C>
Deferred offering costs $ -- $106,779
Stock issuance costs 256,795 --
General operating and administrative
expenses 9,808 --
---------------- -----------------
$266,603 $106,779
================ =================
Amounts due to related parties consisted of the following at:
September 30, December 31,
1999 1998
---------------- -----------------
Due to the Advisor:
Expenditures incurred on behalf of
the Company $ 853,122 $ 470,798
Accounting and administrative services 477,989 211,386
Acquisition fees and expenses 250,986 1,148
---------------- -----------------
1,582,097 683,332
---------------- -----------------
Due to CNL Securities Corp.:
Commissions -- 1,912
Marketing support and due diligence
expense reimbursement fee -- 128
---------------- -----------------
-- 2,040
---------------- -----------------
$1,582,097 $ 685,372
================ =================
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1999 and 1998
6. Subsequent Event:
During the period October 1, 1999 through October 25, 1999, the Company
received subscription proceeds for an additional 32,060 shares ($320,605)
of common stock. As of October 25, 1999, the Company had received total
subscription proceeds of $4,464,596, including $225,000 from Pennsylvania
investors whose funds will be held in escrow until aggregate subscription
proceeds total at least $7,775,000.
On October 1, 1999, the Company declared distributions totalling $10,372,
or $0.025 per share of common stock, payable in December 1999, to
stockholders of record on October 1, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information, including, without limitation, the Year 2000
Compliance disclosure, that are not historical facts may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. Although the Company believes that
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: changes in general economic
conditions, changes in local and national real estate conditions, continued
availability of proceeds from the Company's offering, the ability of the Company
to obtain permanent financing on satisfactory terms, the ability of the Company
to identify suitable investments, the ability of the Company to locate suitable
tenants for its properties and borrowers for its mortgage loans and secured
equipment leases, and the ability of such tenants and borrowers to make payments
under their respective leases, mortgage loans or secured equipment leases. Given
these uncertainties, readers are cautioned not to place undue reliance on such
statements. The Company undertakes no obligation to update these forward looking
statements to reflect any future events or circumstances.
Introduction
CNL Health Care Properties, Inc. (the "Company") is a Maryland
corporation that was organized December 22, 1997, to acquire real estate
properties (the "Properties") related to health care and seniors' housing
facilities (the "Health Care Facilities") located across the United States. The
Health Care Facilities may include congregate living, assisted living and
skilled nursing facilities, continuing care retirement communities and life care
communities, and medical office buildings and walk-in clinics. The Properties
will be leased on a long-term, "triple-net" basis to operators of the Health
Care Facilities. The Company may also provide mortgage financing (the "Mortgage
Loans") to operators of Health Care Facilities in the aggregate principal amount
of approximately 5% to 10% of the Company's total assets. The Company also may
offer furniture, fixture and equipment financing ("Secured Equipment Leases") to
operators of Health Care Facilities. The aggregate principal amount of Secured
Equipment Leases is not expected to exceed 10% of the Company's total assets.
The Company's primary investment objectives are to preserve, protect, and
enhance the Company's assets while (i) making distributions commencing in the
initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a real estate investment trust (a "REIT")
for federal income tax purposes; and (iv) providing stockholders of the Company
with liquidity of their investment within five to ten years after commencement
of the offering, either in whole or in part, through (a) listing of the shares
on a national securities exchange or over-the-counter market ("Listing"), or (b)
the commencement of the orderly sale of the Company's assets, and distribution
of the proceeds thereof (outside the ordinary course of business and consistent
with its objective of qualifying as a REIT).
<PAGE>
Liquidity and Capital Resources
Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, effective September 18, 1998, the Company registered for sale an
aggregate of $155,000,000 of shares of common stock (the "Shares") (15,500,000
Shares at $10 per Share), 500,000 of such Shares available only to stockholders
who elect to participate in the Company's reinvestment plan. In accordance with
the Company's prospectus, the Company has elected to extend the offering of
shares until a date no later than September 18, 2000. The Board of Directors may
determine to engage in future offerings of common stock, up to the number of
unissued authorized shares of common stock available.
The managing dealer of the offering of Shares of the Company is CNL
Securities Corp., an affiliate of the Company.
As of July 13, 1999, the Company had received aggregate subscription
proceeds of $2,751,052 (275,105 Shares), which exceeded the minimum offering
amount of $2,500,000, and $2,526,052 of the funds were released from escrow. The
remaining subscription proceeds of $225,000 (representing funds received from
Pennsylvania investors) will be held in escrow until the Company receives
aggregate subscriptions of at least $7,775,000.
As of October 25, 1999, the Company had received aggregate subscription
proceeds of $4,464,596 (446,460 Shares), including $4,164 (416 Shares) through
its distribution reinvestment plan and $225,000 from Pennsylvania investors. As
of October 25, 1999, the Company had approximately $3,560,000 available to
invest in Properties and Mortgage Loans following the deduction of selling
commissions, marketing support and due diligence expense reimbursement fees,
organization and offering expenses of approximately three percent, and
acquisition fees.
The Company expects to use net offering proceeds from the sale of Shares
to purchase Properties and to invest in Mortgage Loans. In addition, the Company
intends to borrow money to acquire assets and to pay certain related fees. The
Company intends to encumber assets in connection with such borrowing. The
Company plans to obtain a revolving line of credit initially in an amount up to
$45,000,000 (the "Line of Credit"). The Company also plans to obtain permanent
financing ("Permanent Financing"). Although the Board of Directors anticipates
that the Line of Credit initially may be in the amount of $45,000,000, the
maximum amount the Company may borrow is 300% of the Company's net assets. In
addition, the Board of Directors does not anticipate that the aggregate amount
of Permanent Financing will exceed 30% of the Company's total assets. The
Company has engaged in preliminary discussions with potential lenders but has
not yet received a commitment for the Line of Credit or any Permanent Financing
and there is no assurance that the Company will obtain the Line of Credit or any
Permanent Financing on satisfactory terms.
<PAGE>
Liquidity and Capital Resources - Continued
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as properties suitable for
acquisition are located or to fund Mortgage Loans. At September 30, 1999, the
Company had $3,607,683 invested in such short-term investments as compared to
$92 at December 31, 1998. The increase in the amount invested in short-term
investments reflects subscription proceeds received from the sale of Shares
during the nine months ended September 30, 1999. These funds will be used
primarily to purchase Properties, to make Mortgage Loans, to pay organizational
and offering expenses and acquisition expenses, to pay distributions to
stockholders, to meet other Company expenses and, in management's discretion, to
create cash reserves.
During the nine months ended September 30, 1999 and 1998, affiliates of
the Company incurred on behalf of the Company $363,682 and $316,203,
respectively, for certain organizational and offering expenses. In addition,
during the nine months ended September 30, 1999, affiliates of the Company
incurred on behalf of the Company $74,630 for certain acquisition expenses and
$18,642 for certain operating expenses. As of September 30, 1999, the Company
owed the Advisor $1,582,097 for such amounts, unpaid fees and administrative
expenses (including accounting; financial, tax and regulatory compliance and
reporting; stockholder distributions and reporting; due diligence and marketing;
and investor relations). The Advisor has agreed to pay or reimburse to the
Company all organization and offering expenses in excess of three percent of
gross offering proceeds.
Since the commencement of the Company's public offering through September
30, 1999, approximately $313,519 has been incurred by the Company in selling
commissions, marketing support and due diligence reimbursement fees to related
parties, the majority of which was subsequently paid to unrelated third parties.
In addition, since the commencement of the Company's public offering through
September 30, 1999, the Company has reimbursed affiliates approximately $135,339
for certain organizational and offering expenses incurred on behalf of the
Company and administrative services related to the offering.
During the nine months ended September 30, 1999, the Company generated
cash from operations of $31,845. Based on cash from operations the Company
declared and paid distributions to its stockholders of $16,460 during the period
July 14, 1999 (the date the Company commenced operations) through September 30,
1999. No distributions were paid or declared for the nine months ended September
30, 1998. On October 1, 1999, the Company declared distributions to stockholders
of record on October 1, 1999, totalling $10,372 ($0.025 per share), payable in
December 1999.
For the nine months ended September 30, 1999, 100 percent of the
distributions received by stockholders were considered to be ordinary income for
federal income tax purposes. No amounts distributed or to be distributed to the
stockholders as of September 30, 1999 were required to be or have been treated
by the Company as a return of capital for purposes of calculating the
stockholders' 8% return on their invested capital.
<PAGE>
Liquidity and Capital Resources - Continued
Due to anticipated low ongoing operating expenses, rental income expected
to be obtained from Properties after they are acquired, the fact that the Line
of Credit and Permanent Financing have not been obtained and that the Company
has not entered into Mortgage Loans or Secured Equipment Leases, management does
not believe that working capital reserves will be necessary at this time.
Management has the right to cause the Company to maintain reserves if, in their
discretion, they determine such reserves are required to meet the Company's
working capital needs.
As of September 30, 1999, the Company had not entered into any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular Mortgage Loan or Secured Equipment Lease
would be funded. The number of Properties to be acquired and Mortgage Loans to
be invested in will depend upon the amount of net offering proceeds and loan
proceeds available to the Company. The amount invested in Secured Equipment
Leases is not expected to exceed 10% of the Company's total assets.
Results of Operations
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on July 13, 1999. The Company did not acquire any
Properties or enter into any Mortgage Loans during the nine months ended
September 30, 1999.
During the nine months ended September 30, 1999, the Company earned
$31,845 in interest income from investments in money market accounts. Interest
income is expected to increase as the Company invests subscription proceeds
received in the future in highly liquid investments pending investment in
Properties and Mortgage Loans. However, as net offering proceeds are invested in
Properties and used to make Mortgage Loans, the percentage of the Company's
total revenues from interest income from investments in money market accounts or
other short term, highly liquid investments is expected to decrease.
Operating expenses were $44,690 for the nine months September 30, 1999.
Operating expenses represent only a portion of operating expenses which the
Company is expected to incur during a full nine month period in which the
Company owns Properties or in which the Company is operational. The dollar
amount of operating expenses is expected to increase as the Company acquires
Properties and invests in Mortgage Loans. However, general and administrative
expenses as a percentage of total revenues is expected to decrease as the
Company acquires Properties and invests in Mortgage Loans.
The Company has incurred operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis. Pursuant
to the advisory agreement, the Advisor is required to reimbursed the Company the
amount by which the total operating expenses paid or incurred by the Company
exceed in any four consecutive fiscal quarters (the "Expense Year"), the greater
of two percent of average invested assets or 25 percent of net income (the
"Expense Cap").
<PAGE>
Year 2000 Readiness Disclosure
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.
Information and Non-Information Technology Systems
The Company does not have any information or non-information technology
systems. The Advisor and affiliates of the Advisor provide all services
requiring the use of information and non-information technology systems pursuant
to a management agreement with the Company. The information technology system of
the affiliates of the Advisor consists of a network of personal computers and
servers built using hardware and software from mainstream suppliers. The
non-information technology systems of affiliates of the Advisor are primarily
facility related and include building security systems, elevators, fire
suppressions, HVAC, electrical systems and other utilities. The affiliates of
the Advisor have no internally generated programmed software coding to correct,
because substantially all of the software utilized by the affiliates is
purchased or licensed from external providers.
The Y2K Team
In early 1998, the affiliates of the Advisor formed a Year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the year 2000 problem. The Y2K
Team consists of members from the Advisor and its affiliates, including
representatives from senior management, information systems, telecommunications,
legal, office management, accounting and property management.
Assessing Year 2000 Readiness
The Y2K Team's initial step in assessing year 2000 readiness consists
of identifying any systems that are date-sensitive and, accordingly, could have
potential year 2000 problems. The Y2K Team has conducted inspections, interviews
and tests to identify which of systems used by the Company could have a
potential year 2000 problem.
The information system of the affiliates of the Advisor is comprised of
hardware and software applications from mainstream suppliers. Accordingly, the
Y2K Team has contacted and is evaluating documentation from the respective
vendors and manufacturers to verify the year 2000 compliance of their products.
The Y2K Team has also requested and is evaluating documentation from the
non-information technology systems providers of the affiliates.
<PAGE>
In addition, the Y2K Team has requested and is evaluating documentation
from other companies with which the Company has material third party
relationships. Such third parties, in addition to the providers of information
and non-information technology systems, consist of the Company's transfer agent
and financial institutions. The Company depends on its transfer agent to
maintain and track investor information and its financial institutions for
availability of cash.
As of September 30, 1999, the Y2K Team had received responses from
approximately 60% of the third parties. All of the responses were in writing. Of
the third parties responding, all indicated that they are currently year 2000
compliant or will be year 2000 compliant prior to the year 2000. Although the
Y2K Team continues to receive positive responses from the companies with which
the Company has third party relationships regarding their year 2000 compliance,
the Advisor cannot be assured that the third parties have adequately considered
the impact of the year 2000.
Achieving Year 2000 Compliance
The Y2K Team has identified and completed upgrades of hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of software applications that were not year
2000 compliant, although the Advisor cannot be assured that the upgrade
solutions provided by the vendors have addressed all possible year 2000 issues.
The cost for these upgrades and other remedial measures is the
responsibility of the Advisor and its affiliates. The Advisor does not expect
that the Company will incur any costs in connection with year 2000 remedial
measures.
Assessing the Risks to the Company of Non-Compliance and Developing Contingency
Plans
Risk of Failure of Information and Non-Information Technology Systems Used by
the Company
The Advisor believes that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Company is the failure of one or more of these systems as a result of year
2000 problems. Because the Company's major source of income will be rental
payments under long-term triple-net leases, any failure of information or
non-information technology systems used by the Company is not expected to have a
material impact on the results of operations of the Company. Even if such
systems failed, if the Company owned Properties, the payment of rent under the
Company's leases would not be affected. In addition, the Y2K Team is expected to
correct any Y2K problems within the control of the Advisor and its affiliates
before the year 2000.
The Y2K Team has determined that a contingency plan to address this
risk is not necessary at this time. However, if the Y2K Team identifies
additional risks associated with the year 2000 compliance of the information or
non-information technology systems used by the Company, the Y2K Team will
develop a contingency plan if deemed necessary at that time.
<PAGE>
Risk of Inability of Transfer Agent to Accurately Maintain Company Records
The Advisor believes that the reasonably likely worst case scenario
with regard to the Company's transfer agent is that the transfer agent will fail
to achieve year 2000 compliance of its systems and will not be able to
accurately maintain the records of the Company. This could result in the
inability of the Company to accurately identify its stockholders for purposes of
distributions, delivery of disclosure materials and transfer of units. The Y2K
Team has received certification from the Company's transfer agent of its year
2000 compliance. Despite the positive response from the transfer agent, the
Advisor cannot be assured that the transfer agent has addressed all possible
year 2000 issues.
The Y2K Team has developed a contingency plan pursuant to which the
Advisor and its affiliates would maintain the records of the Company manually,
in the event that the systems of the transfer agent are not year 2000 compliant.
The Advisor and its affiliates would have to allocate resources to internally
perform the functions of the transfer agent. The Advisor does not anticipate
that the additional cost of these resources would have a material impact on the
results of operations of the Company.
Risk of Loss of Short-Term Liquidity from Failure of Financial Institutions to
Achieve Year 2000 Compliance
The Advisor believes that the reasonably likely worst case scenario
with regard to the Company's financial institutions is that some or all of its
funds on deposit with such financial institutions may be temporarily
unavailable. The Y2K Team has received responses from 93% of the Company's
financial institutions indicating that their systems are currently year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.
Despite the positive responses from the financial institutions, the Advisor
cannot be assured that the financial institutions have addressed all possible
year 2000 issues. The loss of short-term liquidity could affect the Company's
ability to pay its expenses on a current basis. The Advisor does not anticipate
that a loss of short-term liquidity would have a material impact on the results
of operations of the Company.
Based upon the responses received from the Company's financial
institutions and the inability of the Y2K Team to identify a suitable
alternative for the deposit of funds that is not subject to potential year 2000
problems, the Y2K Team has determined not to develop a contingency plan to
address this risk.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
(d) The information required by this item is set forth in
Part 1. Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations and is
hereby incorporated by reference.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
*3.1 CNL Health Care Properties, Inc. Articles of
Incorporation
*3.2 Form of CNL Health Care Properties, Inc. Amended
and Restated Articles of Incorporation
*3.3 Form of CNL Health Care Properties, Inc. Bylaws
4.1 CNL Health Care Properties, Inc. Articles of
Incorporation (Filed as Exhibit 3.1 and
incorporated herein by reference.)
4.2 Form of CNL Health Care Properties, Inc. Amended
and Restated Articles of Incorporation (Filed as
Exhibit 3.2 and incorporated herein by
reference.)
4.3 Form of CNL Health Care Properties, Inc. Bylaws
(Filed as Exhibit 3.3 and incorporated herein by
reference.)
*4.4 Form of Reinvestment Plan
*10.1 Form of Escrow Agreement between CNL Health Care
Properties, Inc. and SouthTrust Asset Management
Company of Florida, N.A.
*10.2 Form of Advisory Agreement
*10.3 Form of Joint Venture Agreement
*10.4 Form of Indemnification and Purchase Agreement
*10.5 Form of Unconditional Guaranty of Payment and
Performance
*10.6 Form of Purchase Agreement
*10.7 Form of Lease Agreement including Rent Addendum,
Construction Addendum and Memorandum of Lease
*10.8 Form of Reinvestment Plan
*10.9 Form of Indemnification Agreement
27 Financial Data Schedule (Filed herewith.)
*Previously filed
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 23rd day of November, 1999.
CNL HEALTH CARE PROPERTIES, INC.
By: /s/ James M. Seneff, Jr.
------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
------------------------------
ROBERT A. BOURNE
Director and President
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Health Care Properties, Inc. at September 30, 1999, and its
statement of income for the nine months then ended and is qualified in its
entirety by reference to the Form 10-Q of CNL Health Care Properties, Inc. for
the nine months ended September 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,607,683
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,880,105
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 4,119
<OTHER-SE> 2,289,873
<TOTAL-LIABILITY-AND-EQUITY> 3,880,105
<SALES> 0
<TOTAL-REVENUES> 31,845
<CGS> 0
<TOTAL-COSTS> 44,690
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,845)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
<FN>
<F1>Due to the nature of its industry, CNL Health Care Properties, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
