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CNL RETIREMENT PROPERTIES, INC.
(Formerly CNL Health Care Properties, Inc.)
Supplement No. 1, dated November 21, 2000
to Prospectus, dated September 5, 2000
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This Supplement is part of, and should be read in conjunction with, the
Prospectus dated September 5, 2000. Capitalized terms used in this Supplement
have the same meaning as in the Prospectus unless otherwise stated herein.
Information as to the Property acquired by the Company is presented as
of November 9, 2000, and all references to the Property acquisition should be
read in that context. Proposed properties for which the Company receives initial
commitments, as well as property acquisitions that occur after November 9, 2000,
will be reported in a subsequent Supplement.
THE OFFERINGS
GENERAL
Upon the termination of its Initial Offering on September 18, 2000, the
Company had received aggregate subscriptions for 971,898 Shares totalling
$9,718,974 in gross proceeds, including 5,046 Shares ($50,463) issued pursuant
to the Reinvestment Plan. Following the termination of the Initial Offering, the
Company commenced this offering of up to 15,500,000 Shares. As of November 9,
2000, the Company had received aggregate subscriptions for 1,071,527 Shares
totalling $10,715,265 in gross proceeds, including 8,887 Shares ($88,874) issued
pursuant to the Reinvestment Plan from its Initial Offering and this offering.
As of November 9, 2000, net proceeds to the Company from its offerings of Shares
and capital contributions from the Advisor, after deduction of selling
commissions, marketing support and due diligence expense reimbursement fees and
organizational and offering expenses of three percent, totalled approximately
$9,700,000. The Company had used approximately $5,800,000 of net offering
proceeds and $8,100,000 in advances relating to its line of credit, described in
the section of the Prospectus entitled "Business -- Borrowing," to invest
approximately $13,900,000 in one assisted living Property. As of November 9,
2000, the Company had repaid advances totalling $2,730,000 relating to its line
of credit and had paid approximately $924,000 in Acquisition Fees and
Acquisition Expenses, leaving approximately $243,000 of net offering proceeds
available to invest in Properties and Mortgage Loans, or to further reduce the
balance outstanding on its line of credit.
At a special meeting of stockholders of the Company, held on August 22,
2000, the stockholders approved an amendment to the Company's Amended and
Restated Articles of Incorporation proposed by the Board of Directors to change
the Company's name. Effective August 24, 2000, the Company changed its name from
CNL Health Care Properties, Inc. to CNL Retirement Properties, Inc. The Board of
Directors believes that this will provide better name recognition of the Company
in the context of its business.
MANAGEMENT COMPENSATION
For information concerning compensation and fees paid to the Advisor
and its Affiliates since the date of inception of the Company, see "Certain
Relationships and Related Transactions."
<PAGE>
BUSINESS
GENERAL
The following information updates and replaces the first table on page
43 and the fourth paragraph on page 44 of the Prospectus.
Life Expectancy Trends
at Age 65 (in years)
Year Male Female
------------ ------- ----------
1965 12.9 16.3
1980 14.0 18.4
1985 14.4 18.6
1990 15.0 19.0
1991 15.1 19.1
1992 15.2 19.2
1993 15.1 19.0
1994 15.3 19.0
1995 15.3 19.0
1996* 15.8 19.1
1997* 15.6 19.2
1998** 15.7 19.2
1999** 15.7 19.3
2000** 15.8 19.3
2005** 16.1 19.4
2010** 16.3 19.5
* preliminary data
** estimated
Source: Social Security Administration Office of Programs: Data from the Office
of the Actuary
According to the Health Care Financing Administration and the National
Health Statistics Group, the health care industry represents over 13.5% of the
United States' gross domestic product ("GDP") with at least $1.092 trillion in
annual expenditures. The Health Care Financing Administration expects this
figure to rise to over 16.2% of the GDP by 2008, with $2.2 trillion in annual
expenditures. According to the U.S. Bureau of Census, U.S. health care
construction expenditures are estimated to be $17.4 billion per year and
growing. With regard to housing for seniors, there are three major contributors
to growth and the attraction of capital, according to the National Investment
Conference for the Senior Living and Long Term Care Industries in 1996. They are
(i) demographics, (ii) the limited supply of new product, and (iii) the
investment community's increased understanding of the industry. The Company
believes the growth in demand and facilities will continue at least 50 years due
to the favorable demographics, the increase in public awareness of the industry,
the preference of seniors for obtaining care in non-institutional settings and
the cost savings realized in a non-institutional environment.
BORROWING
The following information updates and replaces the third full paragraph
on page 61 of the Prospectus.
The Company may also borrow funds for the purpose of preserving its
status as a REIT. For example, the Company may borrow to the extent necessary to
permit the Company to make Distributions required in order to enable the Company
to qualify as a REIT for federal income tax purposes; however, the Company will
not borrow for the purpose of returning Invested Capital to the stockholders
unless necessary to eliminate corporate-level tax to the Company. The aggregate
borrowing of the Company, secured and unsecured, shall be reasonable in relation
to Net Assets of the Company and shall be reviewed by the Board of Directors at
least quarterly. The Board of Directors anticipates that the Company will have
one or more Lines of Credit initially in amounts up to $45,000,000; however, the
Line of Credit may be increased at the discretion of the Board of Directors. In
addition, the Board of
<PAGE>
Directors anticipates that the aggregate amount of the Permanent Financing will
not exceed 30% of the Company's total assets. However, in accordance with the
Company's Articles of Incorporation, the maximum amount of borrowing in relation
to Net Assets, shall not exceed 300% of Net Assets.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Appendix B.
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended
September 30, September 30,
2000 1999 (1) Year Ended December 31,
(Unaudited) (Unaudited) 1999 (1) 1998 (1) 1997 (1)
(2)
--------------- --------------- ---------- ---------- -----------
Revenues $ 725,358 $ 31,845 $ 86,231 $ -- $ --
Organizational costs -- 20,000 35,000 -- --
Other operating expenses 553,401 24,690 79,621 -- --
Net earnings (loss) (3) 171,957 (12,845 ) (28,390 ) -- --
Cash distributions declared (4) 313,436 16,460 50,404 -- --
Funds from operations (5) 300,873 (12,845 ) (28,390 ) -- --
Cash from operations 941,807 31,845 12,851 -- --
Earnings (loss) per Share .23 (.04 ) (.07 ) -- --
Cash distributions declared .40 .05 .13 -- --
per Share
Weighted average number of
Shares 758,132 342,929 412,713 -- --
outstanding (6)
September 30, September 30,
2000 1999 December 31,
(Unaudited) (Unaudited) 1999 1998 1997
--------------- --------------- ---------- ---------- -----------
Total assets $15,055,940 $3,880,105 $5,088,560 $976,579 $280,330
Total stockholders' equity 7,951,232 2,293,992 3,292,137 200,000 200,000
</TABLE>
(1) No operations commenced until the Company received minimum offering
proceeds of $2,500,000 and funds were released from escrow on July 14,
1999. The Company did not acquire its first Property until April 20,
2000; therefore, revenues for the year ended December 31, 1999
consisted only of interest income on funds held in interest bearing
accounts pending investment in a Property.
(2) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
(3) Net loss for the nine months ended September 30, 1999 is primarily the
result of a deduction of $20,000 in organizational costs in accordance
with generally accepted accounting principles.
(4) Cash distributions are declared by the Board of Directors and generally
are based on various factors, including cash available from operations.
For the nine months ended September 30, 2000 and 1999, and the year
ended December 31, 1999, 45%, 100% and 100%, respectively, of cash
distributions represent a return of capital in accordance with
generally accepted accounting principles ("GAAP"). Cash distributions
treated as a return of capital on a GAAP basis represent the amount of
cash distributions in excess of net earnings on a GAAP basis, including
organizational costs that were expensed for GAAP purposes for the year
ended December 31, 1999 and deductions for depreciation expense for the
nine months ended September 30, 2000. The Company has not treated such
amount as a return of capital for purposes of calculating Invested
Capital and the Stockholders' 8% Return.
(5) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and as used herein, means net earnings
determined in accordance with GAAP, excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization
of real estate assets and after adjustments for unconsolidated
partnerships and joint ventures. (Net earnings determined in accordance
with GAAP include the noncash effect of straight-lining rent increases
throughout the lease terms. This straight-lining is a GAAP convention
requiring real estate companies to report rental revenue based on the
average rent per year over the life of the leases. During the nine
months ended September 30, 2000, net earnings included $13,754 of these
amounts. No such amounts were earned during 1999, 1998 and 1997.) FFO
was developed by NAREIT as a relative measure of performance and
liquidity of an equity REIT in order to recognize that income-producing
real estate historically has not depreciated on the basis determined
under GAAP. However, FFO (i) does not represent cash generated from
operating activities determined in accordance with GAAP (which, unlike
FFO, generally reflects all cash effects of transactions and other
events that enter into the determination of net earnings), (ii) is not
necessarily indicative of cash flow available to fund cash needs and
(iii) should not be considered as an alternative to net earnings
determined in accordance with GAAP as an indication of the Company's
operating performance, or to cash flow from operating activities
determined in accordance with GAAP as a measure of either liquidity or
the Company's ability to make distributions. Accordingly, the Company
believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO should be
considered in conjunction with the Company's net earnings and cash
flows as reported in the accompanying financial statements and notes
thereto. See Appendix B -- Financial Information.
(6) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements generally are characterized by
the use of terms such as "believe," "expect" and "may." 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, the availability of capital from borrowings under the Company's Line
of Credit, 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 continue to identify suitable investments, the ability of the
Company to continue to locate suitable tenants for its Properties and borrowers
for its Mortgage Loans and Secured Equipment Leases, and the ability of 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
CNL Retirement Properties, Inc. (formerly CNL Health Care Properties,
Inc.) is a Maryland corporation that was organized on December 22, 1997. CNL
Retirement GP Corp. and CNL Retirement LP Corp. are wholly owned subsidiaries of
CNL Retirement Properties, Inc., organized in Delaware in December 1999. CNL
Retirement Partners, LP is a Delaware limited partnership formed in December
1999. CNL Retirement GP Corp. and CNL Retirement LP Corp. are the general and
limited partner, respectively, of CNL Retirement Partners, LP. The Property
currently owned is, and assets acquired in the future are, expected to be held
by CNL Retirement Partners, LP and, as a result, owned by CNL Retirement
Properties, Inc. through the Partnership. The term "Company" includes, unless
the context otherwise requires, CNL Retirement Properties, Inc., CNL Retirement
Partners, LP, CNL Retirement GP Corp. and CNL Retirement LP Corp.
The Company was formed to acquire Properties related to Health Care
Facilities located across the United States. The Health Care Facilities may
include congregate living facilities, assisted living facilities, skilled
nursing facilities, continuing care retirement communities, life care
communities, medical office buildings and walk-in clinics. The Properties will
be leased on a long term, "triple-net" basis. The Company may also provide
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 may
also offer Secured Equipment Leases to operators of Health Care Facilities. The
aggregate principal amount of Secured Equipment Leases is not expected to exceed
10% of Gross Proceeds.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Common Stock Offerings
During the period December 22, 1997 (date of inception) through
December 31, 1998, a capital contribution of $200,000 from the Advisor was the
Company's sole source of capital. On September 18, 1998, the Company commenced
the Initial Offering of Shares of Common Stock. Upon the termination of the
Initial Offering on September 18, 2000, the Company had received aggregate
subscriptions for 971,898 Shares totalling $9,718,974 in gross proceeds,
including 5,046 Shares ($50,463) issued pursuant to the Reinvestment Plan.
Following the termination of the Initial Offering, the Company commenced this
offering of up to 15,500,000 Shares of Common Stock ($155,000,000). As of
November 9, 2000, the Company had received aggregate subscription proceeds of
$10,715,265 (1,071,527 Shares), including $88,874 (8,887 Shares) through its
Reinvestment Plan from its Initial Offering and this offering. As of November 9,
2000, net proceeds to the Company from its offerings of Shares and capital
contributions from the Advisor, after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and
organizational and offering expenses of three percent totalled approximately
$9,700,000. In April 2000, the Company used approximately $5,800,000 of net
offering proceeds from its Initial Offering and $8,100,000 in advances relating
to its line of credit, described in the section of the Prospectus entitled
"Business -- Borrowing," to invest approximately $13,900,000 in one assisted
living Property. As of November 9, 2000, the Company had repaid advances of
$2,730,000 relating to its line of credit and had paid approximately $924,000 in
Acquisition Fees and Acquisition Expenses, leaving approximately $243,000 of
net offering proceeds available to invest in Properties and Mortgage Loans or to
further reduce the balance outstanding on its line of credit. See the section of
the Prospectus entitled "Business -- Property Acquisitions" for a description of
the Property owned as of November 9, 2000. As of November 9, 2000, the Company
had not entered into any Mortgage Loans.
The Company expects to use additional Net Offering Proceeds from the
sale of Shares (Gross Proceeds less fees and expenses of the offering) from this
offering, to purchase additional Properties and, to a lesser extent, make
Mortgage Loans. See "Investment Objectives and Policies." 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 borrowings.
The Company currently has a $25,000,000 revolving line of credit available, as
described below. The line of credit may be increased at the discretion of the
Board of Directors and may be repaid with offering proceeds, proceeds from the
sale of Assets, working capital or Permanent Financing. The Company may also
obtain Permanent Financing; although, it has not yet received a commitment for
any Permanent Financing, and there is no assurance that the Company will obtain
any Permanent Financing on satisfactory terms. The Board of Directors
anticipates that the aggregate amount of any Permanent Financing will not exceed
30% of the Company's total Assets. The maximum amount the Company may borrow is
300% of the Company's Net Assets. The number of Properties to be acquired and
Mortgage Loans in which the Company may invest 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 Gross
Proceeds.
Indebtedness
On April 20, 2000, the Company entered into a $25,000,000 revolving
line of credit and security agreement with a bank to be used by the Company to
acquire Properties. The line of credit provides that the Company may receive
advances of up to $25,000,000 until April 19, 2005, with an annual review to be
performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable discretion, of the Company's credit
quality. Interest expense on each advance shall be payable monthly, with all
unpaid interest and principal due no later than five years from the date of the
advance. Generally, advances under the line of credit will bear interest at
either (i) a rate per annum equal to London Interbank Offered Rate (LIBOR) plus
the difference between LIBOR and the bank's base rate at the time of the advance
or (ii) a rate equal to the bank's base rate, whichever the Company selects at
the time advances are made. The interest rate will be adjusted daily in
accordance with fluctuations with the bank's rate or the LIBOR rate, as
applicable. Notwithstanding the above, the interest rate on the first $9,700,000
drawn will be 8.75% through April 1, 2002, and thereafter will bear interest at
either (i) or (ii) above as of April 1, 2002. In addition, a fee of 0.5% per
advance will be due and payable to the bank on funds as advanced. Each advance
made under the line of credit will be collateralized by the assignment of rents
and leases. In addition, the line of credit provides that the Company will not
be able to further encumber the applicable Property during the term of the
advance without the bank's consent. The Company will be required, at each
closing, to pay all costs, fees and expenses arising in connection with the line
of credit. The Company must also pay the bank's attorneys fees, subject to a
maximum cap, incurred in connection with the line of credit and each advance.
During the nine months ended September 30, 2000, the Company obtained an advance
for $8,100,000 and repaid $2,730,000 relating to the line of credit. In
connection with the line of credit, the Company incurred an origination fee,
legal fees and closing costs of $55,917. The proceeds from borrowing on the line
of credit were used in connection with the purchase of the Company's Property,
described below.
The interest rate on the first $9,700,000 drawn on the Company's line
of credit will be 8.75% through April 1, 2002. However, the Company is subject
to interest rate risk through advances greater than $9,700,000 on its variable
rate line of credit. The Company may mitigate this risk by paying down its line
of credit from offering proceeds should interest rates rise substantially.
Property Acquisition and Investments
On April 20, 2000, the Company acquired its first Property, a
private-pay assisted living community in Orland Park, Illinois. In connection
with the purchase of the Property, the Company, as lessor, entered into a
long-term, triple-net lease agreement.
As of November 9, 2000, the Company had not entered into any
arrangements creating a reasonable probability that an additional Property would
be acquired or a particular Mortgage Loan or Secured Equipment Lease would be
funded. The Company is presently negotiating to acquire additional Properties,
but as of November 9, 2000, the Company had not acquired any such Properties or
entered into any Mortgage Loans.
Cash and Cash Equivalents
Until Properties are acquired, or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term (defined as investments maturing in
less than 30 days), highly liquid investments, such as demand deposit accounts
at commercial banks, certificates of deposit and money market accounts, 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, 2000, the
Company had $409,595 invested in such short-term investments as compared to
$4,744,222 at December 31, 1999. The decrease in the amount invested in
short-term investments was primarily attributable to the purchase of the
Company's Property and repayments on the line of credit, partially offset by
subscription proceeds received from the sale of Shares during the nine months
ended September 30, 2000. The funds remaining at September 30, 2000, along with
additional funds expected to be received from the sale of Shares, will be used
primarily to repay amounts outstanding on the line of credit, to purchase
additional Properties, to make Mortgage Loans, to pay Offering Expenses and
Acquisition Expenses, to pay Distributions to stockholders and other Company
expenses and, in management's discretion, to create cash reserves.
Liquidity Requirements
During the nine months ended September 30, 2000 and 1999, the Company
generated cash from operations (which includes cash received from tenants and
interest, less cash paid for operating expenses) of $941,807 and $31,845,
respectively. For the nine months ending September 30, 2000, cash from
operations includes a security deposit of $553,956 which was received from the
tenant. The Company expects to meet its short-term liquidity requirements, other
than for Offering Expenses, the acquisition and development of Properties, and
the investment in Mortgage Loans and Secured Equipment Leases, through cash flow
provided by operating activities. The Company believes that cash flow provided
by operating activities will be sufficient to fund normal recurring operating
expenses, regular debt service requirements and Distributions to stockholders.
To the extent that the Company's cash flow provided by operating activities is
not sufficient to meet such short-term liquidity requirements as a result, for
example, of unforeseen expenses due to the tenant defaulting under the terms of
its lease agreement, the Company will use borrowings under its line of credit.
Due to the fact that the Company leases its Property, and expects to
lease Properties acquired in the future, on a long-term, triple-net basis,
meaning that tenants are generally required to pay all repairs and maintenance,
property taxes, insurance and utilities, management does not believe that
working capital reserves, other than the FF&E Reserve fund described below, are
necessary at this time. Management believes that the Property is adequately
covered by insurance. In addition, the Advisor has obtained contingent liability
and property coverage for the Company. This insurance policy is intended to
reduce the Company's exposure in the unlikely event a tenant's insurance policy
lapses or is insufficient to cover a claim relating to the Property. The Company
expects to meet its other short-term liquidity requirements, including payment
of Offering Expenses, the acquisition and development of Properties and the
investment in Mortgage Loans and Secured Equipment Leases, with additional
advances under its line of credit and proceeds from this offering. The Company
expects to meet its long-term liquidity requirements through short- or
long-term, unsecured or secured debt financing or equity financing. Rental
payments under the leases are expected to exceed the Company's operating
expenses. For these reasons, no short-term or long-term liquidity problems
associated with operating the Properties are currently anticipated by
management.
As of September 30, 2000, the tenant of the Property owned by the
Company had established an FF&E Reserve fund which will be used for the
replacement and renewal of furniture, fixtures and equipment relating to the
Property. Funds in the FF&E Reserve have been paid, granted and assigned to the
Company. As of September 30, 2000, the FF&E Reserve totalled $9,835. Due to the
fact that the Property is leased on a long-term, triple-net basis, management
does not believe that other working capital reserves are necessary at this time.
Management has the right to cause the Company to maintain additional reserves
if, in their discretion, they determine such reserves are required to meet the
Company's working capital needs.
Distributions
The Company declared and paid Distributions to its stockholders
totalling $313,436, $16,460 and $50,404 during the nine months ended September
30, 2000 and 1999, and the period July 14, 1999 (the date operations commenced)
through December 31, 1999, respectively. No Distributions were paid or declared
for the period December 22, 1997 (date of inception) through July 13, 1999
because operations had not commenced. On October 1 and November 1, 2000, the
Company declared Distributions of $.058 per Share to stockholders of record on
October 1 and November 1, respectively, payable in December 2000.
For the nine months ended September 30, 2000, approximately 68% of the
Distributions received by stockholders were considered to be ordinary income and
approximately 32% were considered a return of capital for federal income tax
purposes. For the nine months ended September 30, 1999 and the year ended
December 31, 1999, 100% 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 November 9, 2000,
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 Invested Capital. The
Company intends to continue to make Distributions of cash available for such
purpose to the stockholders on a monthly basis, payable quarterly.
Due to Related Parties
During the nine months ended September 30, 2000 and 1999, the years
ended December 31, 1999 and 1998, and the period December 22, 1997 (date of
inception) through December 31, 1997, Affiliates incurred on behalf of the
Company $244,740, $363,682, $421,878, $562,739 and $43,398, respectively, for
certain organizational and offering expenses. In addition, during the nine
months ended September 30, 2000 and 1999, and the year ended December 31, 1999,
Affiliates of the Company incurred $94,307, $74,630 and $98,206, respectively,
for certain Acquisition Expenses and $125,548, $18,642 and $41,307,
respectively, for certain operating expenses on behalf of the Company. As of
September 30, 2000 and December 31, 1999, the Company owed the Affiliates
$1,139,382 and $1,775,256, respectively, for such amounts and unpaid fees and
administrative expenses. The Advisor has agreed to pay all organizational and
offering expenses (excluding selling commissions and marketing support and due
diligence expense reimbursement fees) in excess of three percent of gross
proceeds of the offerings.
Pursuant to the Advisory Agreement, the Advisor is also required to
reimburse 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% of
net income (the "Expense Cap"). During the four quarters ended June 30, 2000,
the Company's Operating Expenses exceeded the Expense Cap by $213,886 (the "June
2000 Reimbursement); therefore, the Advisor reimbursed the Company such amount
in accordance with the Advisory Agreement. During the Expense Year ended
September 30, 2000, the Company's Operating Expenses, net of the June 2000
Reimbursement, did not exceed the Expense Cap.
<PAGE>
Other
Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources, other than as referred to in the
Prospectus.
Management expects that the cash generated from operations will be
adequate to pay operating expenses and to make Distributions to stockholders.
RESULTS OF OPERATIONS
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on July 14, 1999.
Revenues
On April 20, 2000, the Company had acquired its first Property
consisting of land, building and equipment, and entered into a long-term,
triple-net lease agreement relating to the Property. The lease provides for
minimum base rental payments of $103,867 that are generally payable every four
weeks. The lease also provides that, after 24 months, the base rent required
under the terms of the lease will increase. In addition to annual base rent, the
tenant is required to pay contingent rent computed as a percentage of tenant's
gross sales at the Property. The lease also requires the establishment of an
FF&E Reserve. The FF&E Reserve is owned by the Company and amounts received by
the Company in connection with the FF&E Reserve have been recognized as
additional rent. For the quarter and nine months ended September 30, 2000, the
Company earned $344,940 and $617,059, respectively, in rental income from the
Property. The Company also earned $6,219 and $9,835 in FF&E Reserve income
during the quarter and nine months ended September 30, 2000, respectively.
Because the Company has not yet acquired all of its Properties, revenues for the
nine months ended September 30, 2000, represent only a portion of revenues which
the Company is expected to earn in future periods.
During the nine months ended September 30, 2000 and 1999, and the year
ended December 31, 1999, the Company earned $98,464, $31,845 and $86,231,
respectively, in interest income from investments in money market accounts
($5,615 and $31,845 of which was earned during the quarters ended September 30,
2000 and 1999, respectively.) 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 used to repay amounts outstanding on the Company's line of
credit or invested in Properties and used to make Mortgage Loans, the percentage
of the Company's total revenues earned from interest income from investments in
money market accounts or other short-term, highly liquid investments is expected
to decrease.
Significant Tenants
During the nine months ended September 30, 2000, the Company owned one
Property. The lessee, BG Orland Park, LLC, contributed 100% of the Company's
total rental income. In addition, the Property is operated as a Marriott(R)
brand chain. Although the Company intends to acquire additional Properties
located in various states and regions and to carefully screen its tenants in
order to reduce risks of default, failure of this lessee or the Marriott(R)
brand chain could significantly impact the results of operations of the Company.
However, management believes that the risk of such a default is reduced due to
the essential or important nature of this Property for the ongoing operations of
the lessee. It is expected that the percentage of total rental income
contributed by this lessee will decrease as additional Properties are acquired
and leased during subsequent periods.
Expenses
Operating expenses, including interest expense and depreciation and
amortization expense, were $767,287, $44,690 and $114,621 for the nine months
ended September 30, 2000 and 1999, and the year ended December 31, 1999,
respectively, of which $342,102 and $44,690 were incurred for the quarters ended
September 30, 2000 and 1999, respectively. Operating expenses represent only a
portion of operating expenses which the Company is expected to incur during a
full nine-month and twelve-month period in which the Company owns Properties.
The dollar amount of operating expenses is expected to increase as the Company
acquires additional Properties and invests in Mortgage Loans. However, general
and administrative expenses as a percentage of total revenues are
<PAGE>
expected to decrease as the Company acquires additional Properties and invests
in Mortgage Loans. Operating expenses included $35,000 in organizational
expenses for the year ended December 31, 1999. Organizational expenses represent
the cost related to forming the Company and are not expected to be incurred on
an ongoing basis.
Pursuant to the Advisory Agreement, the Advisor is required to
reimburse the Company the amount by which the total Operating Expenses paid or
incurred by the Company exceed the Expense Cap in an Expense Year. During the
Expense Year ended June 30, 2000, the Company's Operating Expenses exceeded the
Expense Cap by $213,886; therefore, the Advisor reimbursed the Company such
amount in accordance with the Advisory Agreement. During the Expense Year ending
September 30, 2000, the Company's Operating Expenses, net of the June 2000
Reimbursement, did not exceed the Expense Cap.
Other
The Company has elected, pursuant to Internal Revenue Code Section
856(c)(1), to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, and related regulations. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net earnings. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the year ended December 31, 1999. In addition, the
Company intends to continue to operate the Company so as to remain qualified as
a REIT for federal income tax purposes.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the effect of
inflation. Such provisions will include clauses requiring the payment of
percentage rent based on certain gross sales above a specified level and/or
automatic increases in the base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
In April of 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 year ended
December 31, 1999, operating expenses included a charge of $35,000 for
organizational costs.
Management of the Company currently knows of no trends that will have a
material adverse effect on liquidity, capital resources or results of
operations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares of Common
Stock for services in connection with the offering of Shares, a substantial
portion of which may be paid as commissions to other broker-dealers. For the
years ended December 31, 1999 and 1998, the Company incurred $388,109 and
$1,912, respectively, of such fees in connection with the Initial Offering, of
which $370,690 and $1,785, respectively, was paid by CNL Securities Corp. as
commissions to other broker-dealers. In addition, during the period January 1,
2000 through September 18, 2000, the Company incurred $338,902 of such fees in
connection with the Initial Offering, and during the period September 19, 2000
through November 9, 2000, the Company incurred $74,722 of such fees in
connection with this offering, the majority of which has been or will be paid by
CNL Securities Corp. as commissions to other broker-dealers.
In addition, the Managing Dealer 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. For the years ended December 31, 1999 and
1998, the Company incurred $25,874 and $128, respectively, of such fees in
connection with the Initial Offering, the majority of which has been or will be
reallowed to other broker-dealers and from which all bona fide due diligence
expenses will be paid. In addition, during the period January 1, 2000 through
September 18, 2000, the Company incurred $22,593 of such fees in connection with
the Initial Offering, and during the period September 19, 2000 through November
9, 2000, the Company incurred $4,981 of such fees in connection with this
offering, the majority of which has been or will be reallowed to other
broker-dealers and from which all bona fide due diligence expenses will be paid.
In addition, in connection with the Initial Offering, the Company
agreed to issue and sell soliciting dealer warrants to the Managing Dealer. The
price for each warrant was $0.0008 and one warrant was issued for every 25
Shares sold by the Managing Dealer in connection with the Initial Offering. 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 is 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 Initial Offering began. No soliciting dealer
warrants, however, are exercisable until one year from the date of issuance.
During the nine months ended September 30, 2000, the Company issued
approximately 29,900 soliciting dealer warrants. As of September 30, 2000, CNL
Securities Corp. was entitled to receive approximately 5,900 additional
soliciting dealer warrants for Shares sold during the quarter then ended. No
soliciting dealer warrants will be issued in connection with this offering.
CNL Securities Corp. will also receive, in connection with this
offering, a Soliciting Dealer Servicing Fee payable annually by the Company
beginning on December 31 of the year following the year in which the offering is
completed in the amount of 0.20% of Invested Capital (calculated for purposes of
this fee, using only Shares sold pursuant to this offering). CNL Securities
Corp. in turn may reallow all or a portion of such fees to Soliciting Dealers
whose clients hold Shares on such date. As of September 30, 2000, no such fees
had been incurred.
The Advisor is entitled to receive Acquisition Fees for services in
identifying the Properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans equal
to 4.5% of Total Proceeds. For the years ended December 31, 1999 and 1998, the
Company incurred $232,865 and $1,148, respectively, of such fees in connection
with the Initial Offering. In addition, during the period January 1, 2000
through September 18, 2000, the Company incurred $203,341 of such fees in
connection with the Initial Offering, and during the period September 19, 2000
through November 9, 2000, the Company incurred $44,833 of such fees in
connection with this offering.
The Company and the Advisor have entered into an Advisory Agreement
pursuant to which the Advisor receives a monthly Asset Management Fee of
one-twelfth of 0.60% of the Company's Real Estate Asset Value and the
outstanding principal balance of any Mortgage Loans as of the end of the
preceding month. The Asset Management Fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or may not be
taken, in whole or in part as to any year, in the sole discretion of the
Advisor. All or any portion of the Asset Management Fee not taken as to any
fiscal year shall be deferred without interest and may be taken in such other
fiscal year as the Advisor shall determine. During the nine months ended
September 30, 2000, the Company incurred $34,622 of such fees. No such fees were
incurred during the years ended December 31, 1999 and 1998.
The Company incurs Operating Expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis. Pursuant
to the Advisory Agreement described above, the Advisor is required to reimburse
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 2% of Average Invested Assets or 25% of Net Income (the
"Expense Cap"). During the four fiscal quarters ended June 30, 2000, the
Company's Operating Expenses exceeded the Expense Cap by $213,886 (the "June
2000 Reimbursement"); therefore, the Advisor reimbursed the Company such amount
in accordance with the Advisory Agreement. During the Expense Year ended
September 30, 2000, the Company's Operating Expenses, net of the June 2000
Reimbursement, did not exceed 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 of Shares) on a day-to-day basis. For
the nine months ended September 30, 2000, the years ended December 31, 1999 and
1998, and the period December 22, 1997 (date of inception) through December 31,
1997, the Company incurred $298,644, $373,480, $196,184 and $15,202,
respectively, for these services. For the nine months ended September 30, 2000
and the year ended December 31, 1999, $103,158 and $328,229, respectively, of
<PAGE>
such costs represented stock issuance costs, $31,190 and $6,455, respectively,
represented acquisition related costs and $164,296 and $38,796, respectively,
represented general operating and administrative expenses. For 1998 and 1997,
such amounts are included in deferred offering costs.
The Company believes that all amounts paid or payable by the Company to
Affiliates are fair and comparable to amounts that would be paid for similar
services provided by unaffiliated third parties.
DISTRIBUTION POLICY
DISTRIBUTIONS
The following information updates and replaces the table and the third
paragraph on page 87 of the Prospectus.
The following table reflects total Distributions and total
Distributions per Share declared by the Company during each month since the
Company commenced operations.
Total Distributions
Month Distributions per Share
-------------------- -------------- ---------------
August 1999 $ 7,422 $0.025
September 1999 9,038 0.025
October 1999 10,373 0.025
November 1999 11,289 0.025
December 1999 12,282 0.025
January 2000 13,501 0.025
February 2000 14,530 0.025
March 2000 15,562 0.025
April 2000 24,822 0.037
May 2000 40,804 0.058
June 2000 43,306 0.058
July 2000 50,847 0.058
August 2000 52,929 0.058
September 2000 57,135 0.058
October 2000 59,340 0.058
November 2000 63,454 0.058
For the nine months ended September 30, 2000 and the period July 13,
1999 (the date operations of the Company commenced) through December 31, 1999,
approximately 68% and 100%, respectively, of the Distributions declared and paid
were considered to be ordinary income and for the nine months ended September
30, 2000, approximately 32% were considered a return of capital for federal
income tax purposes. No amounts distributed to stockholders for the periods
presented 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 Invested
Capital. Due to the fact that the Company had only acquired one Property and was
still in the offering stage as of September 30, 2000, the characterization of
Distributions for federal income tax purposes is not necessarily considered by
management to be representative of the characterization of Distributions in
future periods. In addition, the characterization for tax purposes of
Distributions declared for the nine months ended September 30, 2000 may not be
indicative of the results that may be expected for the year ending December 31,
2000.
<PAGE>
ADDENDUM TO
APPENDIX B
FINANCIAL INFORMATION
-------------------------------------------------------------------
THE UPDATED PRO FORMA FINANCIAL STATEMENTS AND THE UNAUDITED
FINANCIAL STATEMENTS OF CNL RETIREMENT PROPERTIES, INC.
(FORMERLY CNL HEALTH CARE PROPERTIES, INC.) CONTAINED IN THIS
ADDENDUM SHOULD BE READ IN CONJUNCTION WITH APPENDIX B TO THE
ATTACHED PROSPECTUS, DATED SEPTEMBER 5, 2000.
-------------------------------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL RETIREMENT PROPERTIES, INC.
(formerly CNL Health Care Properties, Inc.)
<TABLE>
<CAPTION>
<S> <C>
Page
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of September 30, 2000 B-2
Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2000 B-3
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1999 B-4
Notes to Pro Forma Consolidated Financial Statements for the nine months ended
September 30, 2000 and the year ended December 31, 1999 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 B-7
Condensed Consolidated Statements of Operations for the quarters and nine months ended
September 30, 2000 and 1999 B-8
Condensed Consolidated Statements of Stockholders' Equity for the nine
months ended September 30, 2000 and the year ended December 31, 1999 B-9
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 B-10
Notes to Condensed Consolidated Financial Statements for the quarters and nine months ended
September 30, 2000 and 1999 B-12
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of CNL
Retirement Properties, Inc. (formerly CNL Health Care Properties, Inc.) and
subsidiaries (the "Company") gives effect to (i) the receipt of an initial
capital contribution of $200,000 from the Advisor, $9,978,385 in gross offering
proceeds from the sale of 997,838 shares of common stock for the period from
inception through September 30, 2000, and the application of such funds to pay
offering expenses and miscellaneous acquisition expenses and to purchase a
property, (ii) the receipt of $736,880 in gross offering proceeds from the sale
of 73,688 additional shares for the period October 1, 2000 through November 9,
2000 and the payment of related offering expenses, acquisition fees and
miscellaneous acquisition expenses, as reflected in the pro forma adjustments
described in the related notes. The Unaudited Pro Forma Consolidated Balance
Sheet as of September 30, 2000 includes the transactions described in (i) above,
from the historical balance sheet, adjusted to give effect to the transactions
in (ii) above as if they had occurred on September 30, 2000.
The Unaudited Pro Forma Consolidated Statements of Operations for the
nine months ended September 30, 2000 and the year ended December 31, 1999,
include the operating results of the property described in (i) above from the
date the property became operational through the end of the pro forma period
presented.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates or been in effect during the periods
indicated. This pro forma consolidated financial information should not be
viewed as indicative of the Company's financial results or conditions in the
future.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL Health Care Properties, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------------ ------------- -------------
Land, building and equipment on operating lease $14,445,267 $ -- $ 14,445,267
Cash and cash equivalents 409,595 644,770 (a) 1,054,365
Receivable 4,244 -- 4,244
Loan costs -- 50,916
50,916
Accrued rental income 13,754 -- 13,754
Other assets 132,164 33,160 (a) 165,324
------------ ------------- -------------
$ 15,055,940 $ 677,930 $ 15,733,870
============ ============= =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Line of credit $ 5,370,000 $ -- $ 5,370,000
Accounts payable and accrued expenses -- 1,788
1,788
Due to related parties 1,139,382 -- 1,139,382
Interest payable 12,267 -- 12,267
Security deposits 553,956 -- 553,956
Deferred rental income 27,315 27,315
--
------------ ------------- -------------
Total liabilities 7,104,708 -- 7,104,708
------------ ------------- -------------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- -- --
Excess shares, $0.01 par value per share.
Authorized and unissued 103,000,000 shares -- -- --
Common stock, $0.01 par value per share.
Authorized 100,000,000 shares; issued and
outstanding 1,017,838 shares; issued and
outstanding, as adjusted, 1,091,526 shares 10,178 737 (a) 10,915
Capital in excess of par value 8,161,327 677,193 (a) 8,838,520
Accumulated distributions in excess of net earnings (220,273) -- (220,273)
------------ ------------- -------------
Total stockholders' equity 7,951,232 677,930 8,629,162
------------ ------------- -------------
$ 15,055,940 $ 677,930 $ 15,733,870
============ ============= =============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL Health Care Properties, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Pro Forma
Historical Adjustments Pro Forma
----------- --------------- ------------
Revenues:
Rental income from operating lease $ 617,059 $ 417,761 (1) $ 1,034,820
FF&E Reserve income 9,835 9,809 (2) 19,644
Interest and other income 98,464 (90,959)(3) 7,505
----------- ------------- ------------
725,358 336,611 1,061,969
----------- ------------- ------------
Expenses:
Interest 263,409 216,563 (4) 479,972
General operating and administrative 269,828 -- 269,828
Asset management fees to related party 34,622 27,697 (5) 62,319
Reimbursement of operating expenses from
related party (213,886) 104,851 (6) (109,035)
Depreciation and amortization 199,428 134,726 (7) 334,154
----------- ------------- ------------
553,401 483,837 1,037,238
----------- ------------- ------------
Net Earnings $ 171,957 $ (142,226) $ 24,731
=========== ============= ============
Earnings Per Share of Common Stock
(Basic and Diluted) (8) $ 0.23 $ 0.03
=========== ============
Weighted Average Number of Shares of Common
Stock Outstanding 758,132 788,771
=========== ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL Health Care Properties, Inc.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Pro Forma
Historical Adjustments Pro Forma
------------ --------------- --------------
Revenues:
Rental income from operating lease $ -- $ 304,141 (1) $ 304,141
FF&E Reserve income -- 7,296 (2) 7,296
Interest and other income 86,231 (43,169)(3) 43,062
----------- --------------- --------------
86,231 268,268 354,499
----------- --------------- --------------
Expenses:
Interest -- 161,438 (4) 161,438
General operating and administrative 79,621 -- 79,621
Asset management fees to related party -- 13,849 (5) 13,849
Organizational costs 35,000 -- 35,000
Depreciation and amortization -- 100,180 (7) 100,180
----------- --------------- --------------
114,621 275,467 390,088
----------- --------------- --------------
Net Loss $ (28,390) $ (7,199) $ (35,589)
=========== =============== ==============
Loss Per Share of Common Stock (Basic and
Diluted) (8) $ (0.07) $ (0.07)
=========== ==============
Weighted Average Number of Shares of Common
Stock Outstanding 412,713 514,035
=========== ==============
See accompanying notes to unaudited pro forma consolidated financial statements.
</TABLE>
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL Health Care Properties, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $736,880 from the sale of 73,688 shares
during the period October 1, 2000 through November 9, 2000 and the
payment of related acquisition fees, selling commissions and offering
expenses which have been netted against stockholders' equity.
Unaudited Pro Forma Consolidated Statements of Operations:
(1) Represents adjustment to rental income from the operating lease for the
property acquired by the Company on April 20, 2000 (the "Pro Forma
Property") for the period commencing the date the Pro Forma Property
became operational by the previous owner to the earlier of (i) the date
the Pro Forma Property was acquired by the Company or (ii) the end of
the pro forma period presented. The date the Pro Forma Property is
treated as becoming operational by the previous owner as a rental
property for purposes of the Pro Forma Consolidated Statements of
Operations was October 11, 1999.
The lease provides for the payment of percentage rent in addition to
base rental income; however, no percentage rent was due under the lease
for the Pro Forma Property during the period the Company was assumed to
have held the property.
(2) Represents reserve funds, which will be used for the replacement and
renewal of furniture, fixtures and equipment relating to the Pro Forma
Property (the "FF&E Reserve"). The funds in the FF&E Reserve and all
property purchased with funds from the FF&E Reserve will be paid,
granted and assigned to the Company. In connection therewith, FF&E
Reserve income was earned at approximately $2,200 per month.
(3) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the period commencing the date the Pro Forma Property became
operational by the previous owner to the earlier of (i) the date the
Pro Forma Property was acquired by the Company or (ii) the end of the
pro forma period presented, as described in Note (1). The pro forma
adjustment is based upon the fact that interest income from interest
bearing accounts was earned at a rate of approximately five percent per
annum by the Company during the year ended December 31, 1999 and the
nine months ended September 30, 2000.
(4) Represents adjustment to interest expense incurred at a rate of 8.75%
per annum in connection with the assumed borrowings from the line of
credit of $8,100,000 on October 11, 1999.
(5) Represents increase in asset management fees relating to the Pro Forma
Property for the period commencing the date the Pro Forma Property
became operational by the previous owner to the earlier of (i) the date
the Pro Forma Property was acquired by the Company or (ii) the end of
the pro forma period presented, as described in Note (1). Asset
management fees are equal to 0.60% per year of the Company's Real
Estate Asset Value as defined in the Company's prospectus.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly CNL Health Care Properties, Inc.)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Statements of Operations - Continued:
(6) Pursuant to the advisory agreement, CNL Retirement Corp. (the
"Advisor") is required to reimburse 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.") During the Expense Year ended June 30, 2000, the
Company's operating expenses exceeded the Expense Cap by $213,886.
During the Expense Year ended September 30, 2000, the Company's
operating expenses, net of the June 2000 Reimbursement, did not exceed
the Expense Cap.
As a result of the Pro Forma Property being treated in the Pro Forma
Consolidated Statements of Operations as operational since October 11,
1999, the Expense Cap increased based on two percent of average
invested assets; therefore, the amount of the reimbursement of
operating expenses from related party was adjusted for the nine months
ended September 30, 2000.
(7) Represents increase in depreciation expense of the building and the
furniture, fixture and equipment ("FF&E") portions of the Pro Forma
Property accounted for as an operating lease using the straight-line
method. The building and FF&E are depreciated over useful lives of 40
and seven years, respectively. Also represents amortization of the loan
costs of $55,917 (.5% origination fee on the $8,100,000 from borrowings
on the line of credit, associated legal fees and closing costs)
amortized under the straight-line method over a period of five years.
(8) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the nine
months ended September 30, 2000 and the year ended December 31, 1999.
As a result of the Pro Forma Property being treated in the Pro Forma
Consolidated Statements of Operations as operational since October 11,
1999, the Company assumed approximately 670,638 shares of common stock
were sold, and the net offering proceeds were available for the
purchase of this property. Due to the fact that approximately 270,400
of these shares of common stock were actually sold subsequently, during
the period October 11, 1999 through April 20, 2000, the weighted
average number of shares outstanding for the pro forma periods were
adjusted. Pro forma earnings per share were calculated based upon the
weighted average number of shares of common stock outstanding, as
adjusted, during the nine months ended September 30, 2000 and the year
ended December 31, 1999.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
September 30, December 31,
2000 1999
-------------- -------------
ASSETS
Land, building and equipment on operating lease, net $14,445,267 $ --
Cash 409,595 4,744,222
Receivables 4,244 --
Loan costs, less accumulated amortization of $5,001 50,916 --
Accrued rental income 13,754 --
Other assets 132,164 344,338
--------------- --------------
$15,055,940 $5,088,560
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 5,370,000 $ --
Due to related parties 1,139,382 1,775,256
Accounts payable and accrued expenses 1,788 21,167
Interest payable 12,267 --
Security deposit 553,956 --
Rent paid in advance 27,315 --
--------------- --------------
Total liabilities 7,104,708 1,796,423
--------------- --------------
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
1,017,838 and 540,028 shares, respectively 10,178 5,400
Capital in excess of par value 8,161,327 3,365,531
Accumulated distributions in excess of net earnings (220,273) (78,794)
--------------- --------------
Total stockholders' equity 7,951,232 3,292,137
--------------- --------------
$15,055,940 $ 5,088,560
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C>
Quarter Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues:
Rental income from operating lease $ 344,940 $ -- $ 617,059 $ --
FF&E Reserve income 6,219 -- 9,835 --
Interest income 5,615 31,845 98,464 31,845
-------------- -------------- --------------- --------------
356,774 31,845 725,358 31,845
-------------- -------------- --------------- --------------
Expenses:
Interest 133,633 -- 263,409 --
General operating and administrative 76,214 24,690 269,828 24,690
Asset management fees to related party 20,773 -- 34,622 --
Organizational costs -- 20,000 -- 20,000
Reimbursement of operating expenses
from related party -- -- (213,886) --
Depreciation and amortization 111,482 -- 199,428 --
-------------- -------------- --------------- --------------
342,102 44,690 553,401 44,690
-------------- -------------- --------------- --------------
Net Earnings (Loss) $ 14,672 $ (12,845) $ 171,957 $ (12,845)
============== ============== =============== ==============
Net Earnings (Loss) Per Share of Common
Stock (Basic and Diluted) $ .02 $ (.04) $ .23 $ (.04)
============== ============== =============== ==============
Weighted Average Number of Shares of
Common Stock Outstanding 940,592 342,929 758,132 342,929
============== ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000 and Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Common stock
--------------------------------- Accumulated
Capital in distributions
Number Par Excess of in excess of
of shares value par value net earnings Total
--------------- --------------- -------------- --------------- -------------
Balance at December 31, 1998 20,000 $ 200 $ 199,800 $ -- $ 200,000
Subscriptions received for common
stock through public offering
and distribution reinvestment plan 543,528 5,435 5,429,848 -- 5,435,283
Subscriptions held in escrow (23,500) (235) (234,765) -- (235,000)
Stock issuance costs -- -- (2,029,352) -- (2,029,352)
Net loss -- -- -- (28,390) (28,390)
Distributions declared and paid
($.125 per share) -- -- -- (50,404) (50,404)
--------------- -------------- --------------- --------------- -------------
Balance at December 31, 1999 540,028 5,400 3,365,531 (78,794) 3,292,137
Subscriptions received for common
stock through public offering and
distribution reinvestment plan 454,310 4,543 4,538,582 -- 4,543,125
Subscriptions released from escrow 23,500 235 234,765 -- 235,000
Stock issuance costs -- -- (732,676) -- (732,676)
Adjustment to previously accrued
stock issuance costs -- -- 755,125 -- 755,125
Net earnings -- -- -- 171,957 171,957
Distributions declared and paid
($.404 per share) -- -- -- (313,436) (313,436)
-------------- -------------- --------------- --------------- --------------
Balance at September 30, 2000 1,017,838 $ 10,178 $ 8,161,327 $ (220,273) $7,951,232
=============== ============== =============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended
September 30,
2000 1999
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 941,807 $ 31,845
-------------- ----------------
Net Cash Used in Investing Activities:
Additions to land, building and equipment
on operating lease (13,848,900) --
Payment of acquisition costs (483,972) --
--------------- ----------------
Net cash used in investing activities (14,332,872) --
--------------- ----------------
Net Cash Provided by Financing Activities:
Payment of offering and acquisition costs paid by
related party on behalf of the Company (343,589) --
Proceeds from line of credit 8,100,000 --
Payment of loan costs (55,917) --
Repayment of borrowings on line of credit (2,730,000) --
Subscriptions received from stockholders 4,778,125 3,918,991
Distributions to stockholders (313,436) (16,460)
Payment of stock issuance costs (378,745) (326,785)
--------------- ----------------
Net cash provided by financing activities 9,056,438 3,575,746
--------------- ----------------
Net Increase (Decrease) in Cash and Cash
Equivalents (4,334,627) 3,607,591
Cash and Cash Equivalents at Beginning
of Period 4,744,222 92
--------------- ----------------
Cash and Cash Equivalents at End of
Period $ 409,595 $ 3,607,683
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended
September 30,
2000 1999
-------------- -------------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Amounts paid by related parties
on behalf of the Company and
its subsidiaries:
Acquisition costs $ -- $ 74,630
Stock issuance costs 97,601 363,682
--------------- -------------
$ 97,601 $ 438,312
=============== ===============
Costs incurred by the Company and
unpaid at period end:
Acquisition costs $ 245,179 --
Stock issuance costs 106,530 --
--------------- ----------------
$ 351,709 $ --
=============== ================
Adjustment to previously accrued
stock issuance costs $ 755,125 $ --
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2000 and 1999
1. Organization and Nature of Business:
CNL Retirement Properties, Inc., formerly known as CNL Health Care
Properties, Inc., was organized pursuant to the laws of the State of
Maryland on December 22, 1997. CNL Retirement GP Corp. and CNL
Retirement LP Corp. are wholly owned subsidiaries of CNL Retirement
Properties, Inc., each of which was organized pursuant to the laws of
the State of Delaware in December 1999. CNL Retirement Partners, LP is
a Delaware limited partnership formed in December 1999. CNL Retirement
GP Corp. and CNL Retirement LP Corp. are the general and limited
partner, respectively, of CNL Retirement Partners, LP. The term
"Company" includes, unless the context otherwise requires, CNL
Retirement Properties, Inc., CNL Retirement Partners, LP, CNL
Retirement GP Corp. and CNL Retirement LP Corp.
The Company intends to use the proceeds from its public offerings after
deducting offering expenses, primarily to acquire real estate
properties (the "Property" or "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 Company may provide
mortgage financing (the "Mortgage Loans") to operators of Health Care
Facilities in the aggregate principal amount of approximately five to
ten percent 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. Secured Equipment Leases will
be funded from the proceeds of a loan in an amount up to ten percent of
the Company's total assets.
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 the organization of the Company.
The Company acquired its first Property, a Brighton Gardens(R) by
Marriott(R), on April 20, 2000. The Property is located in Orland Park,
Illinois. In connection with the purchase of the Property, the Company,
as lessor, entered into a long-term, triple-net lease agreement.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated 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 condensed consolidated
financial statements reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. Operating results for the quarter and nine months ended
September 30, 2000 may not be indicative of the results that may be
expected for the year ending December 31, 2000. Amounts included in the
financial statements as of December 31, 1999 have been derived from
audited financial statements as of that date.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
2. Basis of Presentation - Continued:
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Form 10-K of
CNL Retirement Properties, Inc. and its subsidiaries for the year ended
December 31, 1999.
The accompanying unaudited condensed consolidated financial statements
include the accounts of CNL Retirement Properties, Inc. and its wholly
owned subsidiaries, CNL Retirement GP Corp. and CNL Retirement LP
Corp., as well as the accounts of CNL Retirement Partners, LP. All
significant intercompany balances and transactions have been
eliminated.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101") which provides the staff's
views in applying generally accepted accounting principles to selected
revenue recognition issues. SAB 101 requires the Company to defer
recognition of certain percentage rental income until certain
thresholds are met. The Company adopted SAB 101 effective January 1,
2000 without restatement of prior periods.
3. Public Offerings:
On September 18, 2000, the Company completed its offering of up to
15,500,000 shares of common stock ($155,000,000) (the "Initial
Offering"), which included 500,000 shares ($5,000,000) available only
to stockholders who elected to participate in the Company's
distribution reinvestment plan. In addition, the Company registered up
to 600,000 shares issuable upon the exercise of warrants granted to the
managing dealer of the Initial Offering as Shares were sold. In
connection with the Initial Offering, the Company received subscription
proceeds of $9,718,974 (971,898 shares), including $50,463 (5,046
shares) through the distribution reinvestment plan and had issued
approximately 29,900 warrants exercisable for 29,900 shares (see Note
9).
Immediately following the completion of the Initial Offering, the
Company commenced an offering of up to 15,500,000 additional shares of
common stock ($155,000,000) (the "2000 Offering"). Of the 15,500,000
shares of common stock offered, up to 500,000 are available to
stockholders purchasing shares through the distribution reinvestment
plan. The price per share and other terms of the 2000 Offering,
including the percentage of gross proceeds payable (i) to the managing
dealer for selling commissions and expenses in connection with the
offering and (ii) to CNL Retirement Corp. (the "Advisor") for
acquisition fees, are substantially the same as for the Company's
Initial Offering. As of September 30, 2000, the Company had received
total subscription proceeds from the Initial Offering, the 2000
Offering and the sale of warrants of $9,978,385 (997,838 shares),
including $88,874 (8,887 shares) through the distribution reinvestment
plan.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
4. Land, Building and Equipment on Operating Lease:
The Company leases its land, building and equipment to a health care
facility operator. The lease is accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," and has been classified as an operating lease. The lease is
for 15 years, provides for minimum and contingent rent and requires the
tenant to pay executory costs. In addition, the tenant pays all
property taxes and assessments and carries insurance coverage for
public liability, property damage, fire and extended coverage. The
lease options allow the tenant to renew the lease for four successive
five-year periods subject to the same terms and conditions of the
initial lease. The lease also requires the establishment of a capital
expenditure reserve fund, which will be used for the replacement and
renewal of furniture, fixtures and equipment relating to the health
care Property (the "FF&E Reserve"). Funds in the FF&E Reserve have been
paid, granted and assigned to the Company as additional rent.
The Company recorded the acquisition of the land, building and
equipment relating to the Property at cost, including acquisition and
closing costs. The building and equipment are depreciated on the
straight-line method over their estimated useful lives of 40 and 7
years, respectively. Land, building and equipment on operating lease
consisted of the following at:
September 30, December 31,
2000 1999
----------------- ----------------
Land $ 2,083,948 $ --
Building 11,530,358 --
Equipment 1,025,388 --
------------------ ----------------
14,639,694 --
Less accumulated depreciation (194,427) --
------------------ ----------------
$ 14,445,267 $ --
================== ================
The lease provides for an increase in the minimum annual rent
commencing at the beginning of the third lease year. Such amount is
recognized on a straight-line basis over the term of the lease
commencing on the date the Property was placed in service. For the nine
months ended September 30, 2000, the Company recognized $13,754 of such
rental income. This amount is included in rental income from operating
lease in the accompanying consolidated statements of operations.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating lease at September 30, 2000:
2000 $ 337,567
2001 1,350,267
2002 1,373,391
2003 1,384,890
2004 1,384,890
Thereafter 14,223,932
--------------
$ 20,054,937
==============
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
4. Land, Building and Equipment on Operating Lease - Continued:
Since the lease is renewable at the option of the tenant, the above
table only presents future minimum lease payments due during the
initial lease term. In addition, this table does not include any
amounts for future contingent rents, which may be received on the lease
based on a percentage of the tenant's gross sales.
5. Other Assets:
Other assets totaling $132,164 and $344,338 as of September 30, 2000
and December 31, 1999, respectively, consisted of acquisition fees and
acquisition expenses which will be allocated to future Properties and
miscellaneous prepaid expenses.
6. Line of Credit:
On April 20, 2000, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire
Properties. The line of credit provides that the Company may receive
advances of up to $25,000,000 until April 19, 2005, with an annual
review to be performed by the bank to indicate that there has been no
substantial deterioration, in the bank's reasonable discretion, of the
Company's credit quality. Interest expense on each advance shall be
payable monthly, with all unpaid interest and principal due no later
than five years from the date of the advance. Generally, advances under
the line of credit will bear interest at either (i) a rate per annum
equal to the London Interbank Offered Rate (LIBOR) plus the difference
between LIBOR and the bank's base rate at the time of the advance or
(ii) a rate equal to the bank's base rate, whichever the Company
selects at the time advances are made. The interest rate will be
adjusted daily in accordance with fluctuations with the bank's rate or
the LIBOR rate, as applicable. Notwithstanding the above, the interest
rate on the first $9,700,000 drawn will be 8.75% through April 1, 2002,
and thereafter will bear interest at either (i) or (ii) above as of
April 1, 2002. In addition, a fee of 0.5% per advance will be due and
payable to the bank on funds as advanced. Each advance made under the
line of credit will be collateralized by the assignment of rents and
leases. In addition, the line of credit provides that the Company will
not be able to further encumber the applicable Property during the term
of the advance without the bank's consent.
The Company will be required, at each closing, to pay all costs, fees
and expenses arising in connection with the line of credit. The Company
must also pay the bank's attorney's fees, subject to a maximum cap,
incurred in connection with the line of credit and each advance.
The Company obtained an advance of $8,100,000 relating to the line of
credit during the nine months ended September 30, 2000. As of September
30, 2000, the Company had repaid $2,730,000 of such amount and had an
outstanding balance of $5,370,000. In connection with the line of
credit, the Company incurred a commitment fee, legal fees and closing
costs of $55,917. The proceeds were used in connection with the
purchase of the Company's Property.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
7. Stock Issuance Costs:
The Company has incurred certain expenses of its offering, 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. During the
nine months ended September 30, 2000 and 1999, the Company incurred
$732,676 and $838,355, respectively, in stock issuance costs, including
$382,248 and $329,479, respectively, in commissions and marketing
support and due diligence expense reimbursement fees (see Note 9).
These amounts have been charged to stockholders' equity.
Preliminary costs incurred prior to raising capital were advanced by
the Advisor and its affiliates. 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 offerings.
8. Distributions:
For the nine months ended September 30, 2000, approximately 68 percent
of the distributions paid to stockholders were considered ordinary
income and approximately 32 percent were considered a return of capital
for federal income tax purposes. No amounts distributed to stockholders
for the nine months ended September 30, 2000 are required to be or have
been treated by the Company as return of capital for purposes of
calculating the stockholders' return on their invested capital. The
characterization for tax purposes of distributions declared for the
nine months ended September 30, 2000 may not be indicative of the
characterization of distributions that may be expected for the year
ending December 31, 2000.
9. Related Party Arrangements:
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer, CNL Securities Corp. These
affiliates receive fees and compensation in connection with the
offerings, 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 offerings, a substantial portion of which has been
or will be paid as commissions to other broker-dealers. During the nine
months ended September 30, 2000, the Company incurred $358,358 of such
fees, of which $318,017 has been or will be paid by CNL Securities
Corp. as commissions to other broker-dealers.
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, 2000, the Company incurred $23,891 of such fees,
the majority of which was reallowed to other broker-dealers and from
which all bona fide due diligence expenses were or will be paid.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
9. Related Party Arrangements - Continued:
In addition, in connection with the Initial Offering, the Company
agreed to issue and sell soliciting dealer warrants ("Soliciting Dealer
Warrants") to CNL Securities Corp. The price for each warrant was
$0.0008 and one warrant was issued for every 25 shares sold by the
managing dealer except where prohibited by federal or state securities
laws. 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 Initial Offering began. No Soliciting
Dealer Warrant, however, will be exercisable until one year from the
date of issuance. During the nine months ended September 30, 2000, the
Company issued approximately 29,900 Soliciting Dealer Warrants. As of
September 30, 2000, CNL Securities Corp. was entitled to receive
approximately 5,900 additional Soliciting Dealer Warrants for shares
sold during the quarter then ended.
CNL Securities Corp. will also receive, in connection with the 2000
Offering, a soliciting dealer servicing fee payable annually by the
Company beginning on December 31 of the year following the year in
which the offering is completed in the amount of 0.20% of the
stockholders' investment in the Company. CNL Securities Corp. in turn
may reallow all or a portion of such fees to soliciting dealers whose
clients hold shares on such date. As of September 30, 2000, no such
fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of the leases of the
Properties and Mortgage Loans equal to 4.5% of gross proceeds of the
offerings, loan proceeds from permanent financing and amounts
outstanding on the line of credit, if any, at the time of listing the
Company's shares of common stock 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, 2000, the Company incurred $215,015 of such
fees. These fees are included in land, building and equipment on
operating lease and other assets at September 30, 2000.
The Company incurs 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
reimburse 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"). During
the four quarters ended June 30, 2000, the Company's operating expenses
exceeded the Expense Cap by $213,886 (the "June 2000 Reimbursement");
therefore, the Advisor reimbursed the Company such amount in accordance
with the advisory agreement. During the Expense Year ending September
30, 2000, the Company's operating expenses, net of the June 2000
Reimbursement, did not exceed the Expense Cap.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor receives a monthly asset management fee
of one-twelfth of 0.60% of the Company's real estate asset value and
the outstanding principal balance of any Mortgage Loan as of the end of
the preceding month. During the nine months ended September 30, 2000,
the Company incurred $34,622 of such fees.
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
9. Related Party Arrangements - Continued:
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 offerings) on
a day-to-day basis. The expenses incurred for these services were
classified as follows for the nine months ended September 30:
2000 1999
--------------- -------------
Stock issuance costs $ 103,158 $ 256,795
Other assets 31,190 5,770
General operating and
administrative expenses 164,296 9,808
--------------- -------------
$ 298,644 $ 272,373
=============== =============
The Company's operations began on July 13, 1999, therefore, expenses
incurred for general operating and administrative expenses for the nine
months ended September 30, 1999 represent approximately three months of
activity.
Amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
<S> <C>
September 30, December 31,
2000 1999
------------------ ----------------
Due to the Advisor:
Expenditures incurred for offering expenses
on behalf of the Company $ 876,064 $ 1,432,291
Accounting and administrative services due
to the Advisor 12,799 6,739
Acquisition fees and expenses 244,287 336,226
------------------ ----------------
1,133,150 1,775,256
------------------ ----------------
Due to CNL Securities Corp.:
Commissions 5,840 --
Marketing support and due diligence expense
reimbursement fee 392 --
------------------ ----------------
6,232 --
------------------ ----------------
$ 1,139,382 $ 1,775,256
================== ================
</TABLE>
<PAGE>
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 2000 and 1999
10. Concentration of Credit Risk:
All of the Company's rental income for the nine months ended September
30, 2000 was earned from one lessee, Brighton Gardens(R) Orland Park,
LLC, which operates the Property as a Brighton Gardens(R) by
Marriott(R).
Although the Company intends to acquire additional Properties,
including Properties located in various states and regions, and to
carefully screen its tenants in order to reduce risks of default,
failure of any one health care chain or lessee that contributes more
than ten percent of the Company's rental income could significantly
impact the results of operations of the Company. However, management
believes that the risk of such a default is reduced due to the
essential or important nature of this Property for the ongoing
operations of the lessee.
It is expected that the percentage of total rental income contributed
by this lessee will decrease as additional Properties are acquired in
subsequent periods.
11. Subsequent Events:
During the period October 1 through November 9, 2000, the Company
received subscription proceeds for an additional 73,688 shares
($736,880) of common stock. As of November 9, 2000, the Company had
received total subscription proceeds of $10,915,265.
On October 1, 2000 and November 1, 2000, the Company declared
distributions totaling $59,340 and $63,454, respectively or $0.0583 per
share of common stock, payable in December 2000, to stockholders of
record on October 1 and November 1, 2000 respectively.
