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CNL HEALTH CARE PROPERTIES, INC.
Supplement No. 1, dated June 2, 2000
to Prospectus, dated March 31, 2000
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This Supplement is part of, and should be read in conjunction with, the
Prospectus dated March 31, 2000. This Supplement replaces all prior Supplements
to the Prospectus. 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 April 20, 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 April 20, 2000,
will be reported in a subsequent Supplement.
RECENT DEVELOPMENTS
The Company recently acquired a Brighton Gardens(R) by Marriott(R)
assisted living Property located in Orland Park, Illinois. The assisted living
community, which is located southwest of Chicago, is approximately six miles
from two medical facilities, Palos Community Hospital and Oak Forest Community
Hospital, and less than two miles from the Orland Square Shopping Center.
According to a report published by Project Market Decision and Claritas, a
research and data collection firm, the greater Chicago area is the third largest
seniors market in the country with more than 263,800 seniors age 75 and older.
The number of seniors in the ten-mile area surrounding the Property is expected
to grow by 11% between 1999 and 2004. The newly constructed assisted living
Property, which commenced operations in October 1999, has 106 units. The
Company' s interest in the Property is focused on real estate only, not assisted
living operations. The Company has entered into a long-term, "triple-net" lease
with the tenant of this Property.
As a result of the acquisition of the Property in Orland Park,
Illinois, and the commencement of rental income under the lease, the Company
increased its monthly distribution rate, effective April 20, 2000, to an
annualized rate of 7%. See "Distribution Policy" for information on how
distributions are declared.
THE OFFERINGS
As of April 20, 2000, the Company had received subscription proceeds
(including subscriptions of $383,000 (38,300 Shares) from Pennsylvania investors
being held in escrow until aggregate subscription proceeds total at least
$7,775,000) of $7,089,384 (708,938 Shares). As of April 20, 2000, net proceeds
to the Company from its offering 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
totalled approximately $6,134,000. The Company had used approximately $6,100,000
of Net Offering Proceeds and $8,100,000 in advances relating to its Line of
Credit, described in "Business -- Borrowing," to invest approximately
$13,900,000 in one assisted living Property and to pay approximately $302,000 in
Acquisition Fees and certain Acquisition Expenses.
As described in "The Offering" section of the Prospectus, the Board of
Directors may determine to engage in future offerings of Common Stock. In
connection therewith, the Board of Directors has approved a second offering by
the Company of up to 15,500,000 Shares, of which up to 500,000 Shares are being
offered to participants in our Reinvestment Plan in connection with the second
offering. The second offering is currently anticipated to be at the same price
and on substantially the same terms as this offering. The Company will not
commence the second offering until after the completion of this offering.
<PAGE>
The Company currently anticipates that any Net Offering Proceeds
received from the second offering will be invested in health care and seniors'
housing Properties or, to a lesser extent, to make Mortgage Loans to operators
of Health Care Facilities. The Company believes that the net proceeds received
from the second offering and any additional offerings will enable the Company to
continue to grow and take advantage of acquisition opportunities until such
time, if any, that the Company lists on a national exchange. Under the Company's
Articles of Incorporation, if the Company does not list by December 31, 2008, it
will commence an orderly liquidation of its assets, and the distribution of the
proceeds therefrom to its stockholders.
RISK FACTORS
FINANCING RISKS
The following information updates and replaces the first full paragraph
on page 19 of the Prospectus.
We have no commitment for long-term financing. We intend to obtain
long-term financing; however, we have not yet obtained a commitment for any
long-term financing, and we cannot be sure that we will be able to obtain any
long-term financing on satisfactory terms. If we do not obtain long-term
financing, we may not be able to acquire as many properties or make as many
loans and leases as we anticipated, which could limit the diversification of our
investments and our ability to achieve our investment objectives.
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."
CONFLICTS OF INTEREST
COMPETITION TO ACQUIRE PROPERTIES AND INVEST IN MORTGAGE LOANS
The following information updates and replaces the second paragraph on
page 35 of the Prospectus.
The Company will supplement this Prospectus during the offering period
to disclose the acquisition of a Property at such time as the Advisor believes
that a reasonable probability exists that the Company will acquire the Property,
including an acquisition from the Advisor or its Affiliates. Based upon the
experience of management of the Company and the Advisor and the proposed
acquisition methods, a reasonable probability that the Company will acquire a
Property normally will occur as of the date on which (i) a commitment letter is
executed by a proposed lessee, (ii) a satisfactory credit underwriting for the
proposed lessee has been completed, (iii) a satisfactory site inspection has
been completed and (iv) a nonrefundable deposit has been paid on the Property.
BUSINESS
GENERAL
The following information updates and replaces the second full
paragraph and the first table on page 43 and the second paragraph on page 44 of
the Prospectus.
The Company believes that demographic trends are significant when
looking at the potential for future growth in the health care industry.
According to data released from the U.S. Bureau of Census in January 2000, the
elderly population is projected to more than double between now and the year
2050, to 80 million. As illustrated below, most of this growth is expected to
occur between 2010 and 2030 when the number of elderly is projected to grow by
an average of 2.8% annually.
<PAGE>
Elderly Population Estimates
Date Over 85 Population (000) Over 65 Population (000)
---------------- ------------------------ ------------------------
July 1, 1998 4,054 34,401
July 1, 2000 4,312 34,835
July 1, 2005 4,968 36,370
July 1, 2010 5,786 39,715
July 1, 2015 6,396 45,959
July 1, 2020 6,763 53,733
July 1, 2025 7,441 62,641
July 1, 2030 8,931 70,319
July 1, 2035 11,486 74,774
July 1, 2040 14,284 77,177
July 1, 2045 17,220 79,142
July 1, 2050 19,352 81,999
Source: U.S. Bureau of Census
In addition to an aging population, according to 1997 data from the
U.S. Department of Commerce, a significant segment of the elderly population has
the financial resources to afford seniors' housing facilities, with people age
55 to 64 making a mean household income of $58,000 per year. The mean household
income for those age 65 and over is more than $33,000 per year. In addition,
according to June 30, 1999 data from the U.S. Bureau of Census, the average
household wealth for those age 65 and over exceeds the national average for all
age groups by 54%, and 27% of those households have an annual income in excess
of $50,000. Management believes that other changes and trends in the health care
industry will create opportunities for growth of seniors' housing facilities,
including (i) the growth of operators serving specific health care niches, (ii)
the consolidation of providers and facilities through mergers, integration of
physician practices, and elimination of duplicative services, (iii) the
pressures to reduce the cost of providing quality health care, (iv) more
dual-income and single-parent households leaving fewer family members available
for in-home care of aging parents and necessitating more senior care facilities,
and (v) an anticipated increase in the number of insurance companies and health
care networks offering privately funded long-term care insurance.
INVESTMENT OF OFFERINGS PROCEEDS
The following information updates and replaces the last full paragraph
on page 47 of the Prospectus.
The Company has undertaken to supplement this Prospectus during the
offering period to disclose the acquisition of Properties at such time as the
Company believes that a reasonable probability exists that any such Property
will be acquired by the Company. Based upon the experience and acquisition
methods of the Affiliates of the Company and the Advisor, this normally will
occur, with regard to acquisition of Properties, as of the date on which (i) a
commitment letter is executed by a proposed lessee, (ii) a satisfactory credit
underwriting for the proposed lessee has been completed, (iii) a satisfactory
site inspection has been completed and (iv) a nonrefundable deposit has been
paid on the Property. However, the initial disclosure of any proposed
acquisition cannot be relied upon as an assurance that the Company ultimately
will consummate such proposed acquisition or that the information provided
concerning the proposed acquisition will not change between the date of such
supplement and the actual purchase or extension of financing. The terms of any
borrowing by the Company will also be disclosed by supplement following receipt
by the Company of an acceptable commitment letter from a potential lender.
PROPERTY ACQUISITIONS
The following "Property Acquisitions" section updates and replaces the
"Pending Investments" section beginning on page 48 of the Prospectus.
Brighton Gardens(R) by Marriott(R) located in Orland Park, Illinois. On
April 20, 2000, the Company acquired a Brighton Gardens assisted living Property
located in Orland Park, Illinois (the "Orland Park Property") for $13,848,900
from Marriott Senior Living Services, Inc. The Company, as lessor, has entered
into a long-term lease agreement relating to this Property. The general terms of
the lease agreement are described in "Business -- Description of Property
Leases" of the Prospectus. The principal features of the lease are as follows:
o The initial term of the lease expires in 15 years.
o At the end of the initial lease term, the tenant will have four
consecutive renewal options of five years each.
o The lease requires minimum rent payments of $1,350,268 per year for the
first and second lease years and $1,384,890 for each lease year
thereafter.
o In addition to minimum rent, the lease requires percentage rent equal
to seven percent of gross revenues in excess of the "Baseline Gross
Revenues." The Baseline Gross Revenues will be established when the
facility achieves average occupancy of 93% for four consecutive
quarters.
o A security deposit equal to $553,956 has been retained by the Company
as security for the tenant's obligations under the lease.
o The tenant has established a reserve fund which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the assisted living Property (the "FF&E Reserve"). Deposits to the
FF&E Reserve are made every four weeks as follows: 1% of gross receipts
for the first through fourth lease year; 2% of gross receipts for the
fifth through eighth lease year; and 3% of gross receipts every lease
year thereafter.
o Marriott International, Inc. has, with certain limitations, guaranteed
the tenant's obligation to pay minimum rent under the lease. The
guarantee terminates on the earlier of the end of the fifth lease year
or at such time as the net operating income from the Property exceeds
minimum rent due under the lease by 25% for any trailing 12-month
period. The maximum amount of the guarantee is $2,769,780.
The estimated federal income tax basis of the depreciable portion of
the Orland Park Property is approximately $12.5 million.
The Orland Park Property, which opened in October 1999, is a newly
constructed Brighton Gardens by Marriott located in Orland Park, Illinois. The
Orland Park Property includes 82 assisted living units and 24 special care units
for residents with Alzheimer's and related memory disorders. The facility
provides assistance with daily living activities such as bathing, dressing and
medication reminders. Special amenities include a common activities room and
common dining room, a private dining area, library and garden. The assisted
living community, which is located southwest of Chicago, is approximately six
miles from two medical facilities, Palos Community Hospital and Oak Forest
Community Hospital, and less than two miles from the Orland Square Shopping
Center. According to a report published by Project Market Decision and Claritas,
a research and data collection firm, the greater Chicago area is the third
largest seniors market in the country with more than 263,800 seniors age 75 and
older. The number of seniors in the ten-mile area surrounding the Property is
expected to grow by 11% between 1999 and 2004. Other senior living facilities
located in proximity to the Orland Park Property include Victorian Village,
Sunrise of Palos Park, Peace Memorial Village and Arden Courts of Manor Drive.
The average occupancy rate and the revenue per available unit for the period the
assisted living facility has been operational are as follows:
<PAGE>
Orland Park Property
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Average Revenue
Occupancy per Available
Year Rate Unit
------------ -------------- ----------------
*1999 23.30% $118.11
**2000 36.30% $109.89
* Data for the Orland Park Property represents the period October 11, 1999
through December 31, 1999.
** Data for 2000 represents the period January 1, 2000 through March 24, 2000.
The Company believes that the results achieved by the Property for 1999
and year-to-date 2000, are not indicative of its long-term operating potential,
as the Property had been open for less than six months during the reporting
period.
Marriott Brands. Brighton Gardens by Marriott is a quality-tier
assisted living concept which generally has 90 assisted living suites, and in
certain locations, 30 to 45 nursing beds in a community. In some communities,
separate on-site centers also provide specialized care for residents with
Alzheimer's or other memory-related disorders. According to Marriott
International, Inc.'s 1999 Form 10-K, Marriott Senior Living Services, Inc.,
which is a wholly owned subsidiary of Marriott International, Inc., operates 99
assisted senior living communities principally under the names "Brighton Gardens
by Marriott," "Village Oaks," and "Marriott MapleRidge," and 45 independent
living communities. Marriott Senior Living Services, Inc. is one of the largest
participants in the seniors' housing industry with $559 million in sales for
1999. The communities are designed in a comfortable, home-like setting and
provide residents with a sense of community through a variety of activities,
restaurant-style dining, on-site security, weekly housekeeping and scheduled
transportation. The communities are distinguished by an innovative wellness
program that enables residents to remain as independent as possible for as long
as possible, while providing a personally tailored program of services and care.
Marriott Senior Living Services, Inc. has provided seniors with excellent
service and quality care since 1984. In 1999, the American Seniors Housing
Association, a seniors housing trade association, ranked Marriott Seniors Living
Services, Inc. as the nation's second largest manager of senior housing.
SITE SELECTION AND ACQUISITION OF PROPERTIES
The following information updates and replaces the second full
paragraph on page 51 of the Prospectus.
The purchase of each Property will be supported by an appraisal of the
real estate prepared by an independent appraiser. The Advisor, however, will
rely on its own independent analysis and not on such appraisals in determining
whether or not to recommend that the Company acquire a particular property. The
purchase price of each such Property, plus any Acquisition Fees paid by the
Company in connection with such purchase, will not exceed the Property's
appraised value. (In connection with the acquisition of a Property that has
recently been or is to be constructed or renovated, the comparison of the
purchase price and the appraised value of such Property ordinarily will be based
on the "stabilized value" of such Property.) The stabilized value is the value
at the point which the Property has reached its level of competitiveness at
which it is expected to operate over the long term. It should be noted that
appraisals are estimates of value and should not be relied upon as measures of
true worth or realizable value. Each appraisal will be maintained in the
Company's records for at least five years and will be available for inspection
and duplication by any stockholder.
BORROWING
The following information updates and replaces the last full paragraph
on page 61 of the Prospectus.
On April 20, 2000, the Company entered into an initial revolving line
of credit and security agreement with a bank to be used by the Company to
acquire and construct health care Properties. The line of credit provides that
the Company will be able to 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 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 LIBOR plus the
difference between LIBOR and the bank's base rate at the time of the advance or
(ii) a rate per annum 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 hear interest at
either (i) or (ii) above as of April 1, 2002. Each loan made under the line of
credit will be secured 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 health care Property during the term of the loan 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. On April 20, 2000, the
Company obtained one advance totalling $8,100,000 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 were used
in connection with the purchase of one health care Property described in "--
Property Acquisitions."
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>
Quarter Ended
March 31, March 31,
2000 (1) 1999 (1) (2) Year Ended December 31,
(Unaudited) (Unaudited) 1999 (1) 1998 (2) 1997 (2)(3)
-------------- ----------------- ---------- ---------- -----------
<S> <C>
Revenues $ 72,962 -- $ 86,231 $ -- $ --
General operating and
administrative expenses 98,140 -- 79,621 -- --
Organizational costs -- -- 35,000 -- --
Net loss (25,178 ) -- (28,390 ) -- --
Cash distributions declared (4) 43,593 -- 50,404 -- --
Cash from operations 10,409 -- 12,851 -- --
Funds from operations (5) (25,178 ) -- (28,390 ) -- --
Loss per Share (.04 ) -- (.07 ) -- --
Cash distributions declared
per Share .075 -- .125 -- --
Weighted average number of
Shares outstanding (6) 601,758 -- 412,713 -- --
March 31, March 31,
2000 1999 (1) December 31,
(Unaudited) (Unaudited) 1999 1998 1997
-------------- ----------------- ---------- ---------- -----------
Total assets $6,236,495 $1,115,219 $5,088,560 $976,579 $280,330
Total stockholder's equity 4,269,768 200,000 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. As of March 31, 2000, the Company had not yet acquired any
Properties; therefore, revenues consisted only of interest income on
funds held in interest bearing accounts pending investment in a
Property. The Company acquired a Property subsequent to the periods
presented, on April 20, 2000.
(2) No significant operations had commenced because the Company was in its
development stage.
(3) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
(4) Cash distributions are declared by the Board of Directors and generally
are based on various factors, including cash available from operations.
For the quarter ended March 31, 2000 and the year ended December 31,
1999, 100% 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 accumulated net earnings
on a GAAP basis, including organization costs that were expensed for
GAAP purposes. 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. 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.
Introduction
CNL Health Care Properties, Inc. is a Maryland corporation that was
organized on December 22, 1997. CNL Health Care GP Corp. and CNL Health Care LP
Corp. are wholly owned subsidiaries of CNL Health Care Properties, Inc.,
organized in Delaware in December 1999. CNL Health Care Partners, LP is a
Delaware limited partnership formed in December 1999. CNL Health Care GP Corp.
and CNL Health Care LP Corp. are the general and limited partner, respectively,
of CNL Health Care Partners, LP. Assets acquired are expected to be held by CNL
Health Care Partners, LP and, as a result, owned by CNL Health Care Properties,
Inc. through the Partnership. The term "Company" includes CNL Health Care
Properties, Inc. and its subsidiaries, CNL Health Care GP Corp., CNL Health Care
LP Corp. and CNL Health Care Partners, LP.
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, assisted living and skilled nursing facilities,
continuing care retirement communities and life care communities, and medical
office buildings and walk-in clinics. The Properties will be leased on a
long-term, "triple-net" basis. 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 also may
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.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's Assets while (i) making Distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and Distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) Listing of the Shares, or (b) the commencement
of the orderly Sale of the Company's Assets, and distribution of the proceeds
thereof (outside the ordinary course of business and consistent with its
objective of qualifying as a REIT).
Liquidity and Capital Resources
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.
In connection with this offering, the Company registered for sale an
aggregate of $155,000,000 of Shares (15,500,000 Shares at $10 per Share), with
500,000 of such Shares available only to stockholders who elect to participate
in the Company's Reinvestment Plan. As of July 13, 1999, the Company had
received aggregate subscription proceeds of $2,751,052 (275,105 Shares), which
exceeded the minimum offering amount of $2,500,000, and $2,526,052 of the funds
were released from escrow. The remaining subscription proceeds of $225,000
(representing funds received from Pennsylvania investors) will be held in escrow
until the Company receives aggregate subscriptions of at least $7,775,000.
As of March 31, 2000 and December 31, 1999, the Company had received
aggregate subscription proceeds of $6,769,154 (676,915 Shares) and $5,435,283
(543,528 Shares), respectively, including $23,190 (2,319 Shares) and $12,540
(1,254 Shares), respectively, through its Reinvestment Plan and approximately
$383,000 (38,300 Shares) and $235,000 (23,500 Shares), respectively, from
Pennsylvania investors. The Company anticipates additional sales of Shares prior
to the closing of this offering. The Company has elected to extend the offering
of Shares until a date no later than September 18, 2000.
As of April 20, 2000, the Company had received subscription proceeds
(including subscriptions from Pennsylvania investors) of $7,089,384 (708,938
Shares). As of April 20, 2000, net proceeds to the Company from its offering 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 totalled approximately $6,134,000. The
Company had used approximately $6,100,000 of Net Offering Proceeds from the
offering and $8,100,000 in advances relating to its Line of Credit, described in
"Business -- Borrowing," to invest approximately $13,900,000 in one assisted
living Property and to pay approximately $302,000 in Acquisition Fees and
certain Acquisition Expenses. See "Business -- Property Acquisitions" for a
description of the Property owned as of April 20, 2000. As of April 20, 2000,
the Company had not entered into any Mortgage Loans.
On May 19, 2000, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to an additional 15,500,000 Shares of Common Stock
($155,000,000) (the "2000 Offering") in an offering expected to commence
immediately following the completion of this offering, or the initial pubic
offering (the "Initial Offering"). Of the 15,500,000 Shares of Common Stock to
be offered, up to 500,000 will be available to stockholders purchasing Shares
through the Reinvestment Plan. The price per Share and the 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 the Advisor for Acquisition Fees, are substantially the
same as those for the Initial Offering.
The Company expects to use Net Offering Proceeds it receives in the
future from this offering and the 2000 Offering to purchase Properties and, to a
lesser extent, make Mortgage Loans. See "Investment Objectives and Policies" in
the Prospectus. 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 plans to obtain one or more
revolving Lines of Credit initially in an amount up to $45,000,000, and may, in
addition, also obtain Permanent Financing. The Lines 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. Although the Board of Directors anticipates that the Lines of Credit
initially may be in the amount of up to $45,000,000 and the aggregate amount of
any Permanent Financing shall not exceed 30% of the Company's total Assets, the
maximum amount the Company may borrow is 300% of the Company's Net Assets. As of
April 20, 2000, the Company has obtained an initial $25,000,000 revolving line
of credit, described below. However, as of such date, the Company 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
number of Properties to be acquired and Mortgage Loans to be invested in will
depend upon the amount of Net Offering Proceeds received from this offering and
loan proceeds available to the Company. The amount invested in Secured Equipment
Leases is not expected to exceed 10% of Gross Proceeds.
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 and construct health care 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 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 .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.
On April 20, 2000, the Company obtained an advance under the line of
credit of $8,100,000 in connection with the acquisition of a private-pay
assisted living community in Orland Park, Illinois. In connection with the line
of credit, the Company incurred an origination fee, legal fees and closing costs
of $55,917. The Company anticipates repaying the amounts outstanding on the line
of credit with future Net Offering Proceeds as they are received.
The Company may be subject to interest rate risk through any
outstanding balances on its variable rate line of credit. The Company may
mitigate this risk by paying down any outstanding balances on the line of credit
from offering proceeds should interest rates rise substantially.
As of April 20, 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
April 20, 2000, the Company had not acquired any such Properties or entered into
any Mortgage Loans.
The Property owned as of April 20, 2000 is, and Properties acquired in
the future are expected to be, leased on a long-term, triple-net basis, meaning
that tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. 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.
Until Properties are acquired or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term (defined as investments with a maturity
of three months or less), 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 March 31, 2000, the
Company had $5,812,893 invested in such short-term investments as compared to
$4,744,222 at December 31, 1999. The increase in the amount invested in
short-term investments reflects subscriptions proceeds received from the sale of
Shares during the quarter ended March 31, 2000. These funds will be used
primarily to purchase 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.
During the quarter ended March 31, 2000, the years ended December 31,
1999 and 1998, and the period December 22, 1997 (date of inception) through
December 31, 1997, Affiliates of the Company incurred on behalf of the Company
$18,641, $421,878, $562,739 and $43,398, respectively, for certain
Organizational and Offering Expenses. In addition, during the quarter ended
March 31, 2000 and the year ended December 31, 1999, Affiliates of the Company
incurred $22,283 and $98,206, respectively, for certain Acquisition Expenses and
$40,821 and $41,307, respectively, for certain Operating Expenses on behalf of
the Company. As of March 31, 2000 and December 31, 1999, the Company owed the
Affiliates $1,938,627 and $1,775,256, respectively, for such amounts and unpaid
fees and administrative expenses (including accounting; financial, tax, and
regulatory compliance and reporting, due diligence and marketing; and investor
relations). The Advisor of the Company 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 offering.
Since the commencement of the offering through March 31, 2000,
approximately $510,892 has been incurred by the Company in Selling Commissions
and marketing support and due diligence expense reimbursement fees to related
parties, $457,230 of which was reallowed to other broker-dealer firms. In
addition, since the commencement of the offering through March 31, 2000, the
Company has reimbursed Affiliates approximately $135,339 for certain
Organizational and Offering Expenses incurred on behalf of the Company and
administrative services related to the offering.
During the quarter ended March 31, 2000 and the year ended December 31,
1999, the Company generated cash from operations (which included interest
received less cash paid for operating expenses) of $12,851 and $10,409,
respectively. Based on current and anticipated future cash from operations, the
Company declared Distributions to its stockholders of $43,593 and $50,404 during
the quarter ended March 31, 2000 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 April 1 and April
20, 2000, the Company declared Distributions of $0.025 and $0.012, respectively,
per Share, to stockholders of record on April 1 and April 20, 2000,
respectively. The Company also declared a distribution of $0.058 per Share to
stockholders of record on May 1, 2000, payable in June 2000. For the quarter
ended March 31, 2000 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 April 20, 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.
Due to anticipated low Operating Expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that Permanent
Financing has not been obtained and that the Company has not entered into
Mortgage Loans or Secured Equipment Leases, management does not believe that
working capital reserves are necessary at this time. Management has the right to
cause the Company to maintain reserves if, in their discretion, they determine
such reserves are required to meet the Company's working capital needs.
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 this
Prospectus.
Management expects that the cash to be 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. The Company did not acquire any
Properties or enter into any Mortgage Loans during the quarter ended March 31,
2000 and the year ended December 31, 1999.
During the quarter ended March 31, 2000 and the year ended December 31,
1999, the Company earned $72,962 and $86,231, respectively, in interest income
from investments in money market accounts. Interest income is expected to
increase as the Company invests subscription proceeds received in the future in
highly liquid investments pending investment in Properties and Mortgage Loans.
However, as Net Offering Proceeds are invested in Properties and used to make
Mortgage Loans, the percentage of the Company's total revenues from interest
income from investments in money market accounts or other short-term, highly
liquid investments is expected to decrease.
Operating expenses were $98,140 and $114,621 including organizational
expenses of $35,000, for the quarter ended March 31, 2000 and the year ended
December 31, 1999, respectively. Operating expenses represent only a portion of
operating expenses which the Company is expected to incur during a quarter and
year in which the Company owns Properties. The dollar amount of operating
expenses is expected to increase as the Company acquires Properties and invests
in Mortgage Loans. However, general and administrative expenses as a percentage
of total revenues is expected to decrease as the Company acquires Properties and
invests in Mortgage Loans. Organizational expenses represent the cost related to
forming a new entity and are not expected to be incurred on an ongoing basis.
When the Company files its 1999 income tax return, it will elect,
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 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 include a charge of $35,000 for
organizational costs.
Management is not aware of any known trends or uncertainties, other
than national economic conditions, which may reasonably be expected to have a
material impact, favorable or unfavorable, on revenues or income from the
acquisition and operations of real properties, other than those Properties
referred to in this Prospectus.
There currently are no material changes being considered in the
objectives and policies of the Company as set forth in this Prospectus.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
<TABLE>
<CAPTION>
Name Age Position with the Company
---------------------------- ------- ---------------------------------------------------------------
<S> <C>
James M. Seneff, Jr. 53 Director, Chairman of the Board, and Chief Executive Officer
Robert A. Bourne 53 Director and President
David W. Dunbar 47 Independent Director
Timothy S. Smick 48 Independent Director
Edward A. Moses 58 Independent Director
Phillip M. Anderson, Jr. 40 Chief Operating Officer and Executive Vice President
Thomas J. Hutchison III 58 Executive Vice President
Jeanne A. Wall 41 Executive Vice President
Lynn E. Rose 51 Secretary and Treasurer
</TABLE>
James M. Seneff, Jr. Director, Chairman of the Board and Chief
Executive Officer. Mr. Seneff is a director, Chairman of the Board and Chief
Executive Officer of CNL Health Care Corp., the Advisor to the Company. Mr.
Seneff is a principal stockholder of CNL Holdings, Inc., the parent company of
CNL Financial Group, Inc. (formerly CNL Group, Inc.), a diversified real estate
company, and has served as a director, Chairman of the Board and Chief Executive
Officer of CNL Financial Group, Inc. and its subsidiaries since CNL's formation
in 1973. CNL Financial Group, Inc. is the parent company, either directly or
indirectly through subsidiaries, of CNL Real Estate Services, Inc., CNL Health
Care Corp., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities
Corp., the Managing Dealer in this offering. CNL and the entities it has
established have more than $4 billion in assets, representing interests in more
than 2,000 properties and 900 mortgage loans in 48 states. Mr. Seneff also
serves as a director, Chairman of the Board and Chief Executive Officer of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff has served
as a director, Chairman of the Board and Chief Executive Officer of Commercial
Net Lease Realty, Inc., a public real estate investment trust that is listed on
the New York Stock Exchange. In addition, he has served as a director and
Chairman of the Board since inception in 1994, and served as Chief Executive
Officer from 1994 through August 1999, of CNL American Properties Fund, Inc., a
public, unlisted real estate investment trust. He also served as a director,
Chairman of the Board and Chief Executive Officer of CNL Fund Advisors, Inc.,
the advisor to CNL American Properties Fund, Inc., until it merged with such
company in September 1999. Mr. Seneff has also served as a director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, a registered
investment advisor for pension plans, since 1990. Mr. Seneff formerly served as
a director of First Union National Bank of Florida, N.A., and currently serves
as the Chairman of the Board of CNLBank. Mr. Seneff served on the Florida State
Commission on Ethics and is a former member and past chairman of the State of
Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration is Florida's principal investment advisory and
money management agency and oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.
Robert A. Bourne. Director and President. Mr. Bourne serves as a
director and President of CNL Health Care Corp., the Advisor to the Company. Mr.
Bourne is also the President and Treasurer of CNL Financial Group, Inc.; a
director, Vice Chairman of the Board and President of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
director, Vice Chairman of the Board and President of CNL Hospitality Corp., its
advisor. Mr. Bourne also serves as a director of CNLBank. He has served as a
director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc., a public, real
estate investment trust listed on the New York Stock Exchange. Mr. Bourne has
served as a director since inception in 1994, President from 1994 through
February 1999, Treasurer from February 1999 through August 1999, and Vice
Chairman of the Board since February 1999, of CNL American Properties Fund,
Inc., a public, unlisted real estate investment trust. He also served as a
director and held various executive positions for CNL Fund Advisors, Inc., the
advisor to CNL American Properties Fund, Inc. prior to its merger with such
company, from 1994 through August 1999. Mr. Bourne also serves as a director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.,
including CNL Investment Company, CNL Securities Corp., the Managing Dealer for
this offering, and CNL Institutional Advisors, Inc., a registered investment
advisor for pension plans. Since joining CNL Securities Corp. in 1979, Mr.
Bourne has overseen CNL's real estate and capital markets activities including
the investment of nearly $2 billion in equity and the financing, acquisition,
construction and leasing of restaurants, office buildings, apartment complexes,
hotels and other real estate. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of tax manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
For information regarding other officers and directors see the section
of the Prospectus entitled "Management."
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
The following information updates and replaces "The Advisor" section on
page 75 of the Prospectus.
CNL Health Care Corp. (formerly CNL Health Care Advisors, Inc.) is a
Florida corporation organized in July 1997 to provide management, advisory and
administrative services. The Company originally entered into the Advisory
Agreement with the Advisor effective September 15, 1998. CNL Health Care Corp.,
as Advisor, has a fiduciary responsibility to the Company and the stockholders.
The directors and officers of the Advisor are as follows:
<TABLE>
<CAPTION>
<S> <C>
James M. Seneff, Jr. Chairman of the Board, Chief Executive Officer, and Director
Robert A. Bourne President and Director
Phillip M. Anderson, Jr. Chief Operating Officer
Thomas J. Hutchison III Executive Vice President
Jeanne A. Wall Executive Vice President
Lynn E. Rose Secretary, Treasurer and Director
</TABLE>
The backgrounds of these individuals are described in the section of
the Prospectus entitled "Management -- Directors and Executive Officers."
Management anticipates that any transaction by which the Company would
become self-advised would be submitted to the stockholders for approval.
The Advisor currently owns 20,000 Shares of Common Stock. The Advisor
may not sell these Shares while the Advisory Agreement is in effect, although
the Advisor may transfer such shares to Affiliates. Neither the Advisor, a
Director, or any Affiliate may vote or consent on matters submitted to the
stockholders regarding removal of the Advisor, Directors or any of their
Affiliates, or any transaction between the Company and any of them. In
determining the requisite percentage in interest of shares of Common Stock
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any shares of Common Stock owned by any of them will
not be included.
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
period April 1, 2000 through April 20, 2000, the quarter ended March 31, 2000
and the years ended December 31, 1999 and 1998, the Company had incurred
$24,017, $88,940, $388,109 and $1,912, respectively of such fees, of which a
substantial portion of such amount for the period January 1, 2000 through April
20, 2000, and $370,690 and $1,785 for the years ended December 31, 1999 and
1998, respectively, 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 period April 1, 2000 through April
20, 2000, the quarter ended March 31, 2000 and the years ended December 31, 1999
and 1998, the Company incurred $1,601, $5,929, $25,874 and $128, respectively,
of such fees, 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, the Company has agreed to issue and sell Soliciting Dealer
Warrants to the Managing Dealer. The price for each warrant will be $0.0008 and
one warrant will be issued for every 25 Shares sold by the Managing Dealer. All
or a portion of the Soliciting Dealer Warrants may be reallowed to Soliciting
Dealers with prior written approval from, and in the sole discretion of the
Managing Dealer, except where prohibited by either federal or state securities
laws. The holder of a Soliciting Dealer Warrant will be entitled to purchase one
Share of Common Stock from the Company at a price of $12.00 during the five-year
period commencing with the date the offering began. No Soliciting Dealer
Warrants, however, will be exercisable until one year from the date of issuance.
During the quarter ended March 31, 2000, the Company issued approximately 19,400
Soliciting Dealer Warrants. As of March 31, 2000, CNL Securities Corp. was
entitled to receive approximately 5,000 additional Soliciting Dealer Warrants
for Shares sold during the quarter then ended.
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. During the period January 1, 2000 through April 20,
2000, the quarter ended March 31, 2000, and the years ended December 31, 1999
and 1998, the Company incurred $14,410, $53,364, $232,865 and $1,148,
respectively, of such fees.
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 quarter ended March 31, 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 $82,369, $373,480, $196,184 and $15,202, respectively, for
these services. For the quarter ended March 31, 2000 and the year ended December
31, 1999, $27,103 and $328,229, respectively, of such costs represented stock
issuance costs, $945 and $6,455, respectively, represented acquisition related
costs and $54,321 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 "Distributions"
section 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 40,595 0.058
The Company intends to continue to make regular Distributions to
stockholders. Distributions will be made to those stockholders who are
stockholders as of the record date selected by the Directors. Currently,
Distributions are declared monthly and paid quarterly during the offering
period. In addition, Distributions are expected to be declared monthly and paid
quarterly during any subsequent offering, and declared and paid quarterly
thereafter. However, in the future, the Board of Directors, in its discretion,
may determine to declare Distributions on a daily basis during the offering
period. The Company is required to distribute annually at least 95% of its real
estate investment trust taxable income (90% in 2001 and thereafter) to maintain
its objective of qualifying as a REIT. Generally, income distributed will not be
taxable to the Company under federal income tax laws if the Company complies
with the provisions relating to qualification as a REIT. If the cash available
to the Company is insufficient to pay such Distributions, the Company may obtain
the necessary funds by borrowing, issuing new securities, or selling Assets.
These methods of obtaining funds could affect future Distributions by increasing
operating costs. To the extent that Distributions to stockholders exceed
earnings and profits, such amounts constitute a return capital for federal
income tax purposes, although such Distributions might not reduce stockholders'
aggregate Invested Capital. Distributions in kind shall not be permitted, except
for distributions of readily marketable securities; distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of the Articles
of Incorporation; or distributions of in-kind property as long as the Directors
(i) advise each stockholder of the risks associated with direct ownership of the
property; (ii) offer each stockholder the election of receiving in-kind property
distributions; and (iii) distribute in-kind property only to those stockholders
who accept the Directors' offer.
For the period July 13, 1999 (the date operations of the Company
commenced) through December 31, 1999, 100% of the Distributions declared and
paid were considered to be ordinary income for federal income tax purposes. Due
to the fact that the Company had not yet acquired any Properties and was still
in the offering stage as of December 31, 1999, 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.
Distributions will be made at the discretion of the Directors,
depending primarily on net cash from operations (which includes cash received
from tenants except to the extent that such cash represents a return of
principal in regard to the lease of a Property consisting of building only,
distributions from joint ventures, and interest income from lessees of Equipment
and borrowers under Mortgage Loans, less expenses paid) and the general
financial condition of the Company, subject to the obligation of the Directors
to cause the Company to qualify and remain qualified as a REIT for federal
income tax purposes. The Company intends to increase Distributions in accordance
with increases in net cash from operations.
<PAGE>
APPENDIX B
FINANCIAL INFORMATION
----------------------------------------------------
THE UPDATED PRO FORMA FINANCIAL STATEMENTS AND THE UNAUDITED
FINANCIAL STATEMENTS OF CNL HEALTH CARE PROPERTIES, INC.
CONTAINED IN THIS ADDENDUM SHOULD BE READ IN CONJUNCTION WITH
APPENDIX B TO THE ATTACHED PROSPECTUS, DATED MARCH 31, 2000.
----------------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL HEALTH CARE PROPERTIES, INC.
<TABLE>
<CAPTION>
<S> <C>
Page
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of March 31, 2000 B-2
Pro Forma Consolidated Statement of Operations for the quarter ended March 31, 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 quarter ended
March 31, 2000 and the year ended December 31, 1999 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 B-7
Condensed Consolidated Statements of Operations for the quarters ended
March 31, 2000 and 1999 B-8
Condensed Consolidated Statements of Stockholders' Equity for the quarter ended
March 31, 2000 and the year ended December 31, 1999 B-9
Condensed Consolidated Statements of Cash Flows for the quarters ended
March 31, 2000 and 1999 B-10
Notes to Condensed Consolidated Financial Statements for the quarters ended
March 31, 2000 and 1999 B-12
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of 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,
$6,386,154 in gross offering proceeds from the sale of 638,615 shares of common
stock for the period from inception through March 31, 2000, and the application
of such funds to pay offering expenses and miscellaneous acquisition expenses,
(ii) the receipt of $320,230 in gross offering proceeds from the sale of 32,023
additional shares for the period April 1, 2000 through April 20, 2000 and the
receipt of $8,100,000 from borrowings on a line of credit, (iii) the application
of such funds to purchase a property and to pay offering expenses, acquisition
fees and miscellaneous acquisition expenses, all as reflected in the pro forma
adjustments described in the related notes. The Unaudited Pro Forma Consolidated
Balance Sheet as of March 31, 2000, includes the transactions described in (i)
above, from its historical balance sheet, adjusted to give effect to the
transactions in (ii) and (iii) above as if they had occurred on March 31, 2000.
The Unaudited Pro Forma Consolidated Statements of Operations for the
quarter ended March 31, 2000 and the year ended December 31, 1999, includes the
operating results of the property described in (iii) 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 HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
-------------- -------------- ---------------
<S> <C>
Land, buildings and equipment on operating
leases $ -- $ 14,610,170 (a) $ 14,610,170
Cash and cash equivalents 5,812,893 (5,334,613) (a) 478,280
Loan costs -- 55,917 (a) 55,917
Other assets 423,602 (382,360) (a) 41,242
-------------- -------------- ---------------
$ 6,236,495 $ 8,949,114 $ 15,185,609
============== ============== ===============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Line of credit $ -- $ 8,100,000 (a) $ 8,100,000
Accounts payable and accrued expenses 28,100 -- 28,100
Due to related parties 1,938,627 546 (a) 1,939,173
Security deposits -- 553,956 (a) 553,956
-------------- -------------- ---------------
Total liabilities 1,966,727 8,654,502 10,621,229
-------------- -------------- ---------------
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, $.01 par value per share.
Authorized 100,000,000 shares; issued and
outstanding 658,615 shares; issued and
outstanding, as adjusted, 690,638 shares 6,586 320 (a) 6,906
Capital in excess of par value 4,410,747 294,292 (a) 4,705,039
Accumulated deficit (147,565) -- (147,565)
-------------- -------------- ---------------
Total stockholders' equity 4,269,768 294,612 4,564,380
-------------- -------------- ---------------
$ 6,236,495 $ 8,949,114 $ 15,185,609
============== ============== ===============
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- -------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ -- $ 345,068 (1) $ 345,068
FF&E reserve income -- 8,119 (2) 8,119
Interest and other income 72,962 (66,702 ) (3) 6,260
--------------- -------------- -------------
72,962 286,485 359,447
--------------- -------------- -------------
Expenses:
Interest -- 176,702 (4) 176,702
General operating and administrative 98,140 -- 98,140
Asset management fees to related party -- 20,773 (5) 20,773
Depreciation and amortization -- 111,262 (6) 111,262
--------------- -------------- -------------
98,140 308,737 --
--------------- -------------- -------------
Net Loss $ (25,178 ) $ (22,252 ) $ (47,430)
=============== ============== =============
Loss Per Share of Common Stock (Basic and
Diluted) (7) $ (.04 ) $ (.07)
=============== =============
Weighted Average Number of Shares of Common
Stock Outstanding 601,758 690,638
=============== =============
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- -------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ -- $ 307,964 (1) $ 307,964
FF&E reserve income -- 7,296 (2) 7,296
Interest and other income 86,231 (43,169 ) (3) 43,062
--------------- -------------- -------------
86,231 272,091 358,322
--------------- -------------- -------------
Expenses:
Interest -- 159,750 (4) 159,750
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 -- 99,983 (6) 99,983
--------------- -------------- -------------
114,621 273,582 388,203
--------------- -------------- -------------
Net Loss $ (28,390 ) $ (1,491 ) $ (29,881)
=============== ============== =============
Loss Per Share of Common Stock (Basic and
Diluted) (7) $ (.07 ) $ (.06)
===============
=============
Weighted Average Number of Shares of Common
Stock Outstanding 412,713 514,035
=============== =============
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $320,230 from the sale of 32,023 shares
during the period April 1, 2000 through April 20, 2000, the receipt of
$8,100,000 on borrowings from the line of credit, the receipt of
$553,956 from the lessee as a security deposit and $5,334,613 of cash
and cash equivalents used (i) to acquire a property for $13,848,900,
(ii) to pay acquisition fees and costs of $301,787 ($287,377 of which
was accrued as due to related parties at March 31, 2000), (iii) to pay
selling commissions and offering expenses (syndication costs) of
$102,195 which have been netted against stockholders' equity ($76,577
of which was accrued and due to related parties at March 31, 2000) and
(iv) to pay loan costs of $55,917 related to the assumed borrowings
from the line of credit. Also represents the accrual of $378,910 of
acquisition fees and miscellaneous acquisition costs.
Unaudited Pro Forma Consolidated Statements of Operations:
(1) Represents adjustment to rental income from operating leases for the
property acquired by the Company as of April 20, 2000 (the "Pro Forma
Property"), for the period commencing the date the Pro Forma Property
became operational by the previous owner through the end of the pro
forma period presented. The date the Pro Forma Property is treated as
becoming operational 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 $2,700 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 through the end of the pro forma
period presented, as described in Note (1). The estimated 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
quarter ended March 31, 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 owners through 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 HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Statements of Operations - Continued:
(6) 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 operating leases 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.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the quarter
ended March 31, 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 quarter ended March 31, 2000 and the year ended
December 31, 1999.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- -------------
<S> <C>
ASSETS
Cash $5,812,893 $4,744,222
Other assets 423,602 344,338
--------------- --------------
$6,236,495 $5,088,560
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to related parties $1,938,627 $1,775,256
Accounts payable and accrued expenses 28,100 21,167
--------------- --------------
Total liabilities 1,966,727 1,796,423
--------------- --------------
Commitment (Note 8)
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 658,615 and 540,028 shares, respectively 6,586 5,400
Capital in excess of par value 4,410,747 3,365,531
Accumulated deficit (147,565 ) (78,794 )
--------------- --------------
Total stockholders' equity 4,269,768 3,292,137
--------------- --------------
$6,236,495 $5,088,560
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter
Ended March 31,
2000 1999
----------- ------------
<S> <C>
Revenues:
Interest income $72,962 $ --
Expenses:
General operating and administrative 98,140 --
------------ ------------
Net Loss $ (25,178 ) $ --
============ ============
Net Loss Per Share of Common Stock
(Basic and Diluted) $ (0.04 ) $ --
============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 601,758 --
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 2000 and Year Ended December 31, 1999
<TABLE>
<CAPTION>
Common stock
------------------------------- Capital in
Number Par excess of Accumulated
of Shares Value par value deficit Total
-------------- ------------ ------------- ----------------- -------------
<S> <C>
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
($.125 per share) -- -- -- (50,404 ) (50,404 )
--------------- ------------- -------------- --------------- --------------
Balance at December 31, 1999 540,028 5,400 3,365,531 (78,794 ) 3,292,137
Subscriptions received for common
stock through public offering and
distribution reinvestment plan 133,387 1,334 1,332,553 -- 1,333,887
Subscriptions held in escrow (14,800 ) (148 ) (147,852 ) -- (148,000 )
Stock issuance costs -- -- (139,485 ) -- (139,485 )
Net loss -- -- -- (25,178 ) (25,178 )
Distributions declared and paid
($.075 per share) -- -- -- (43,593 ) (43,593 )
--------------- ------------- -------------- --------------- --------------
Balance at March 31, 2000 658,615 $ 6,586 $4,410,747 $ (147,565 ) $ 4,269,768
=============== ============= ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
-------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 10,409 $ --
--------------- ----------------
Financing Activities:
Subscriptions received from stockholders 1,185,887 --
Distributions to stockholders (43,593 ) --
Payment of stock issuance costs (84,032 ) --
--------------- ----------------
Net cash provided by financing activities 1,058,262 --
--------------- ----------------
Net Increase in Cash and Cash
Equivalents 1,068,671 --
Cash and Cash Equivalents at Beginning
of Quarter 4,744,222 92
--------------- ----------------
Cash and Cash Equivalents at End of
Quarter $ 5,812,893 $ 92
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
-------------- ----------------
<S> <C>
Reconciliation of Net Loss to Net Cash Provided
by Operating Activities:
Net loss $ (25,178 ) $ --
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Changes in operating assets and liabilities:
Other assets (2,671 ) --
Accounts payable and
other accrued expenses 5,607 --
Due to related parties 32,651 --
--------------- ----------------
Net cash provided by operating
activities $ 10,409 $ --
=============== ================
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Amounts paid by related parties
on behalf of the Company and
its subsidiaries:
Acquisition costs $ 22,283 $ 10,057
Deferred offering costs -- 118,784
Stock issuance costs 18,641 --
--------------- ----------------
$ 40,924 $ 128,841
=============== ================
Costs incurred by the Company and unpaid at quarter end:
Acquisition costs $ 54,310 $ --
Deferred offering costs -- 9,799
Stock issuance costs 36,812 --
--------------- ----------------
$ 91,122 $ 9,799
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
1. Organization and Nature of Business:
CNL Health Care Properties, Inc. was organized pursuant to the laws of
the state of Maryland on December 22, 1997. CNL Health Care GP Corp.
and CNL Health Care LP Corp. are wholly owned subsidiaries of CNL
Health Care Properties, Inc., each of which were organized pursuant to
the laws of the state of Delaware in December 1999. CNL Health Care
Partners, LP is a Delaware limited partnership formed in December 1999.
CNL Health Care GP Corp. and CNL Health Care LP Corp. are the general
and limited partners, respectively, of CNL Health Care Partners, LP.
The term "Company" includes, unless the context otherwise requires, CNL
Health Care Properties, Inc., CNL Health Care Partners, LP, CNL Health
Care GP Corp. and CNL Health Care LP Corp.
The Company intends to use the proceeds from its public offering (the
"Offering"), after deducting offering expenses, primarily to acquire
real estate properties (the "Properties") related to health care and
seniors' housing facilities (the "Health Care Facilities") located
across the United States. The Health Care Facilities may include
congregate living, assisted living and skilled nursing facilities,
continuing care retirement communities and life care communities, and
medical office buildings and walk-in clinics. The Company may provide
mortgage financing (the "Mortgage Loans") to operators of Health Care
Facilities in the aggregate principal amount of approximately 5 to 10
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 organization of the Company.
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 the management,
necessary to a fair statement of the results for the interim periods
presented. Operating results for the quarter ended March 31, 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 HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 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 Health Care Properties, Inc. for the year ended December 31, 1999.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company, CNL Health Care Properties, Inc.,
and its wholly owned subsidiaries, CNL Health Care GP Corp. and CNL
Health Care LP Corp., as well as the accounts of CNL Health Care
Partners, LP. All significant intercompany balances and transactions
have been eliminated.
3. Public Offering:
The Company has a currently effective registration statement on Form
S-11 with the Securities Exchange Commission. A maximum of 15,500,000
shares ($155,000,000) may be sold, including 500,000 shares
($5,000,000) which are available only to stockholders who elect to
participate in the Company's reinvestment plan. The Company has adopted
a reinvestment plan pursuant to which stockholders may elect to have
the full amount of their cash distributions from the Company reinvested
in additional shares of common stock of the Company. In addition, the
Company has registered 600,000 shares issuable upon the exercise of
warrants granted to the managing dealer of the Offering. As of March
31, 2000, the Company had received subscription proceeds of $6,769,154
(676,915 shares), including $23,190 (2,319 shares) through the
distribution reinvestment plan and $383,000 (38,300 shares) from
Pennsylvania investors which will be held in escrow until the Company
receives aggregate subscriptions of at least $7,775,000.
4. Other Assets:
Other assets as of March 31, 2000 and December 31, 1999 were $423,602
and $344,338, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses which will be allocated to future
Properties and miscellaneous prepaid expenses.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
5. 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 Offering. Preliminary
costs incurred prior to raising capital were advanced by an affiliate
of the Company, CNL Health Care Corp. (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 Offering.
During the quarters ended March 31, 2000 and 1999, the Company incurred
$139,485 and $128,583, respectively, in stock issuance costs, including
$94,869 and $17,180, respectively, in commissions and marketing support
and due diligence expense reimbursement fees (see Note 7). These
amounts have been charged to stockholders' equity subject to the three
percent cap described above.
6. Distributions:
For the quarter ended March 31, 2000, 100 percent of the distributions
paid to stockholders were considered ordinary income for federal income
tax purposes. No amounts distributed to the stockholders for the
quarter ended March 31, 2000 are required to be or have been treated by
the Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital. The characterization
for tax purposes of distributions declared for the quarter ended March
31, 2000 may not be indicative of the results that may be expected for
the year ending December 31, 2000.
7. Related Party Arrangements:
Certain affiliates of the Company receive fees and compensation in
connection with the offering, and the acquisition, management and sale
of the assets of the Company.
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the Offering, a substantial portion of which has been
or will be paid as commissions to other broker-dealers. During the
quarter ended March 31, 2000, the Company incurred $88,940 of such
fees. A substantial portion of these amounts was or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
7. Related Party Arrangements - Continued:
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, all or a portion of
which may be reallowed to other broker-dealers. During the quarter
ended March 31, 2000, the Company incurred $5,929 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.
In addition, the Company has agreed to issue and sell soliciting dealer
warrants ("Soliciting Dealer Warrants") to CNL Securities Corp. The
price for each warrant is $0.0008 and one warrant is 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
offering begins. No Soliciting Dealer Warrant, however, will be
exercisable until one year from the date of issuance. During the
quarter ended March 31, 2000, the Company issued approximately 19,400
Soliciting Dealer Warrants. As of March 31, 2000, CNL Securities Corp.
was entitled to receive approximately 5,000 additional Soliciting
Dealer Warrants for shares sold during the quarter then ended.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of leases of the
Properties and Mortgage Loans equal to 4.5% of gross proceeds of the
Offering, loan proceeds from permanent financing and amounts
outstanding on the line of credit, if any, at the time of listing of
the shares on a national securities exchange or over-the-counter
market, but excluding that portion of the permanent financing used to
finance Secured Equipment Leases. During the quarter ended March 31,
2000, the Company incurred $53,364 of such fees. These fees are
included in other assets at March 31, 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"). Due to
the fact that the Company commenced operations in July 1999, the
Advisor will be required to reimburse the Company any amounts in excess
of the Expense Cap commencing with the Expense Year ending June 30,
2000.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
7. 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 Offering), on
a day-to-day basis.
The expenses incurred for these services were classified as follows for
the quarters ended March 31:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C>
Deferred offering costs $ -- $ 70,291
Stock issuance costs 27,103 --
Other assets 945 --
General operating and administrative expenses 54,321 --
-------------- --------------
$ 82,369 $ 70,291
============== ==============
Amounts due to related parties consisted of the following at:
March 31, December 31,
2000 1999
-------------- --------------
Due to the Advisor:
Expenditures incurred for organizational and offering
expenses on behalf of the Company $ 1,479,354 $ 1,432,291
Accounting and administrative services 35,729 6,739
Acquisition fees and expenses 412,820 336,226
-------------- --------------
1,927,903 1,775,256
-------------- --------------
Due to CNL Securities Corp.:
Commissions 10,054 --
Marketing support and due diligence
expense reimbursement fee 670 --
-------------- --------------
10,724 --
-------------- --------------
$ 1,938,627 $ 1,775,256
============== ==============
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
8. Commitment:
In March 2000, the Company entered into an initial commitment to
acquire a private-pay assisted living community for $13,848,900. The
Property is a Brighton Gardens(R) by Marriot(R) in Orland Park,
Illinois (see note 9).
9. Subsequent Events:
During the period April 1 through May 1, 2000, the Company received
subscription proceeds for an additional 41,292 shares ($412,916) of
common stock. As of May 1, 2000, the Company had received total
subscription proceeds of $7,182,070, including $383,000 from
Pennsylvania investors whose funds will be held in escrow until
aggregate subscription proceeds total at least $7,775,000.
On April 1, April 20 and May 1, 2000, the Company declared
distributions of $0.025, $0.012 and $0.058, respectively, per share of
common stock. These distributions are payable in June 2000.
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
and construct health care 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 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 $9.7 million drawn will be
8.75%. In addition, a fee of .5 percent 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.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
9. Subsequent Events - Continued:
On April 20, 2000, the Company used offering proceeds of $5,748,000 and
obtained an advance under the line of credit of $8,100,000 to acquire a
Property for a total cost of $13,848,900. In connection with the line
of credit, the Company incurred an origination fee, legal fees and
closing costs of $55,917. In connection with the purchase of the
Property, the Company, as lessor, entered into a long-term lease,
triple-net agreement.
<PAGE>
INDEX TO OTHER FINANCIAL STATEMENTS
The following financial information is provided in connection with the Company's
acquisition of the Orland Park Property. Due to the fact that the tenant of the
Company is a newly formed entity, the information presented represents the
historical financial information of the operations of the assisted living
facility. The Orland Park Property became operational on October 11, 1999. This
information was obtained from the seller of the Property. The Company acquired
the Property but does not own any interest in the tenant's operations of the
assisted living facility. For information on the Property and the long-term,
triple-net lease which the Company entered, see "Business -- Property
Acquisitions."
<TABLE>
<CAPTION>
<S> <C>
BRIGHTON GARDENS BY MARRIOTT
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Updated Financial Statements (unaudited):
Condensed Statement of Assets and Liabilities as of March 24, 2000 B-20
Condensed Statement of Revenues and Operating Expenses for the period from
January 1, 2000 through March 24, 2000 B-21
Condensed Statement of Excess of Assets Over Liabilities for the period from
January 1, 2000 through March 24, 2000 B-22
Condensed Statement of Cash Flows for the period from January 1, 2000 through
March 24, 2000 B-23
Notes to Condensed Financial Statements for the period from January 1, 2000
through March 24, 2000 B-24
</TABLE>
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Assets and Liabilities
March 24, 2000
--------------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 9,339
Other assets 5,015
-------------
Total current assets 14,354
Property and Equipment, at cost, less accumulated
depreciation of $191,602 12,593,208
-------------
$12,607,562
=============
Liabilities and Excess of Assets Over Liabilities
Current Liabilities:
Accounts payable and accrued expenses $ 12,678
Unearned revenue 27,280
Due to Marriott Senior Living Services, Inc. 259,690
-------------
Total current liabilities 299,648
Excess of Assets Over Liabilities 12,307,914
-------------
$12,607,562
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Revenues and Operating Expenses
Period from January 1, 2000 through March 24, 2000
--------------------------------------------------------------------------------
Revenue:
Resident fees $ 402,195
Other income 10,846
------------
413,041
------------
Expenses:
Operating, selling, general and administrative 538,173
Depreciation 100,843
------------
639,016
------------
Excess of Operating Expenses Over Revenues $ (225,975)
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Excess of Assets Over Liabilities
Period from January 1, 2000 through March 24, 2000
--------------------------------------------------------------------------------
Balance at Beginning of Period $ 12,533,889
Excess of operating expenses over revenues (225,975)
--------------
Excess of Assets Over Liabilities at March 24, 2000 $ 12,307,914
==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Cash Flows
Period from January 1, 2000 through March 24, 2000
--------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (225,975)
Depreciation 100,843
Changes in assets and liabilities:
Decrease (increase) in assets:
Decrease in accounts receivable 7,333
Decrease in other assets 2,744
Increase (decrease) in liabilities:
Decrease in accounts payable and accrued
expenses (2,546)
Increase in unearned revenue 27,280
Increase in due to Marriott Senior Living
Services, Inc. 83,131
---------------
Net cash used in operating activities (7,190)
Cash at Beginning of Period 16,529
----------------
Cash at End of Period $ 9,339
================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Notes to Condensed Financial Statements
Period from January 1, 2000 through March 24, 2000
--------------------------------------------------------------------------------
1. Organization and Nature of Business:
Brighton Gardens by Marriott (the "Property") is an assisted-living
facility located in Orland Park, Illinois. The Property includes 82
assisted-living units and 24 Alzheimer's units. The Property is an
unincorporated division of Marriott Senior Living Services, Inc. (the
"Owner"), a subsidiary of Marriott International, Inc.
The property became operational on October 11, 1999.
2. Basis of Presentation:
The accompanying unaudited condensed financial statements do not
include all of the information and note disclosures required by
generally accepted accounting principles. The condensed financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of management, necessary to a
fair statement of results for the interim period presented. Operating
results for the period from January 1, 2000 to March 24, 2000 may not
be indicative of the results that may be expected for the year ending
December 29, 2000. These unaudited financial statements should be read
in conjunction with the audited financial statements as of December 31,
1999.
<PAGE>
APPENDIX E
STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
------------------------------------------------------
THE STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS BEFORE
DIVIDENDS PAID DEDUCTION IN THIS ADDENDUM UPDATES AND REPLACES
APPENDIX E TO THE ATTACHED PROSPECTUS, DATED MARCH 31, 2000.
------------------------------------------------------
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH APRIL 20, 2000
For the Year Ended December 31, 1999 (Unaudited)
The following schedule presents unaudited estimated taxable operating
results before dividends paid deduction of the Property acquired by the Company
as of April 20, 2000 The statement presents unaudited estimated taxable
operating results for the Property as if it had been acquired and operational on
January 1, 1999 through December 31, 1999. The schedule should be read in light
of the accompanying footnotes.
These estimates do not purport to present actual or expected operations
of the Company for any period in the future. The estimates were prepared on the
basis described in the accompanying notes which should be read in conjunction
herewith.
Brighton Gardens by Marriott
Orland Park Property
----------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (1) $1,350,268
FF&E Reserve Income (2) 32,476
Asset Management Fees (3) (83,093)
Interest Expense (4) (708,750)
General and Administrative
Expenses (5) (110,422)
-----------
Estimated Cash Available from
Operations 480,479
Depreciation and Amortization
Expense (6) (7) (441,243)
-----------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 39,236
===========
See Footnotes
<PAGE>
FOOTNOTES:
(1) Rental income does not include percentage rents which will become due
if specified levels of gross receipts are achieved.
(2) Reserve funds will be used for the replacement and renewal of
furniture, fixtures and equipment related to the Orland Park Property
("FF&E Reserve"). The funds in the FF&E Reserve and all property
purchased with the funds from the FF&E Reserve will be paid, granted
and assigned to the Company. In connection therewith, FF&E Reserve
income will be earned at 1% of gross receipts for lease years one
through four and has been estimated based on projected gross revenues.
(3) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Health Care Corp. (the "Advisor"), pursuant
to which the Advisor will receive monthly asset management fees in an
amount equal to one-twelfth of .60% of the Company's Real Estate Asset
Value as of the end of the preceding month as defined in such
agreement. See "Management Compensation."
(4) Estimated at 8.75% per annum based on the bank's base rate as of April
20, 2000.
(5) Estimated at 8% of gross rental income, based on the previous
experience of Affiliate of the Advisor with another public REIT.
(6) The estimated federal tax basis of the depreciable portion of the
property and the number of years the assets have been depreciated on
the straight-line method is as follows:
Furniture and
Building Fixtures
(5-15 years) (39 years)
-------------- -----------------
Orland Park Property $11,507,105 $1,023,320
(7) Loan costs of $55,917 (.5% origination fee on the $8.1 million from
borrowings on the Line of Credit, legal fees and closing costs)
amortized under the straight-line method over a period of five years.
