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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 14, 1997
Commission file number 0-26980
ARV ASSISTED LIVING, INC.
(Exact name of Registrant as specified in its charter)
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CALIFORNIA 33-0160968
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
245 FISCHER AVENUE, D-1
COSTA MESA, CA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
COVELL GARDENS (THE "FACILITY")
ARV Assisted Living Inc. ("ARV") has purchased Covell Gardens, a 157-unit
assisted living facility which provides full meal, maid and other communal
services for senior citizens. This acquisition represents the fourteenth
third-party acquisition since the Company's initial public offering in October
1995.
The Company acquired Covell Gardens from Covell Gardens, a California general
partnership ("Seller"), an unrelated third party, pursuant to a Purchase
Agreement and Escrow Instructions dated January 6, 1997 negotiated between the
Company and Seller. The purchase closed on March 14, 1997.
TERMS OF PURCHASE
Covell Gardens' purchase price of $11.9 million was fully financed with cash on
hand. It is the Company's intention to finance approximately $5.9 million of
this purchase price with a new loan to be secured by a first deed of trust
recorded against the facility.
OPERATION
Covell Gardens' occupancy at March 18,1997 was 92%. While the project is now ten
years old, the Facility has been well maintained and is not currently in need of
major upgrades or rehabilitation. The Company believes that the purchase price
negotiated with the Seller reflects both the occupancy rate and the condition of
the Facility.
THE FACILITY
Covell Gardens is a 157 unit assisted living facility with Phase I constructed
in 1987 and Phase II constructed in 1990. The site is an approximate 4.5 acre
parcel with one three-story building containing approximately 180,000 square
feet. Of its 157 units, 14 units are studios with living/dining room, kitchen
and bathroom, 93 units are one bedroom with living room/dining room, kitchen,
bathroom and patio/balcony and 50 units are two bedrooms with living room/dining
room, kitchen, bathroom and patio/balcony. On-site amenities include outdoor
gardens and koi ponds, library, game room, TV lounge area, fully-equipped
spa/exercise room, activity room, beauty and barber shop, mini-store and gift
shop, soda fountain, mini storage and laundry room.
The Company is confident that its experience in assisted living facilities and
its knowledge of the senior housing market, including the operation of
forty-four other assisted living facilities will enable it to achieve operating
efficiencies while maintaining the Facility's occupancy rates at full market
rent.
2
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LOCATION
Covell Gardens is located in the City of Davis, Yolo County, California. Covell
Gardens is located near two shopping centers, a city park, a municipal golf
course, the Sutter Davis Hospital and the University of California, Davis
campus. The facility is approximately 20 minutes from downtown Sacramento.
MARKET DATA
Covell Gardens draws 90% of its residents from Yolo County, California, and the
remaining 10% from Napa, Solano and Sacramento Counties, California.
COMPETITION
Covell Gardens' competition for provision of senior assisted living services
within the greater Davis area comes primarily from four area facilities which
provide independent and assisted living. Each of the competing facilities was
built between 1964 and 1991.
SPECIAL RISKS
The success of the Facility depends to a large extent on increasing gross
revenues, holding or decreasing costs, and on the abilities of the on-site
management teams which the Company assembles. To achieve increased revenue and
stable operating cost goals, policies used by the former owners may need to be
altered. This could result in short term resident dissatisfaction and/or
relocation. Moreover, given that the Facility is not newly constructed,
unforeseen circumstances could necessitate major renovation or more refurbishing
than originally planned. The relatively low vacancy rates enjoyed throughout the
primary market may induce other operators to create new, competitive facilities.
3
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The Registrant submits this Form 8-K in order to supply the financial statements
and schedules required pursuant to Rule 3-14 of Regulation S-X with respect to
the Registrant's acquisition of Covell Gardens, a 157-unit assisted living
facility located in Davis, California and to provide the pro forma financial
statements reflecting the acquisition of Covell Gardens required thereby.
Financial Statements of Real Estate Operations Acquired
Exhibit 99.1 "Historical Summary of Gross Income and Direct Operating Expenses
of Covell Gardens for the year ended December 31, 1996."
Exhibit 99.2 A statement showing the estimated taxable operating results for
Covell Gardens based on its most recent 12-month period.
Exhibit 99.3 "Unaudited Pro Forma Combined Balance Sheet of ARV Assisted Living,
Inc. as of December 31, 1996 and the Unaudited Pro Forma Combined
Statement of Operations for the nine months ended December 31,
1996 and the Unaudited Pro Forma Combined Statement of Operations
for the year ended March 31, 1996 and the related notes thereon."
4
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARV Assisted Living, Inc.
By: /s/ Patrick M. Donovan
-----------------------------------------
Patrick M. Donovan
Vice President Finance
(duly authorized financial officer)
Date: March 29, 1997
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Exhibit 99.1
COVELL GARDENS
Historical Summary of Gross Income
and Direct Operating Expenses
Year ended December 31, 1996
(With Independent Auditors' Report Thereon)
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Covell Gardens (ARV Assisted Living, Inc.):
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses of Covell Gardens, Davis, California (Historical Summary)
for the year ended December 31, 1996. This Historical Summary is the
responsibility of Covell Gardens' management. Our responsibility is to express
an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Historical Summary. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Form 8-K of ARV Assisted Living, Inc. The presentation is not
intended to be a complete presentation of Covell Gardens' revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Covell Gardens for the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Sacramento, California
February 15, 1997
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COVELL GARDENS
Historical Summary of Gross Income
and Direct Operating Expenses
Year ended December 31, 1996
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Gross income:
Rental revenue $2,751,038
Other income 61,499
----------
Total income 2,812,537
----------
Direct operating expenses:
Administrative 137,882
Marketing 54,029
Food service 641,308
Assisted living 174,674
Resident services 276,230
Maintenance 122,767
Utilities 135,030
Taxes and insurance 111,108
----------
Total expenses 1,653,028
----------
Excess of revenue over direct operating expenses $1,159,509
==========
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See accompanying notes to historical summary.
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COVELL GARDENS
Notes to Historical Summary of Gross Income
and Direct Operating Expenses
Year ended December 31, 1996
(1) BUSINESS
Covell Gardens is an independent and assisted living facility (ALF)
located in Davis, California. The objective of Covell Gardens is to
provide residents with independent housing and assisted living care.
Covell Gardens has 157 living units (124 independent living units and 33
ALF units).
(2) BASIS OF PRESENTATION
The Historical Summary presents only specified revenues and expenses and
is not a complete presentation of Covell Gardens' revenues and expenses.
The Historical Summary has been prepared on the accrual basis of
accounting.
GROSS INCOME
Gross income is comprised of monthly rental charges for Covell Gardens'
independent living and ALF units as well as ancillary charges for
housekeeping services.
DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs comparable to the
proposed future operations of Covell Gardens. Costs such as mortgage
interest, depreciation, amortization, management fees and attorneys' fees
are excluded from the Historical Summary.
<PAGE> 1
Exhibit 99.2
ARV Assisted Living, Inc.
Purchase of Covell Gardens
Pro Forma Estimates of Cash Flow and Federal Taxable Income
For the Year Ended December 31, 1996
The following unaudited pro forma estimates present the cash flow and the
Federal Taxable Income of Covell Gardens for the year ended December 31, 1996 as
if Covell Gardens had been acquired on January 1, 1996. The pro forma does not
purport to represent operations of ARV as a whole nor does it purport to
represent actual or expected operations of the Company for any period in the
future.
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Estimate of Cash Flow:
Historical Operating Income $ 1,159,509
Less: Property Taxes (47,314)
-----------
Pro Forma Estimate of Cash Flow 1,112,195
===========
Estimate of Federal Taxable Income:
Pro Forma Estimate of Cash Flow 1,112,195
Less: Estimated Depreciation & Amortization
Expense (Federal Income Tax Basis) (331,429)
-----------
Pro Forma Estimate of Federal Taxable Income $ 780,766
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Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements give effect to
the acquisition of Covell Gardens ("Covell") and the sale leaseback transaction
described in Note 1. The Unaudited Pro Forma Combined Financial Statements are
based on the assumptions and adjustments described in the accompanying notes and
should be read in conjunction therewith and in conjunction with the historical
financial statements of ARV Assisted Living, Inc. and subsidiaries ("ARVAL" or
the "Company") and the notes thereto included in the Company's report on Form
10-Q as of and for the nine month period ended December 31, 1996 and the
Company's consolidated financial statements as of and for the year ended March
31, 1996. The Unaudited Pro Forma Combined Financial Statements do not purport
to present the financial position or the results of operations of ARVAL had the
transactions assumed therein occurred on the dates indicated, nor are they
necessarily indicative of the results of operations which may be achieved in the
future.
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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1996
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COVELL
GARDENS
HISTORICAL ACQUISITION SALE/LEASEBACK PRO FORMA PRO FORMA
ARVAL HISTORICAL(2) TRANSACTION(1)(5) ADJUSTMENTS(6) COMBINED
------------ ------------- ----------------- ------------ -----------
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ASSETS
Cash $ 8,386,000 $ 53,000 $ 23,178,000(a) $(11,900,000)(a) $19,717,000
Fees receivable from affiliates 4,167,000 393,000 - 4,560,000
Investments in real estate 48,134,000 - - 48,134,000
Other assets 6,684,000 37,000 - 6,721,000
------------ ----------- ------------ ------------ -----------
Total current assets 67,371,000 483,000 23,178,000 (11,900,000) 79,132,000
Restricted cash 314,000 - - 314,000
Property, furniture and equipment, net 87,634,000 10,081,000 (28,982,000)(b) 836,000 (b) 70,069,000
500,000 (b)
Other non-current assets 8,129,000 500,000 1,283,000 (c) (500,000)(c) 9,412,000
------------ ----------- ------------ ------------ -----------
Total non-current assets 96,077,000 10,581,000 (27,699,000) 836,000 79,795,000
------------ ----------- ------------ ------------ -----------
Total assets $163,448,000 $11,064,000 $(4,521,000) $(11,064,000) $158,927,000
============ =========== =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 8,710,000 $ 242,000 $ (290,000)(d) $ (242,000)(d) $ 8,420,000
Notes payable, current portion 1,796,000 - - 1,796,000
Notes payable and other amounts due to
affiliates 150,000 - - 150,000
------------ ----------- ------------ ------------ -----------
Total current liabilities 10,656,000 242,000 (290,000) (242,000) 10,366,000
Deferred revenue 1,114,000 - - 1,114,000
Notes payable, less current portion 89,324,000 10,205,000 (4,231,000)(d) (10,205,000)(d) 85,093,000
------------ ----------- ------------ ------------ -----------
Total non-current liabilities 90,438,000 10,205,000 (4,231,000) (10,205,000) 86,207,000
Total liabilities 101,094,000 10,447,000 (4,521,000) (10,447,000) 96,573,000
Minority interest 8,405,000 - - - 8,405,000
Shareholders' equity:
Common stock 60,682,000 - - 60,682,000
Accumulated equity (deficit) (6,733,000) 617,000 - (617,000)(b) (6,733,000)
------------ ----------- ------------ ------------ -----------
Total shareholders' equity 53,949,000 617,000 - (617,000) 53,949,000
------------ ----------- ------------ ------------ -----------
Total liabilities and
shareholders' equity $163,448,000 $11,064,000 $ (4,521,000) $(11,064,000) $158,927,000
============ =========== ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended March 31, 1996
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COVELL GARDENS
HISTORICAL ACQUISITION SALE/LEASEBACK PRO FORMA PRO FORMA
ARVAL HISTORICAL(2) TRANSACTION(5) ADJUSTMENTS(6) COMBINED
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REVENUES:
Assisted living facility
revenues $ 25,479,000 $ 2,441,000 $ 6,455,000 (e) $ - $34,375,000
Management fees 2,822,000 - - 2,822,000
Development fees 1,500,000 - - - 1,500,000
Interest income 1,070,000 - 1,159,000 (f) (570,000)(e) 1,659,000
Other income 2,192,000 83,000 - - 2,275,000
------------ ----------- ----------- ------------ -----------
Total revenue 33,063,000 2,524,000 7,614,000 (570,000) 42,631,000
EXPENSES
Assisted living facility
operating expenses 16,395,000 1,461,000 4,438,000 (g) - 22,294,000
Assisted living facility
lease expenses 6,644,000 - 2,974,000 (h) - 9,618,000
General and administrative 7,644,000 - - - 7,644,000
Depreciation and amortization 1,031,000 - 873,000 (i) 331,000(f) 1,305,000
(930,000)(j)
Discontinued project costs
and accounts receivable
written-off 395,000 - - - 395,000
Interest 1,544,000 - (110,000)(k) - 1,434,000
------------ ----------- ----------- ------------ ----------
Total expenses 33,653,000 1,461,000 7,245,000 331,000 42,690,000
------------ ----------- ----------- ------------ ----------
Income before minority interest
and income tax expense (590,000) 1,063,000 369,000 (901,000) (59,000)
Income tax expense (benefit) 375,000 361,000 125,000(l) (307,000(g) 554,000
------------ ----------- ----------- ------------ ----------
Net income (loss) (965,000) 702,000 244,000 (594,000) (613,000)
============ =========== =========== ============ ==========
Preferred dividends declared $ 351,000 $ 351,000
------------ ----------
Net loss available for common shares $ (1,316,000) $ (964,000)
============ ==========
Net loss per common share $ (0.21) $ (0.15)
============ ==========
Weighted average common shares
outstanding 6,246,000 6,246,000
============ ==========
See accompanying notes to unaudited pro forma combined financial statements.
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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Nine Months Ended December 31, 1996
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COVELL GARDENS
HISTORICAL ACQUISITION SALE/LEASEBACK PRO FORMA PRO FORMA
ARVAL HISTORICAL(2) TRANSACTION(1)(5) ADJUSTMENTS(6) ARVAL
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REVENUE:
Assisted living facility revenues $50,830,000 $2,031,000 $2,060,000(e) $ - $54,921,000
Services 5,323,000 - 5,323,000
Interest Income 1,647,000 - 869,000(f) (446,000)(e) 2,070,000
Other income 462,000 48,000 - - 510,000
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Total revenue 58,262,000 2,079,000 2,929,000 (446,000) 62,824,000
EXPENSES
Assisted living facility
operating expenses 32,429,000 1,259,000 1,357,000 (g) - 35,045,000
Assisted living facility
lease expenses 8,736,000 - 2,230,000 (h) - 10,966,000
General and administrative 4,932,000 - - - 4,932,000
Depreciation and amortization 2,935,000 484,000 (i) 248,000(f) 2,749,000
(918,000)(j)
Interest 4,149,000 - (58,000)(k) - 4,091,000
Other 2,694,000 - - 2,694,000
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Total expenses 55,875,000 1,259,000 3,095,000 248,000 60,477,000
----------- ---------- ---------- --------- -----------
Income (loss) before income tax
expense (benefit), minority
interest and extraordinary item 2,387,000 820,000 (166,000) (694,000) 2,347,000
Income tax expense (benefit) 893,000 307,000 (62,000)(l) (260,000)(g) 878,000
----------- ---------- ---------- --------- -----------
Income (loss) before minority
interest and extraordinary item 1,494,000 513,000 (104,000) (434,000) 1,469,000
Minority interest in earnings of
majority owned partnerships 241,000 - - - 241,000
----------- ---------- ---------- --------- -----------
Income (loss) before
extraordinary item 1,253,000 513,000 (104,000) (434,000) 1,228,000
Extraordinary item, loss
from early extinguishment of
debt, net of income tax
benefit of $231 386,000 - - - 386,000
----------- ---------- ---------- --------- -----------
Net income $ 867,000 $ 513,000 $ (104,000) $(434,000) $ 842,000
=========== ========== ========== ========= ===========
Net income available for
common shares $ 867,000 $ 842,000
=========== ===========
Earnings (loss) per common share:
Income (loss) before
extraordinary item $ 0.13 $ 0.13
Extraordinary item, early
extinguishment of debt (0.04) (0.04)
---------- -----------
Net income per common share $ 0.09 $ 0.09
========== ===========
Weighted average common shares
outstanding 9,366,000 9,366,000
========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) On February 28, 1997, the Company completed a sale/leaseback
transaction in which four assisted living/retirement facilities
containing 505 units were sold for $29 million. One of these
facilities was purchased in November 1995, and three were purchased
in fiscal 1997. The Company concurrently entered into a long-term
operating lease for these facilities.
(2) On March 14, 1997, the Company acquired Covell Gardens ("Covell"), a
157 unit assisted living facility located in the city of Davis, Yolo
County, California. The purchase price of $11.9 million was paid for
with cash on hand.
(3) The Unaudited Pro Forma Combined Balance Sheet at December 31, 1996
presents the historical balance sheet of the Company and Covell Gardens
as of December 31, 1996, and the pro forma balance sheet of the Company
as if the transaction described in note (1) above and the acquisition
described in note (2) above had been completed as of December 31, 1996.
(4) The Unaudited Pro Forma Combined Statements of Operations for the year
ended March 31, 1996 and the nine months ended December 31, 1996
present the historical operations of the Company and Covell Gardens,
and the pro forma operations of the Company as if the transaction
described in note (1) above and the acquisition described in note
(2) above had occurred at the beginning of each period.
(5) Pro forma adjustments for the transaction described in note (1) above
are as follows:
a) To reflect cash received from the sale of the facilities
b) To reflect the sale of the facilities
c) To record the lease and related deposits
d) To eliminate the payable and the loan related to the
facilities
e) To reflect revenue generated from the facilities
f) To reflect the increase in interest income due to cash
received from the sale mentioned in note (1) above, based
upon the rate of 5% earned on cash equivalents
g) To reflect operating expenses related to the facilities
h) To record lease expense
i) To reflect the depreciation expense related to the
facilities as if they were acquired at the beginning of
the period
j) To reflect the decrease in depreciation expense associated
with the sale of the facilities
k) To reflect the decrease in interest expense related to the
loan repaid
l) To reflect the pro forma change in income tax expense
(benefit)
(6) Pro forma adjustments for the acquisition described in note (2) above
are as follows:
a) To reflect the use of cash subsequent to December 31, 1996 for
the purchase of Covell Gardens
b) To reflect the allocation of purchase price to property and
elimination of equity
c) To reflect the write-off of loan costs and preopening costs
d) To eliminate debt as no debt was assumed
e) To reflect the decrease in interest income due to cash used to
fund the acquisition mentioned in note (2) above,
based upon the rate of 5% earned on cash equivalents
f) To reflect the new depreciation expense associated with the
acquisition
g) To reflect the pro forma change in income tax expense
(benefit)
