- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1994
For the Quarterly period ending June 30, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the Transition period from ____ to ____
Commission file number 0-27108
REGENT ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1171049
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2260 U.S. Bancorp Tower
111 SW Fifth Avenue
Portland, Oregon 97204
(Address of principle executive offices)
503-227-4000
(Registrant's telephone number, including area code)
Indicated by check mark whether Registrant (1) has filed all reports to be
filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Shares of Registrant's Common Stock, No par value,
outstanding at August 1, 1996 - 4,633,000
- --------------------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
FORM 10-QSB
JUNE 30, 1996
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets of Regent Assisted Living, Inc.
as of June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations of Regent Assisted Living,
Inc. for the three months and six months ended June 30, 1996 and
Regent Assisted Living Group for the three months and six months
ended June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows of Regent Assisted Living,
Inc. for the six months ended June 30, 1996 and Regent Assisted
Living Group for the six months ended June 30, 1995 . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 17
PAGE 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC. (The Company)
CONDENSED BALANCE SHEETS
June 30,
December 31, 1996
1995 Unaudited)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $7,585,952 $5,531,335
Investments 1,952,542
Accounts receivable 115,736 68,413
Prepaid expenses 77,928 87,152
------------- -------------
Total current assets 9,732,158 5,686,900
Property and equipment, net 7,927,331 12,060,579
Restricted cash 76,364 10,800
Other assets 450,757 539,142
------------- -------------
Total assets $18,186,610 $18,297,421
============= =============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $975,464 $1,048,262
Accrued interest 33,939 40,830
Current portion of long-term debt 76,284 71,125
------------- -------------
Total current liabilities 1,085,687 1,160,217
Long-term debt 6,023,716 5,990,247
Other liabilities 417,005 429,650
------------- -------------
Total liabilities 7,526,408 7,580,114
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding - - - - - -
Common stock, no par value, 25,000,000 shares
authorized; 4,633,000 shares issued and outstanding 10,758,703 10,758,703
Accumulated deficit (98,501) (41,396)
------------- -------------
Total shareholders' equity 10,660,202 10,717,307
------------- -------------
Total liabilities and shareholders' equity $18,186,610 $18,297,421
============= =============
The accompanying notes are an integral part of these condensed financial statements.
Page 3
REGENT ASSISTED LIVING, INC. (The Company)
AND REGENT ASSISTED LIVING GROUP (Predecessor)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Predecessor The Company Predecessor The Company
------------------ ------------------ ------------------ -----------------
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
------------------ ------------------ ------------------ -----------------
Revenues:
Rental and service $2,367,839 $3,164,543 $4,600,026 $6,392,673
Management fee 82,623 42,020 152,474 86,414
-------------- --------------- --------------- --------------
Total revenues 2,450,462 3,206,563 4,752,500 6,479,087
-------------- --------------- --------------- --------------
Operating expenses:
Residence operating expenses 1,418,391 1,951,705 2,852,990 3,920,394
General and administrative 210,333 451,731 317,788 924,344
Lease 689,313 1,378,625
Depreciation and amortization 150,287 60,417 323,592 119,131
-------------- --------------- --------------- --------------
Total operating expenses 1,779,011 3,153,166 3,494,370 6,342,494
-------------- --------------- --------------- --------------
Operating income 671,451 53,397 1,258,130 136,593
Interest income 5,336 87,119 9,765 203,981
Interest expense (509,621) (129,802) (935,202) (258,581)
Other income, net 1,293 5,622 1,293 10,112
-------------- --------------- --------------- --------------
Income before income taxes 168,459 16,336 333,986 92,105
Provision for income taxes 6,208 35,000
-------------- --------------- --------------- --------------
Net income $168,459 $10,128 $333,986 $57,105
============== =============== =============== ==============
Per share net income $0.00 $0.01
=============== ==============
Pro forma data:
Income before income taxes $168,459 $333,986
Pro forma provision for
income taxes 64,000 126,900
-------------- ---------------
Pro forma net income $104,459 $207,086
============== ===============
Pro forma per share net income $0.03 $0.07
============== ===============
Weighted average common
shares outstanding 3,000,000 4,633,000 3,000,000 4,633,000
============== =============== =============== ==============
The accompanying notes are an integral part of these condensed financial statements.
Page 4
REGENT ASSISTED LIVING, INC. (The Company)
AND REGENT ASSISTED LIVING GROUP (Predecessor)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Predecessor The Company
------------------ ------------------
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1996
------------------ ------------------
Cash flows from operating activities:
Net income $333,986 $57,105
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 323,592 119,131
Changes in other non-cash items:
Accounts receivable 29,493 47,323
Prepaid expenses (21,797) (9,224)
Restricted cash 65,564
Other assets 48,823 (88,385)
Accounts payable and accrued
expenses 53,575 72,798
Accrued interest 23,810 6,891
Other liabilities 10,173 12,645
--------------- --------------
Net cash provided by operating activities 801,655 283,848
--------------- --------------
Cash flows from investing activities:
Maturity of investments 1,952,542
Purchases of property and equipment (363,304) (4,252,379)
--------------- --------------
Net cash used in investing activities (363,304) (2,299,837)
--------------- --------------
Cash flows from financing activities:
Loan fees (219,891)
Proceeds from issuance of long-term
debt 18,450,000
Payments on long-term debt (15,303,962) (38,628)
Repayment of notes payable to an
owner (1,894,624)
Capital distributions (1,438,746)
--------------- --------------
Net cash used in financing activities (407,223) (38,628)
--------------- --------------
Net increase (decrease) in cash 31,128 (2,054,617)
Cash and cash equivalents,
beginning of period 566,028 7,585,952
--------------- --------------
Cash and cash equivalents,
end of period $597,156 $5,531,335
=============== ==============
The accompanying notes are an integral part of these condensed financial statements.
Page 5
REGENT ASSISTED LIVING, INC. (THE COMPANY)
REGENT ASSISTED LIVING GROUP (PREDECESSOR)
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:
THE COMPANY
Regent Assisted Living, Inc. ("the Company") is an owner, operator,
and developer of private-pay assisted living communities. Assisted
living is part of a spectrum of long-term care services that provide
a combination of housing, personal services and health care designed
to respond to elderly individuals who require assistance with
activities of daily living in a manner that promotes maximum
independence.
The Company was formed to acquire the assisted living property
management business of Bowen Property Management Co., which is wholly
owned by Walter C. Bowen, the Chairman of the Board, President, Chief
Executive Officer, and majority shareholder of the Company, and was
initially capitalized through the sale of 3,000,000 shares of common
stock for $2,000. On December 26, 1995, the Company sold 1,400,000
shares of common stock to the public at a price of $7.50 per share in
an initial public offering (the Offering). Concurrently, the Company
sold an additional 233,000 shares at a price of $7.50 per share to
Mr. Bowen. The Company realized net proceeds of $10,756,563 from
these transactions.
During 1995 the Company provided property management services to four
assisted living communities including Regency Park, Sterling Park,
Park Place, and Sunshine Villa. Regency Park, Sterling Park, and Park
Place are owned by entities controlled by Mr. Bowen. Effective
December 1, 1995, the Company acquired Sunshine Villa from an
unrelated party for approximately $7,700,000. Unaudited pro forma
results of operations for the three month and six month periods ended
June 30, 1995 (as if the acquisition of Sunshine Villa, the Offering,
and the commencement of the leases of Regency Park and Sterling Park
had occurred as of January 1, 1995) are included in Note 4.
Effective January 1, 1996, the Company entered into agreements to
lease Regency Park and Sterling Park from Regency Park Apartments
Limited Partnership (Regency Partnership) and Bowen-Gionet Joint
Venture (BGJV), respectively, (see also Predecessor below and Note
4).
Page 6
REGENT ASSISTED LIVING, INC. (THE COMPANY)
REGENT ASSISTED LIVING GROUP (PREDECESSOR)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
The Company also provides management and administrative services for
Bowen Property Management Co., Bowen Financial Services Corp., Bowen
Development Company and Bowen Condominium Marketing, Inc.
(collectively, the Bowen Companies), all of which are Oregon
corporations and are wholly owned by Mr. Bowen. These services are
provided pursuant to the terms of an Administrative Services
Agreement described in Note 3
THE PREDECESSOR
The Predecessor financial statements for the three months and six
months ended June 30, 1995, represent the combined results of
operations and financial position of the Predecessor. The Predecessor
consists of the affiliated entities described below which own
assisted living communities operated by the Company pursuant to lease
agreements which became effective January 1, 1996.
The Predecessor represents a combination of the business of the
Company (an S corporation prior to the Offering), Regency Partnership
and BGJV, which have 100 percent ownership in each of their
respective assisted living communities and common management and
controlling interests. Regency Partnership and BGJV are 100 percent
owned by Walter C. Bowen and his family. Prior to the Offering, the
Company was also 100 percent owned by Walter C. Bowen.
The assisted living communities operated by the Predecessor were as
follows:
COMMENCED
COMMUNITY ENTITY LEGAL FORM OPERATIONS
--------- ------ ---------- ----------
Regency Park Regency Partnership Limited Partnership 1987
Sterling Park BGJV General Partnership 1990
BASIS OF PRESENTATION
The condensed financial statements include the accounts of the
Company and the Predecessor. The combined financial statements of the
Predecessor include the assets, liabilities and operations associated
with the assisted living communities listed above, as well as the
Company. Since the communities have common ownership and management
interests, the assets and liabilities are reflected at historical
cost. All significant inter-company accounts and transactions have
been eliminated in combination.
Page 7
REGENT ASSISTED LIVING, INC. (THE COMPANY)
REGENT ASSISTED LIVING GROUP (PREDECESSOR)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
The accompanying unaudited financial statements as of June 30, 1996
and for the three month and six month periods ended June 30, 1996 and
1995 have been prepared in conformity with generally accepted
accounting principles. The financial information as of December 31,
1995, is derived from the Company's Form 10-KSB for the year ended
December 31, 1995. Certain information or footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying
financial statements include all adjustments necessary (which are of
a normal and recurring nature) for the fair presentation of the
results of the interim periods presented. The accompanying financial
statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1995 included in
the Company's Form 10-KSB for the year ended December 31, 1995.
Operating results for the three months and six months ended June 30,
1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1996, or any
portion thereof.
2. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and consist of the
following:
December 31, June 30,
1995 1996
------------- -------------
Land $ 1,100,000 $ 1,100,000
Buildings and improvemen s 6,321,169 6,351,067
Furniture and equipment 308,594 351,583
Construction in progress 210,665 4,369,200
------------- -------------
7,940,428 12,171,850
Less accumulated depreciation 13,097 111,271
------------- -------------
Total property and equipment, net $ 7,927,331 $ 12,060,579
============= =============
Land, buildings and certain furniture and equipment serve as
collateral for long-term debt.
Page 8
REGENT ASSISTED LIVING, INC. (THE COMPANY)
REGENT ASSISTED LIVING GROUP (PREDECESSOR)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. ADMINISTRATIVE SERVICES AGREEMENT:
The Company has entered into an agreement with the Bowen Companies,
all of which are Oregon corporations controlled by Mr. Bowen, whereby
the Company will provide each of the Bowen Companies executive
assistance, accounting and financial management services, legal and
administrative assistance, insurance, management information
services, and other management services as required by the Bowen
Companies. Under the terms of the agreement, the Company will be
reimbursed at its cost on a monthly basis for all services provided.
4. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The following table sets forth the unaudited pro forma statements of
operations of the Company for the three months and six months ended
June 30, 1995, as if the acquisition of Sunshine Villa and the
Offering (including approximately $187,500 per quarter of additional
general and administrative expenses that are anticipated to be
incurred as a result of being a public entity) had occurred as of
January 1, 1995, and the agreements to lease Regency Park and
Sterling Park had been consummated at that date:
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
------------- -------------
Revenues:
Rental and service $ 3,082,052 $ 6,027,326
Management fee 46,491 81,704
----------- -----------
Total revenues 3,128,543 6,109,030
----------- -----------
Operating expenses:
Residence operating expenses 1,913,735 3,869,408
General and administrative 403,058 692,788
Lease 689,312 1,378,625
Depreciation and amortization 51,020 112,592
----------- -----------
Total operating expenses 3,057,125 6,053,413
Operating income 71,418 55,617
Interest income 5,336 9,765
Interest expense (133,757) (267,202)
Other income, net 1,293 1,293
----------- -----------
Net loss $ (55,710) $ (200,527)
=========== ===========
Per share net loss $ (0.01) $ (0.04)
=========== ===========
Weighted average common
shares outstanding 4,633,000 4,633,000
=========== ===========
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
THE COMPANY
The Company reported net income of approximately $10,000, or $.00 per
share, on revenue of $3,206,000 for the quarter ended June 30, 1996. For
the six months ended June 30, 1996, the Company reported net income of
approximately $57,000, or $.01 per share, on revenue of $6,479,000. This
report marks the second full quarter of operations since the Company's
$10.8 million initial public offering on December 26, 1995.
Effective December 1, 1995, the Company acquired Sunshine Villa, a 126 bed
assisted living community located in Santa Cruz, California. The Company
operates two other assisted living communities pursuant to long-term
leases: Regency Park, a 140 bed community in Portland, Oregon, and Sterling
Park, a 192 bed community in Redmond, Washington, for total operations of
458 beds. The Company also manages Park Place, a 112 bed community in
Portland, Oregon from which the Company derives a management fee. As of
August 12, 1996, the Company had started construction on a 136 bed
community in Boise, Idaho, and an additional ten communities were under
development. If all eleven communities are developed, total operations of
the Company will increase by approximately 1,400 beds. Additionally, the
Company had options to purchase an additional four sites on which the
Company was engaged in preliminary development activities to develop
communities with an aggregate of 504 beds. All costs associated with the
development of these communities have been capitalized as "Construction in
Progress" as disclosed in Note 2 to the financial statements.
Operating results for the three month and six month periods ended June 30,
1996, are not necessarily indicative of future financial performance as the
Company intends to expand its operating base of communities using the
remaining proceeds of the public offering.
PREDECESSOR
The historical financial statements for the three month and six month
periods ended June 30, 1995, represent the combined historical results of
operations and financial condition of the Predecessor. The Predecessor
consists of a combination of the business of the Company and the two
entities that own Regency Park and Sterling Park. The discussion of the
results of operations which follows is based upon the combined results of
operations of the Predecessor. For the purpose of preparing the historical
financial statements of the Predecessor, expenses have been allocated among
the Bowen Companies in a manner consistent with the Administrative Services
Agreement.
Certain pro forma data discussed below has been derived from Note 4 to the
financial statements of the Company for the three month and six month
periods ended June 30, 1996 and 1995, which presents unaudited pro forma
results of operations for the three month and six month periods ended June
30, 1995, as if the acquisition of Sunshine Villa, the initial public
offering, and the lease of Regency Park and Sterling Park had occurred as
of January 1, 1995.
Page 10
OPERATIONS OF EXISTING COMMUNITIES
The following table sets forth, for the periods presented, the number of
communities and beds owned or leased and average occupancy percentages of
the Predecessor, the Company on a pro forma basis, and the Company:
Communities
Owned or Number Average
Leased of Beds Occupancy
(end of period) (end of period) Percentage
--------------- --------------- ----------
Three Months ended June 30, 1995:
Predecessor 2 327 94.3%
The Company (pro forma) 3 453 93.7%
Three Months ended June 30, 1996:
The Company 3 458 96.5%
Six Months ended June 30, 1995:
Predecessor 2 327 94.1%
The Company (pro forma) 3 453 93.7%
Six Months ended June 30, 1996:
The Company 3 458 96.1%
Note: Pro Forma includes Sunshine Villa, which was acquired effective
December 1, 1995.
THREE MONTHS ENDED JUNE 30, 1996 (THE COMPANY), COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995 (PREDECESSOR)
REVENUES. For the three month period ended June 30, 1996, revenues were
$3,206,563 compared to $2,450,462 in the three month period ended June 30,
1995. The Company operated three communities in the 1996 quarterly period
and managed a fourth community whereas it operated two communities and
managed two additional communities in the corresponding 1995 period. The
increase in revenue of $756,101, or 30.9 percent, is due primarily to the
addition of Sunshine Villa (pro forma revenues would have been $3,128,543
for the three month period ended June 30, 1995, if Sunshine Villa had been
acquired as of January 1, 1995) and to an increase in occupancy. Revenue
from the operation of Sunshine Villa was $785,268 in the second quarter of
1996. Overall occupancy at all three of the Company's communities increased
to an average of 96.5 percent for the three month period ended June 30,
1996, whereas on a pro forma basis the average occupancy for the same
period in 1995 was 93.7 percent.
RESIDENCE OPERATING EXPENSES. Residence operating expenses were $1,951,705
for the three month period ended June 30, 1996, and $1,418,391 for the same
period in 1995. The increase of $533,314 is due primarily to the addition
of Sunshine Villa for 1996 (pro forma residence operating expenses would
have been $1,913,735 for the three month period ended June 30, 1995, if
Sunshine Villa had been acquired as of January 1, 1995). Residence
operating expenses totaled 61.7 percent and 59.9 percent of rental and
service revenues for the three month periods ended June 30, 1996 and 1995,
respectively, whereas on a pro forma basis for the second quarter of 1995
the expenses totaled 62.1 percent of revenues.
Page 11
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $451,731 for the three month period ended June 30, 1996, compared to
$210,333 for the Predecessor for the three month period ended June 30,
1995. The increase of $241,398 is due primarily to the increase in
development activities by the Company, including payroll and related costs
primarily resulting from staffing increases related to the implementation
of the Company's strategy for rapid growth and costs associated with being
a public company. General and administrative expenses, on a pro forma
basis, would have been $403,058 for the three month period ended June 30,
1995. General and administrative expenses were 14.1 percent of total
revenues for the three month period ended June 30, 1996, whereas on a pro
forma basis expenses were 12.9 percent of revenues for same period in 1995.
LEASE EXPENSE. Lease expense for the Company's two leased communities was
$689,313 for the three month period ended June 30, 1996, and there was no
similar lease expense for the three month period ended June 30, 1995, since
Regency Park and Sterling Park were owned by entities included in the
Predecessor. The Company entered into long-term operating leases for the
Sterling Park and Regency Park communities effective January 1, 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$60,417 for the three month period ended June 30, 1996, compared to
$150,287 for the three month period ended June 30, 1995. Depreciation for
the second quarter of 1996 relates primarily to Sunshine Villa while
depreciation for the same period of 1995 relates primarily to Regency Park
and Sterling Park, which are now being leased by the Company. Depreciation
and amortization would have been $51,020 on a pro forma basis for the three
month period ended June 30, 1995.
INTEREST EXPENSE. Interest expense decreased in the three month period
ended June 30, 1996, to $129,802, from $509,621 for the three month period
ended June 30, 1995. Interest expense for the second quarter of 1996 is
related to financing incurred to acquire Sunshine Villa whereas interest
expense for the second quarter of 1995 is related to indebtedness secured
by the Regency Park and Sterling Park communities. Interest expense would
have been $133,757 on a pro forma basis for the three month period ended
June 30, 1995.
INTEREST INCOME. Interest income increased in the three month period ended
June 30, 1996, to $87,119, from $5,336 for the same period in 1995. The
increase in interest income is due to the Company's investment of the net
proceeds from its initial public offering in high quality, short term
securities placed with institutions with high credit ratings.
NET INCOME. Net income decreased to $10,128 for the Company during the
three month period ended June 30, 1996, from $104,459 (after a pro forma
tax provision of $64,000) for the Predecessor for the same period in 1995.
The decrease in net income is the result primarily of an increase in
general and administrative expenses, offset by an increase in interest
income, as discussed above.
Page 12
On a pro forma basis, the net loss for the three month period ended June
30, 1995, would have been approximately $56,000 as compared to net income
of approximately $10,000 for the three month period ended June 30, 1996, an
increase of approximately $66,000. The increase is due primarily to an
increase in interest income of approximately $82,000, offset by a decrease
in operating income of approximately $18,000 and an increase in income
taxes of approximately $6,000.
SIX MONTHS ENDED JUNE 30, 1996 (THE COMPANY), COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995 (PREDECESSOR)
REVENUES. For the six month period ended June 30, 1996, revenues were
$6,479,087 compared to $4,752,500 in the six month period ended June 30,
1995. During 1996, the Company operated three communities and managed a
fourth community whereas in the corresponding 1995 period it operated two
communities and managed two additional communities. The increase in revenue
of $1,726,587, or 36.3 percent, is due primarily to the addition of
Sunshine Villa (pro forma revenues would have been $6,109,030 for the six
month period ended June 30, 1995, if Sunshine Villa had been acquired as of
January 1, 1995) and to management's continuing focus on more accurately
assessing resident's needs (the effect of which resulted in increased per
bed revenues beginning in the second quarter of 1995). Revenue from the
operation of Sunshine Villa was $1,573,376 for the six months ended June
30, 1996. In addition, overall occupancy at all three of the Company's
communities increased to an average of 96.1 percent for the six month
period ended June 30, 1996, whereas on a pro forma basis the average
occupancy for the same period in 1995 was 93.7 percent.
RESIDENCE OPERATING EXPENSES. Residence operating expenses were $3,920,394
for the six month period ended June 30, 1996, and $2,852,990 for the same
period in 1995. The increase of $1,067,404 is due primarily to the addition
of Sunshine Villa for 1996 (pro forma residence operating expenses would
have been $3,869,408 for the six month period ended June 30, 1995, if
Sunshine Villa had been acquired as of January 1, 1995). Residence
operating expenses totaled 61.3 percent and 62.0 percent of rental and
service revenues for the six month periods ended June 30, 1996 and 1995,
respectively, whereas on a pro forma basis for the same period in 1995
expenses totaled 64.2 percent of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $924,344 for the six month period ended June 30, 1996, compared to
$317,788 for the Predecessor for the six month period ended June 30, 1995.
The increase of $606,556 is due primarily to the increase in development
activities by the Company, including payroll and related costs primarily
resulting from staffing increases related to the implementation of the
Company's strategy for rapid growth and costs associated with being a
public company. General and administrative expenses, on a pro forma basis,
would have been $692,788 for the six month period ended June 30, 1995.
General and administrative expenses were 14.3 percent of total revenues for
the six month period ended June 30, 1996, whereas on a pro forma basis
expenses were 11.3 percent of revenues for same period in 1995.
Page 13
LEASE EXPENSE. Lease expense for the Company's two leased communities was
$1,378,625 for the six month period ended June 30, 1996, and there was no
similar lease expense for the six month period ended June 30, 1995, since
Regency Park and Sterling Park were owned by entities included in the
Predecessor. The Company entered into long-term operating leases for the
Sterling Park and Regency Park communities effective January 1, 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$119,131 for the six month period ended June 30, 1996, compared to $323,592
for the six month period ended June 30, 1995. Depreciation for 1996 relates
primarily to Sunshine Villa while depreciation for 1995 relates primarily
to Regency Park and Sterling Park, which are now being leased by the
Company. Depreciation and amortization would have been $112,592 on a pro
forma basis for the six month period ended June 30, 1995.
INTEREST EXPENSE. Interest expense decreased in the six month period ended
June 30, 1996, to $258,581, from $935,202 for the six month period ended
June 30, 1995. Interest expense for 1996 is related to financing incurred
to acquire Sunshine Villa whereas interest expense for 1995 is related to
indebtedness secured by the Regency Park and Sterling Park communities.
Interest expense would have been $267,202 on a pro forma basis for the six
month period ended June 30, 1995.
INTEREST INCOME. Interest income increased in the six month period ended
June 30, 1996, to $203,981, from $9,765 for the same period in 1995. The
increase in interest income is due to the Company's investment of the net
proceeds from its initial public offering in high quality, short term
securities placed with institutions with high credit ratings.
NET INCOME. Net income decreased to $57,105 for the Company during the six
month period ended June 30, 1996, from $207,086 (after a pro forma tax
provision of $126,900) for the Predecessor for the same period in 1995. The
decrease in net income is the result primarily of an increase in general
and administrative expenses (as discussed above), offset by an increase in
interest income of $194,216 and an increase in residence operating profits
(operating income before general and administrative expense, less interest
expense) of $161,640.
On a pro forma basis, the net loss for the six month period ended June 30,
1995, would have been approximately $200,000 as compared to net income of
approximately $57,000 for the six month period ended June 30, 1996, an
increase of approximately $257,000. The increase is due primarily to an
increase in interest income of approximately $192,000 and an increase in
operating income of approximately $81,000, offset by an increase in income
taxes of approximately $35,000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had approximately $4.5 million of working
capital compared to approximately $8.6 million at December 31, 1995, a
decrease of $4.1 million.
Net cash provided by operating activities totaled approximately $284,000
for the six month period ended June 30, 1996.
Page 14
Net cash used in investing activities totaled approximately $2,300,000 for
the six month period ended June 30, 1996, comprised of $4,252,000 used in
development activities offset by $1,953,000 provided from the maturity of
investments. The Company purchased land in Boise, Idaho; Folsom,
California; and Eugene, Oregon; during the first quarter, and in Roseville,
California; and San Antonio, Texas; during the second quarter. During the
period, the Company incurred initial construction costs in Boise, Idaho;
and conducted preliminary development activities related to twelve sites
located in California, Oregon, Texas, Nevada and Arizona. At June 30, 1996,
the aggregate purchase price for the Company's binding options related to
nine parcels of land was $7.0 million. The Company has paid initial
deposits relating to these sites and has also completed the demographic
analysis and other preliminary due diligence for purposes of developing
assisted living communities at these sites. The Company has also entered
into agreements pursuant to which it will own a fifty percent equity
interest in an assisted living community to be developed in Kenmore,
Washington and a five percent equity interest in an assisted living
community to be developed in Newport Beach, California. If constructed, the
Company will manage both communities.
Net cash used in financing activities totaled approximately $39,000 during
the six month period ended June 30, 1996, representing principal payments
on the indebtedness incurred related to the purchase Sunshine Villa.
During the remainder of 1996, the Company intends to utilize current
working capital resources to develop and construct assisted living
communities. The Company intends to finance a substantial portion of the
cost of developing each new community through sale/leaseback transactions
with REITs, as well as conventional financing with commercial banks,
pension funds, and other financial institutions.
In April, 1996, the Company entered into a letter of intent with Health
Care Property Investors, Inc. ("HCPI") pursuant to which HCPI agreed to
provide $15.3 million in financing to the Company for the development and
sale/leaseback of two new assisted living communities to be developed in
Boise, Idaho and Clovis, California. Effective August 8, 1996, the Company
completed the first transaction with HCPI pursuant to which the Company
sold the Boise, Idaho site to HCPI and agreed to construct an assisted
living community and then leaseback the completed facility for an initial
term of 15 years. In addition, in July, 1996, HCPI issued a letter of
intent in the amount of $7.9 million for the development and sale/leaseback
of a third community to be located in San Antonio, Texas. The Company is in
the process of finalizing terms related to the San Antonio transaction.
In April, 1996, U.S. Bank delivered to the Company letters of interest
pursuant to which it may provide $12.2 million in construction financing
for the Company's Folsom, California and Kenmore, Washington communities.
On July 29, 1996, Key Bank delivered to the Company a letter of interest
pursuant to which it may provide $6.5 million in construction financing for
the Company's Roseville, California community. On August 2, 1996, Wells
Fargo Bank delivered to the Company a letter of interest pursuant to which
it may provide $6.5 million in construction financing for the Company's
Eugene, Oregon community.
Page 15
Each of the pending financing transactions is subject to a number of
conditions, including the negotiation and execution of definitive documents
and the satisfactory completion of due diligence on the related properties,
and there is no assurance that any of these financing transactions will be
completed on the terms proposed, or at all.
The Company anticipates capital expenditures for 1996 will include
additional land acquisition costs, architectural fees, and other
development costs related to at least 15 assisted living communities and
construction costs related to at least seven new assisted living
communities. The Company currently estimates that its plan to develop at
least 15 additional assisted living communities by the end of 1998,
including the communities described above that are under development, will
likely require additional financing prior to construction of the last nine
communities. Such additional financing is in addition to the financing
described in the preceding paragraphs. Such financing may take the form of
debt or equity, including a public or private debt or equity offering or
conventional bank financing. The amount of such additional financing will
be dependent upon the amount of security deposits required under, and other
terms of, the sale/leaseback financing arrangements the Company expects to
negotiate and the performance of the Company's newly developed communities
and existing properties. If the Company is unable to obtain additional
required financing, or if such financing is not available on acceptable
terms, the Company believes that its plan to develop 15 new communities by
the end of 1998 would likely be delayed or curtailed.
FORWARD-LOOKING STATEMENTS
The information set forth in this report in the sections entitled
"Overview" and "Liquidity and Capital Resources" includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and is subject to the safe harbor created by that section. The development
of additional assisted living communities will involve a number of risks
including, without limitation, the risk that the Company will be unable to
locate suitable sites, risks relating to the inability to obtain, or delays
in obtaining, necessary zoning, land use, building, occupancy and other
required governmental permits and authorizations, risks that financing may
not be available on satisfactory terms, environmental risks, risks that
construction costs may exceed original estimates, risks that construction
and lease-up may not be completed on schedule, risks that occupancy rates
at a newly completed community may not be achieved or be sustained at
expected levels, and risks relating to the competitive environment for
development. Additional factors that could cause results to differ
materially from those projected in the forward-looking statements include,
without limitation, the ability of the Company to raise additional
financing upon terms acceptable to the Company, increases in the costs
associated with new construction, competition, acceptance of the Company's
prototype community in new geographic markets, and the Company's ability to
locate, train, and retain qualified community managers and support staff.
Page 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its 1996 annual meeting of shareholders at 2:00 p.m., PDT,
on May 14, 1996, on the 41st Floor of the U.S. Bancorp Tower, 111 S.W.
Fifth Avenue, Portland, Oregon.
The only matter submitted to a vote of the shareholders was the election of
the Board of Directors. Proxies were solicited pursuant to Regulation 14A
of the Exchange Act.
The following persons were elected by the following vote as directors for
the stated terms:
Votes Against
Votes For or Withheld
--------- -----------
Class I (one year term):
James W. Ekberg 4,232,750 5,500
Steven L. Gish 4,232,650 5,600
Class II (two year term):
Peter J. Brix 4,231,450 6,800
Eric W. Jacobsen 4,232,750 5,500
Corey M. Smith 4,232,650 5,600
Class III (three year term):
Walter C. Bowen 4,232,750 5,500
Dr. Marvin S. Hausman 4,232,750 5,500
Gary R. Maffei 4,232,450 5,800
Page 17
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
REGENT ASSISTED LIVING, INC.
By: STEVEN L. GISH Date: August 14, 1996
---------------------------------------
Steven L. Gish
Chief Financial Officer
Page 18