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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 1934
For the Quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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.)
Suite 1000
121 SW Morrison St.
Portland, Oregon 97204
(Address of principal executive offices)
503-227-4000
(Registrant's telephone number, including area code)
Indicate 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 May 12, 1999 - 4,633,000
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REGENT ASSISTED LIVING, INC.
FORM 10-QSB
March 31, 1999
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan of Operation. . . . . . 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .17
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31,
1999 1998
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,202,438 $ 4,483,048
Cash held in working capital escrow 997,074 734,408
Accounts receivable, net 350,245 287,483
Prepaid expenses 1,573,425 280,324
Construction advances receivable 223,583 481,819
------------ ------------
Total current assets 7,346,765 6,267,082
Restricted cash 2,760,082 2,757,981
Property and equipment, net 47,459,295 54,191,324
Investment in and advances to joint venture 211,679 261,995
Other assets 3,087,242 2,795,374
------------ ------------
Total assets $ 60,865,063 $ 66,273,756
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 337,657 $ 284,481
Construction accounts payable 352,707 608,585
Accounts payable and other accrued expenses 5,269,731 3,812,061
------------ ------------
Total current liabilities 5,960,095 4,705,127
Long-term debt 35,188,849 40,704,567
Convertible subordinated notes 9,000,000 9,000,000
Deferred gains and development fees, net 6,881,416 6,022,773
Other liabilities 1,730,573 1,586,164
------------ ------------
Total liabilities 58,760,933 62,018,631
------------ ------------
Commitments
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized;
1,666,667 shares issued and outstanding in 1999 and 1998 9,349,841 9,349,841
Common stock, no par value, 25,000,000 shares authorized;
4,633,000 shares issued and outstanding in 1999 and 1998 10,808,703 10,808,703
Accumulated deficit (18,054,414) (15,903,419)
------------ ------------
Total shareholders' equity 2,104,130 4,255,125
------------ ------------
Total liabilities and shareholders' equity $ 60,865,063 $ 66,273,756
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Revenues:
Rental and service $ 11,846,037 $ 4,216,580
Management fees 80,539 71,625
------------- -------------
Total revenues 11,926,576 4,288,205
------------- -------------
Operating expenses:
Residence operating expenses 8,586,461 4,190,136
General and administrative 1,284,632 967,621
Lease expense 3,202,598 1,414,718
Depreciation and amortization 320,809 114,083
------------- -------------
Total operating expenses 13,394,500 6,686,558
------------- -------------
Operating loss (1,467,924) (2,398,353)
Interest income 83,590 75,989
Interest expense (524,606) (64,415)
Equity in losses of joint venture (86,316) (1,086)
Other income (loss), net (5,739) (7,710)
------------- -------------
Loss before income taxes (2,000,995) (2,395,575)
Provision for income taxes - -
------------- -------------
Net loss (2,000,995) (2,395,575)
Preferred stock dividends (150,000) (150,000)
------------- -------------
Net loss available to common shareholders $ (2,150,995) $ (2,545,575)
============= =============
Basic loss per common share $ (.46) $ (.55)
============= =============
Diluted loss per common share $ (.46) $ (.55)
============= =============
Weighted average common shares outstanding - basic 4,633,000 4,633,000
============= =============
Weighted average common shares outstanding - diluted 4,633,000 4,633,000
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Cash flows from operating activities:
Net loss $ (2,000,995) $ (2,395,575)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 320,809 114,083
Amortization of deferred gains and development fees (117,524) (55,596)
Equity interest in joint venture 86,316 -
Changes in other assets and liabilities:
Cash held in working capital escrow 284,220 (32,777)
Accounts receivable (62,762) (14,592)
Prepaid expenses (1,305,601) (137,579)
Other assets (144,409) (135,253)
Accounts payable and other accrued expenses 1,457,670 (107,303)
Other liabilities 144,409 138,839
------------- -------------
Net cash used in operating activities (1,337,867) (2,625,753)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (2,758,883) (12,626,575)
Decrease in construction accounts payable (255,878) (93,890)
Investment in and advances to joint venture (36,000) -
Deposits to replacement reserve account, net (25,019) (16,567)
------------- -------------
Net cash used in investing activities (3,075,780) (12,737,032)
------------- -------------
Cash flows from financing activities:
Short-term borrowings - (4,500,000)
Proceeds from issuance of long-term debt 1,775,412 8,836,356
Payments on long-term debt (7,237,954) (18,607,328)
Construction (advances) payments 258,236 (170,933)
Payments and deposits for lease financing arrangements, net (151,986) (266,880)
Restricted cash for lease financing arrangements, net 22,918 30,704
Deferred development fees from lease financing arrangements (9,949) 190,000
Proceeds from lease financing arrangements 9,626,360 27,111,141
Proceeds from issuance of convertible subordinated notes - 4,500,000
Preferred stock dividends (150,000) (150,000)
------------- -------------
Net cash provided by financing activities 4,133,037 16,973,060
------------- -------------
Net increase (decrease) in cash and cash equivalents (280,610) 1,610,275
Cash and cash equivalents, beginning of period 4,483,048 1,805,096
------------- -------------
Cash and cash equivalents, end of period $ 4,202,438 $ 3,415,371
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies:
The Company
Regent Assisted Living, Inc. ("the Company") is an owner, operator, and
developer of private-pay assisted living communities including stand-alone
Alzheimer's 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.
As of March 31, 1999, the Company operated 26 assisted living communities
in nine western states. Of the 26 communities, one is owned in a joint
venture and accounted for under the equity method, and two are operated
under management contracts. In addition, the Company had four communities
under construction and seventeen under development. During the first
quarter of 1999, the Company opened one new stand-alone Alzheimer's care
community (Regent Court) in Modesto, California.
As of March 31, 1998, the Company operated 14 assisted living communities
in six states, including two under management contracts. During the first
quarter of 1998, the Company opened four new internally developed
communities, and completed the lease-acquistion of one community.
As of May 12, 1999, the Company had also commenced operations at its new
Regent Court community in Clackamas, Oregon and began construction on a new
Regent Court community in Corvallis, Oregon.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its majority owned subsidiary. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Page 6
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
1. Operations and Summary of Significant Accounting Policies, Continued:
The accompanying unaudited condensed consolidated financial statements as
of March 31, 1999, and for the three month periods ended March 31, 1999 and
1998, have been prepared in conformity with generally accepted accounting
principles. The financial information as of December 31, 1998, is derived
from the Company's Form 10-KSB for the year ended December 31, 1998.
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 condensed consolidated 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 condensed consolidated financial statements
should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1998, included in the
Company's Form 10-KSB for the year ended December 31, 1998.
Operating results for the three months ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the
remainder of the fiscal year ending December 31, 1999, or any portion
thereof.
2. Property and Equipment:
Property and equipment are stated at cost and consist of the following:
March 31, December 31,
1999 1998
Land $ 2,734,391 $ 3,057,756
Buildings and improvements 24,554,209 29,747,219
Furniture and equipment 3,252,394 3,452,579
Construction in progress 18,578,536 19,375,174
------------ ------------
49,119,530 55,632,728
Less accumulated depreciation
and amortization 1,660,235 1,441,404
------------ ------------
Property and equipment, net $ 47,459,295 $ 54,191,324
============ ============
Land, buildings and certain furniture and equipment serve as collateral for
long-term debt.
Page 7
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
3. Administrative Services Agreement:
Pursuant to the terms of an Administrative Services Agreement, the Company
provides executive assistance, accounting and financial management
services, legal and administrative assistance, insurance, management
information services, and other management services as required by Bowen
Property Management Co., Bowen Financial Services Corp., Bowen Development
Company and Bowen Condominium Marketing, Inc., all of which are Oregon
corporations that are wholly owned or controlled by Mr. Bowen, the
Company's Chairman, President, and Chief Executive Officer. Under the terms
of the agreement, the Company will be reimbursed at its cost on a monthly
basis for all services provided.
4. Earnings (Loss) Per Common Share:
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. Basic EPS is calculated using income (loss)
attributable to common shares (after deducting preferred dividends) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS is calculated using income (loss) attributable to common shares
(after deducting preferred dividends and considering the effects of
dilutive common equivalent shares) divided by the weighted average number
of common shares and dilutive common shares outstanding for the period.
Basic and diluted earnings (loss) per common share includes a deduction of
preferred stock dividends declared, which totaled $150,000 for each three
month period ended March 31, 1999 and 1998.
Page 8
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company
The Company reported revenue of $11.9 million and a net loss of $2.0 million for
the quarter ended March 31, 1999. After deducting preferred stock dividends, net
loss per share available to common shareholders on a diluted basis was $0.46.
Current Communities. The table below sets forth certain information
regarding the Company's communities at March 31, 1999.
Regent
Operations
Community Location Commenced Units(1) Beds(2) Interest
- --------- -------- --------- -------- ------- --------
Oregon
Park Place Portland 1986 112 112 Lease (3)
Regency Park Portland 1987 122 142 Lease
Sheldon Park Eugene 1998 108 124 Lease
Washington
Northshore House Kenmore 1998 85 98 Manage (4)
Sterling Park Redmond 1990 162 192 Lease
California
Laurel Springs Bakersfield 1998 113 127 Own
Orchard Park Clovis 1998 112 128 Lease
Regent Court Modesto 1999 24 48 Own (5)
Summerfield House Vacaville 1998 109 126 Own
Sun Oak Citrus Heights 1997 40 50 Manage
Sunnyside Court Fremont 1998 40 78 Lease
Sunshine Villa Santa Cruz 1990 106 126 Lease (6)
The Palms Roseville 1998 93 108 Lease
Villa Serra Salinas 1998 150 150 Manage
Willow Creek Folsom 1997 104 119 Lease
Idaho
Willow Park Boise 1997 117 130 Lease
West Wind Boise 1997 48 52 Lease
Nevada
Mira Loma Henderson 1998 115 133 Lease
New Mexico
Sandia Springs Rio Rancho 1998 109 126 Lease
Page 9
Regent
Operations
Community Location Commenced Units(1) Beds(2) Interest
- --------- -------- --------- -------- ------- --------
Texas
Parmer Woods Austin 1998 117 137 Lease (7)
Hamilton House San Antonio 1997 116 136 Lease
Arizona
Canyon Crest Tucson 1998 117 137 Lease
Regent Court Scottsdale 1998 24 48 Lease
Wyoming
Aspen Wind Cheyenne 1998 77 77 Lease
Meadow Wind Casper 1998 53 53 Lease
Spring Wind Laramie 1998 53 53 Lease
--------- ------- -------
Totals 2,426 2,810
======= =======
(1) A "unit" is a single- or double-occupancy studio, one or two bedroom
apartment.
(2) "Beds" reflects the actual number of beds used by the Company for census
purposes, which in no event is a number greater than the maximum number of
licensed beds permitted under the community's license.
(3) The Company completed a lease-acquisition of Park Place during the second
quarter of 1998. The Company had managed the community prior to this
transaction.
(4) The Company owns a 50 percent interest in a joint venture which owns this
community.
(5) In April 1999, the Company sold a 45% co-tenancy interest in this
community.
(6) This community was sold in a prior period pursuant to a sale-leaseback
transaction and is accounted for as a capital lease.
(7) The Company completed a sale/leaseback transaction of its Austin community
in February 1999.
During the second quarter of 1999, the Company commenced operations at its
48-bed Regent Court community in Clackamas, Oregon. As of May 12, 1999, the
Company has commenced construction on the following four new communities:
Scheduled
Community Location Opening Units Beds Interest
- --------- -------- ---------------- -------- ------- --------
Arizona
Desert Flower Scottsdale 2nd quarter 1999 102 115 Own
Washington
Regent Court Kent 2nd quarter 1999 24 48 Manage
Oregon
Regent Court Corvallis 1st quarter 2000 24 48 Own
California
Villa de Palma West Covina 2nd quarter 2000 130 142 Lease
-------- ------
Totals 280 353
======== ======
Page 10
As of May 12, 1999, sixteen additional new communities were in varying stages of
development. If all sixteen communities are developed, total operations of the
Company will increase by approximately 1,500 beds to a total of approximately
4,700 beds. The Company continues to pursue its primary strategy of developing
new communities and is therefore engaged in negotiations to acquire several
additional sites and is pursuing joint venture opportunities with parties who
control parcels of land in strategic markets. All costs associated with the
development of these communities have been capitalized as "Construction in
Progress" as disclosed in Note 2 to the condensed consolidated financial
statements.
Operating results for the three month period ended March 31, 1999, are not
necessarily indicative of future financial performance as the Company intends to
continue expanding its operating base of communities.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues. For the three month period ended March 31, 1999, revenues totaled
$11.9 million compared to $4.3 million in the three month period ended March 31,
1998, an increase of $7.6 million or 178.1 percent. During the first quarter of
1999, the Company operated 26 communities comprised of five stabilized
communities including one acquired in May 1998, 18 newly developed communities,
and three communities operated pursuant to management contracts, of which one is
owned in a joint venture and accounted for under the equity method. The Company
operated 14 communities during the first quarter of 1998, comprised of four
stabilized communities, eight newly developed communities, and two operated
pursuant to management contracts. A community is considered "stabilized" for
reporting purposes after it first attains occupancy of 95.0 percent and prior to
that time is considered "newly developed."
Revenues from "Same Residences", the six communities that the Company operated
at the beginning of both periods, comprised of four stabilizied and two newly
developed communities, increased by $1.0 million. Of this increase, $0.2 million
was from the four stabilized communities and $0.8 million was from the two newly
developed communities. Revenues from the remaining 16 newly developed
communities in operation during the first quarter of 1999, compared to revenues
from the remaining six newly developed communities in operation during the first
quarter of 1998, increased by $5.8 million. In addition, revenues for the
comparable periods increased $0.8 million from the one stabilized community the
Company acquired in May 1998. Overall average occupancy at the Company's five
stabilized communities was 95.2 percent for the three month period ended March
31, 1999, whereas occupancy was 90.0 percent at the Company's four stabilized
communities for the same period in 1998.
Residence Operating Expenses. Residence operating expenses were $8.6 million for
the three month period ended March 31, 1999, and $4.2 million for the same
period in 1998, an increase of $4.4 million or 104.9 percent. Residence
operating expenses from "Same Residences" during the first quarter of 1999
increased by $0.4 million over the first quarter of 1998. This increase was
primarily attributable to the increased level of operations at the two newly
developed communities operated at the beginning of both periods. In addition,
residence operating expenses for the current period include $5.0 million of
start-up operating expenses and pre-opening costs related to 18 newly developed
communities, whereas, the prior period included $1.5 million of start-up
operating expenses and pre-opening costs related to 11 communities. Also,
operating expenses increased $0.5 million from the stabilized community acquired
in the second quarter of 1998. Residence operating expenses, excluding the
effect of the newly developed communities, totaled 62.5 percent and 64.9 percent
of rental and service revenues for the three month periods ended March 31, 1999
and 1998, respectively.
Page 11
General and Administrative Expenses. General and administrative expenses were
$1.3 million for the three month period ended March 31, 1999, compared to $1.0
million for the three month period ended March 31, 1998. The increase of $0.3
million is due primarily to the increase in operations related to the
implementation of the Company's plan for growth.
Lease Expense. Lease expense for the Company's leased communities was $3.2
million for the three month period ended March 31, 1999, compared to $1.4
million for the same period in 1998. The increase of $1.8 million relates
primarily to the opening and sale-leaseback of newly developed communities and
the lease-acquisition of several additional communities.
Depreciation and Amortization. Depreciation and amortization expense was $0.3
million for the three month period ended March 31, 1999, compared to $0.1
million for the three month period ended March 31, 1998. The increase of $0.2
million relates primarily to the opening of newly developed communities.
Interest Income. Interest income is earned from the Company's investment of cash
and cash equivalents in high quality, short term securities placed with
institutions with high credit ratings.
Interest Expense. Interest expense increased for the three month period ended
March 31, 1999, to $0.5 million from $0.1 million for the three month period
ended March 31, 1998. Interest expense related to the operation of newly opened
communities increased $0.2 million in the current period as compared to the same
period in the prior year. In addition, the Company incurred $0.2 million of
interest in the three month period ended March 31, 1999 related to convertible
subordinated notes that were issued after the first quarter of 1998. The Company
capitalized $0.4 million and $1.1 million of interest charges incurred during
the three months ended March 31, 1999 and 1998, respectively. Capitalized
interest decreased due to decreased borrowing for construction purposes.
Equity Interest in Joint Venture. Equity in losses of joint venture resulted
from the operations of the Company's 50 percent owned Kenmore, Washington
community which opened in the third quarter of 1998.
Net Income (loss). Net operating results increased by $0.4 million during the
three month period ended March 31, 1999 compared to the same period in 1998. The
Company reported a loss of $2.0 million for the first quarter of 1999, whereas
the Company reported a loss of $2.4 million for the first quarter of 1998. The
increase in net results is primarily due to an increase in residence operating
profits (rental and service revenue less residence operating expenses) of $3.2
million, offset by increases in general and administrative expenses, lease
expense, depreciation, interest expense and equity in losses of joint venture,
all as discussed above.
Liquidity and Capital Resources
At March 31, 1999, the Company had $1.4 million of working capital, compared to
working capital of $1.6 million at December 31, 1998, a decrease of $0.2
million. The Company's growth in operating capacity resulted in an increase in
net current liabilities which reduced working capital. Cash and cash equivalents
decreased by $0.3 million (as described below), however, cash held in working
capital escrow increased by a like amount.
Page 12
Net cash used in operating activities totaled $1.3 million for the three month
period ended March 31, 1999, which resulted primarily from a net loss of $2.0
million, adjusted for depreciation and amortization of $0.2 million, offset by
an increase in cash held in working capital escrow of $0.3 million and an
increase in net current liabilities of $0.2 million.
Net cash used in investing activities totaled $3.1 million for the three month
period ended March 31, 1999, consisting primarily of land acquisition,
development, and construction costs. At March 31, 1999, the aggregate purchase
price for seven parcels of land for which the Company had purchase options was
approximately $5.8 million. The Company has paid initial deposits relating to
these sites and is in the process of completing the demographic analysis and
other preliminary due diligence for purposes of developing assisted living
communities at these sites.
Net cash provided by financing activities totaled $4.1 million during the three
month period ended March 31, 1999, consisting of property and equipment
financing proceeds totaling $1.8 million, net proceeds from lease-financing
arrangements totaling $9.7 million, offset by repayment of long-term debt of
$7.2 million, and payment of preferred stock dividends of $0.2 million.
During February 1999, the Company completed a $10.4 million sale/leaseback
transaction involving its Austin community. As a result, the Company generated
approximately $3.0 million in net proceeds, repaid approximately $7.2 million of
its mortgage indebtedness and recorded deferred gain of approximately $1.0
million.
The Company has an aggregate of $11.6 million in loans from which to complete
construction of the Scottsdale and the Kent communities. As of March 31, 1999,
approximately $3.5 million remained to be drawn on these loans to fund
construction activities and debt service reserves. The Company has sufficient
financing to complete these communities and to fund their anticipated initial
operating deficits during 1999.
During the remainder of 1999, the Company intends to utilize current working
capital resources primarily for operating requirements. At March 31, 1999, the
Company has capitalized costs totaling approximately $18.6 million related to
communities under construction or development, encumbered by $8.0 million in
outstanding debt. The Company intends to finance substantially all of the
remaining cost of developing each new community through additional
sale-leaseback transactions with real estate investment trusts ("REIT"), joint
venture arrangements, as well as conventional financing with commercial banks
and other financial institutions.
The Company anticipates capital expenditures for 1999 may include certain
additional land acquisition costs, architectural fees, and other development
costs related to at least 16 assisted living communities and construction costs
related to at least two additional assisted living communities. The Company has
obtained commitments to provide up to $13.5 million in financing for the
construction of the two communities. The Company anticipates commencing
construction on as many as ten communities during 1999. The total cost to
develop and construct the ten communities, including the estimated initial
operating deficits, will likely be between $85 million to $95 million. A
substantial portion of these costs may be incurred during 1999.
Page 13
The Company is currently discussing with commercial banks and REITs the terms of
potential financing with which the Company will construct new communities
currently under development. 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. Provided that
the Company can obtain financing upon acceptable terms, the Company estimates
that it has the necessary equity capital invested in seven of these ten
communities in order to complete construction and to fund the initial operating
deficits. The Company may require additional equity capital to complete the
final three communities.
The Company may enter into additional arrangements with one or more unrelated
parties regarding the joint development and ownership of one or more of the
Company's communities currently under construction or development in order to
further leverage the Company's growth. Furthermore, the Company may utilize
various forms of financing that would permit a community to be sold to or
initially developed by a third party who would incur the initial operating
deficits and permit the Company to manage the community for a customary fee. The
Company, under such financing methods, would likely have the option to either
purchase the community or enter into a long-term lease at such time as the
Company deems appropriate. The Company has not obtained any commitments for this
form of financing.
If the Company was unable to obtain additional required financing, or if such
financing is not available on acceptable terms, the Company expects that its
plan to commence construction of up to ten additional communities by the end of
1999 would likely be delayed or curtailed. Furthermore, if the Company expands
its growth plan, development activities do not result in the construction of a
community on a site, the Company experiences a decline in the operations of its
current communities or the Company does not achieve and sustain anticipated
occupancy levels at its new communities, then the Company may require additional
financing to complete its growth plan.
Certain of the Company's operating lease agreements contain restrictive
covenants. As of March 31, 1999, the Company was in compliance with the
covenants for all lease agreements, except for a financial covenant related to
two lease agreements. To date, the lessor has not asserted its rights under the
two agreements. The Company expects to satisfy the covenant prior to any claim
being asserted.
The Company does not presently intend to pay dividends to holders of its Common
Stock and intends to retain future earnings to finance the development of
assisted living communities and expand its business.
Page 14
Year 2000 Disclosure
- --------------------
"Year 2000 issues" relate to the result of computer programs having been written
using two digits rather than four to define the applicable year. Computer
programs and electronic devices that utilize date sensitive software or
information may recognize a date using the "00" as the year 1900 rather than the
year 2000. This recognition could result in a system failure or miscalculations
causing disruptions of operations or the inability of suppliers of material
services and products to continue supporting the Company's operations.
The Company has assessed its readiness in regard to Year 2000 issues. The
Company believes that all material hardware and software utilized in its
operations and, specifically, in its accounting systems, is Year 2000 compliant
or that Year 2000 compliant versions are available to the Company for
installation during the normal course of replacing or updating such systems
prior to November 30, 1999. The financial impact of any change is not
anticipated to be material to the financial position or results of the Company's
operations.
The Company believes it has adequate alternatives to counteract potential Year
2000 issues that may arise with its internally utilized software and hardware if
the assurances of relevant vendors are incorrect. The Company believes the
primary risks from Year 2000 issues to its operations and prospects are the
potential inability of the Company's commercial banks to permit access to the
Company's accounts and of utility companies to continue supplying utilities to
the Company's communities. The Company does not have a contingency plan in
effect at this time to guard against such events.
The Company is in the process of obtaining Year 2000 compliance letters and
reports from suppliers of material services and products. To date, no such
supplier has indicated an inability to continue supplying material products and
services to the Company after January 1, 2000, although most are in the process
of evaluating and updating their internal systems and cannot yet assure the
Company that their systems are Year 2000 compliant. Nonetheless, the Company
does not expect that Year 2000 issues will have a material adverse effect upon
the Company's operations or prospects. However, there can be no assurances that
the systems of other companies on which the Company's operations or systems rely
will be timely remediated or that a failure by another company to remediate its
systems in a timely manner would not have a material adverse effect on the
Company.
Page 15
Forward-Looking Statements
The information set forth in this report in the sections entitled "Overview" and
"Liquidity and Capital Resources" regarding the Company's acquisition of sites
for development, the Company's development, construction, financing and opening
of new assisted living communities, and the Company's plans to develop,
construct and operate new Regent Court communities constitute "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, and risks relating to the competitive environment for
development. The foregoing risks could cause the Company to significantly delay
or curtail its planned growth and could cause one or more of the Company's new
communities to not be profitable. 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, and acceptance of the Company's
prototype community in new geographic markets. The Company's growth strategy is
subject to the risk that occupancy rates at newly-developed communities may not
be achieved or sustained at expected levels, in which case, the Company will
experience greater than anticipated operating losses in connection with the
opening of new communities and the Company's need for additional financing to
meet its growth plans will likely increase. Furthermore, the Company's growth
will place increasing pressure on the Company's management controls and require
the Company to locate, train, assimilate, and retain additional community
managers and support staff. There is no assurance that the Company will be able
to manage this growth successfully.
Page 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
10.30 Employment Agreement, effective as of March 16, 1999, between
Eric W. Jacobsen and the Company.
10.31 Restrictive Covenant Agreement, effective March 16, 1999
between Eric W. Jacobsen and the Company.
10.32 Employment Agreement, effective as of April 12, 1999, between
Louis Swart and the Company.
10.33 Restrictive Covenant Agreement, effective as of April 12,
1999, between Louis Swart and the Company.
27 Financial Data Schedule.
Reports on Form 8-K
None
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: May 12, 1999
-----------------------------
Steven L. Gish
Chief Financial Officer
Page 17
EXHIBIT INDEX
Exhibits
No. Description Page
- -------- ----------- ----
10.30 Employment Agreement, effective as of March 16, 1999, between
Eric W. Jacobsen and the Company.
10.31 Restrictive Covenant Agreement, effective March 16, 1999
between Eric W. Jacobsen and the Company.
10.32 Employment Agreement, effective as of April 12, 1999, between
Louis Swart and the Company.
10.33 Restrictive Covenant Agreement, effective as of April 12,
1999, between Louis Swart and the Company.
27 Financial Data Schedule.