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): DECEMBER 31, 2003
EMERITUS CORPORATION
(Exact name of registrant as specified in charter)
WASHINGTON 1-14012 91-1605464
(State or other jurisdiction of incorporation) (Commission File Number)
(IRS Employer Identification No.)
Raymond R. Brandstrom
Vice President of Finance, Chief Financial Officer, and Secretary
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
(Address of principal executive offices) (Zip Code)
(206) 298-2909
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
HORIZON BAY TRANSACTIONS
As previously announced, on September 30, 2003, we entered into an agreement to
lease eight communities that we formerly managed. As of December 31, 2003, we
assumed the leases on seven of the leased facilities and are in the final
negotiations of leasing the eighth facility. The terms of the seven leases are
effective as of December 31, 2003.
Background
In April 2002, we entered into agreements to acquire the ownership interest of
one community and the leasehold interest of seven communities for the assumption
of the mortgage debt relating to the owned community and the lease obligations
relating to the leased communities. The eight communities, comprising 617 units
in Louisiana and Texas, had been previously operated by Horizon Bay Management
L.L.C. ("Horizon Bay"). In May 2002, we assigned our rights under these
agreements to entities wholly owned by Mr. Baty (the "Baty entities") and
entered into five-year management agreements expiring April 30, 2007, with the
Baty entities, providing for a management fee of 5% of gross revenue. As a part
of these agreements, we had the right to reacquire the one community and seven
leased communities at any time prior to April 30, 2007, by assuming the mortgage
debt and lease obligations and paying the Baty entities the amount of any cash
investment in the communities, plus 9% per annum. In the original agreements of
acquisition with the Baty entities, Horizon Bay agreed to fund operating losses
of the communities to the extent of approximately $2.5 million in the first
twelve months and $870,000 in the second twelve months following the closing.
Under the management agreements with the Baty entities, we had agreed to fund
any operating losses in excess of these limits over the five-year management
term. In late 2002, the Baty entities and Horizon Bay altered their agreement
relating to operating losses whereby (i) Horizon Bay paid the Baty entities $2
million and (ii) the Baty entities waived any further funding by Horizon Bay of
operating losses of the communities. This alteration did not change our funding
commitment. During 2002, we received management fees of $661,000, including
$120,000 of mobilization fees from management agreements with the Baty entities.
For 2003, we received management fees of $787,000 from the same agreements.
2003 Transactions
We have assumed the existing leases relating to the seven leased communities.
In lieu of acquiring the remaining community that is currently subject to
mortgage financing, we entered into an agreement to lease the community from the
applicable Baty entity for a term of 10 years, with rent equal to the debt
service on the mortgage indebtedness (including interest and principal) plus 25%
of cash flow. Annual rent relating to the eight communities is estimated at
$4.6 million, plus annual rent escalators based upon changes in the consumer
price level index. We paid the Baty entities approximately $70,000, which
represented their cash investment plus 9% per annum, as provided in the original
management agreements between the Baty entities and Emeritus. Under the new
agreement with the Baty entities, the Baty entities' obligations to fund
operating losses do not continue.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of business acquired
The required financial statements for the acquired business are not included in
this Report at this time. The Registrant will file such financial statements by
amendment within sixty days after the date on which this Report is required to
be filed.
(b) Pro forma financial information
The required pro forma financial information is not included in this Report at
this time. The Registrant will file such pro forma financial information by
amendment within sixty days after the date on which this Report is required to
be filed.
(c) Exhibits:
Footnote
Number Description Number
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10.68. . Kingsley Place at Alexandria, Louisiana; Kingsley Place at Lake Charles, Louisiana; Kingsley Place at Lafayette,
Louisiana; Kingsley Place of Shreveport, Louisiana; Kingsley Place of Henderson, Texas; Kingsley Place at Oakwell
Farms, Texas; Kingsley Place at the Medical Center, Texas; Kingsley Place at Stonebridge, Texas.
The following agreements are representative of those executed in connection with these properties:
10.68.19 Assignment and assumption of leases by and among HB-ESCII, LLC ("Assignor"), Emeritus Corporation,
("Assignee"), and Daniel R. Baty, ("Guarantor"), dated December 31, 2003. (1)
10.68.20 Assignment and assumption of lease agreement (KP Stonebridge) by and among HB-ESC V, L.P., ("Lessor"),
ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION, ("Emeritus"),
DANIEL R. BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
dated December 31, 2003. (1)
10.68.21 Assignment and assumption of lease agreement (KP Henderson) by and among HB-ESC V, L.P., ("Lessor"),
ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION, ("Emeritus"),
DANIEL R. BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
dated December 31, 2003. (1)
10.68.22 Assignment and assumption of lease agreement (KP Medical) by and among HB-ESC V, L.P., ("Lessor"),
ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION, ("Emeritus"),
DANIEL R. BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
dated December 31, 2003. (1)
10.68.23 Assignment and assumption of lease agreement (KP Oakwell) by and among HB-ESC V, L.P., ("Lessor"),
ESC IV, L.P., doing business in Texas as Texas-ESC IV, L.P. ("Assignee"), EMERITUS CORPORATION, ("Emeritus"),
DANIEL R. BATY, ("Existing Guarantor"), and HR ACQUISITION OF SAN ANTONIO, LTD.,
formerly known as Capstone Capital of San Antonio, Ltd., d/b/a Cahaba of San Antonio, Ltd. ("Lessor"),
dated December 31, 2003. (1)
99.1 . . Press Releases
99.1.1 . Press Release dated January 12, 2004, Emeritus Announces Lease of Seven Facilities. (1)
(1) Filed herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------------
Raymond R. Brandstrom
Vice President of Finance,
Chief Financial Officer, and Secretary
Dated: January 14, 2004