UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the quarterly period ended March 31, 1996.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14012
EMERITUS CORPORATION
(Exact name of registrant as specified in its charter)
FOR THE QUARTER ENDED MARCH 31, 1996
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Market Place One
2003 Western Ave, Suite 660
Seattle, WA 98121
(Address of principal executive offices)
(206) 443-4313
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
/X/ Yes / / NO
As of May 14, 1996, there were 11,000,000 shares of the Registrant's Common
Stock, par value $.0001, outstanding.
EMERITUS CORPORATION
Index
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of December 31,
1995 and March 31, 1996.
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and March 31, 1996.
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1996.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Part II. Other Information
Item 6. Exhibits.
Signatures.
Note: Items 1-5 of Part II are omitted because they are not
applicable.
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and March 31, 1996
(In thousands, except share data)
ASSETS
December 31, March 31,
1995 1996
(audited) (unaudited)
------------ -----------
Current Assets:
Cash......................................................................... $ 9,507 $ 22,895
Restricted cash.............................................................. 1,025 1,000
Trade accounts receivable.................................................... 212 999
Prepaid expenses and other current assets.................................... 1,835 1,666
------------ -----------
Total current assets................................................. 12,579 26,560
------------ -----------
Property and equipment, net.................................................... 81,041 71,990
Property held for development.................................................. 14,111 14,203
Investment securities available for sale....................................... 2,825 2,638
Notes receivable from and investments in affiliates............................ 644 1,451
Other assets, net.............................................................. 4,435 14,460
------------ -----------
Total assets......................................................... $115,635 $131,302
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings........................................................ $ 520 $ 519
Current portion of long-term debt............................................ 352 1,902
Accounts payable............................................................. 4,249 3,640
Other current liabilities.................................................... 3,367 3,432
----------- ----------
Total current liabilities............................................ 8,488 9,493
----------- ----------
Security deposits.............................................................. 740 1,017
Other long-term liabilities.................................................... 242 397
Deferred gain on sale of communities........................................... 2,227 9,933
Deferred income................................................................ -- 1,239
Convertible debentures......................................................... -- 32,000
Long-term debt, less current portion........................................... 66,814 41,808
----------- ----------
Total liabilities.................................................... 78,511 95,887
----------- ----------
Minority interest.............................................................. 2,229 2,229
Shareholders' Equity:
Preferred stock, $.0001 par value. Authorized 5,000,000 shares; no shares
issued and outstanding...................................................... -- --
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and
and outstanding 11,000,000 shares........................................... 1 1
Additional paid-in capital.................................................... 44,910 44,863
Unrealized gain on investment securities...................................... 400 213
Accumulated deficit........................................................... (10,416) (11,891)
----------- ----------
Total shareholders' equity........................................... 34,895 33,186
----------- ----------
Total liabilities and shareholders' equity........................... $115,635 $131,302
=========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1996
(unaudited)
(In thousands, except share data)
Three months ended March 31,
1995 1996
------------- -------------
Revenues:
Rent..................................................... $ 2,423 $11,215
Service fees............................................. 290 1,302
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Total operating revenues......................... 2,713 12,517
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Expenses:
Community operations..................................... 1,918 8,809
General and administrative............................... 322 982
Depreciation and amortization............................ 276 910
Rent..................................................... 212 1,984
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Total operating expenses......................... 2,728 12,685
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Loss from operations............................. (15) (168)
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Other income (expense):
Interest expense, net.................................... (667) (1,105)
Other, net............................................... 10 (13)
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Net other expense................................ (657) (1,118)
------------- -------------
Net loss......................................... $ (672) $(1,286)
============= =============
Net loss per share......................................... $ (0.06) $ (0.12)
============= =============
Pro Forma
Net loss (Note 2)........................................ $ (417) $(1,079)
============= =============
Net loss per share....................................... $ (0.04) $ (0.10)
============= =============
Weighted average number of common and common equivalent
shares outstanding..................................... 11,000 11,000
============= =============
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1995 and 1996
(unaudited)
(In thousands)
Three months ended March 31,
1995 1996
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Net cash provided by (used in) operating activities (including changes in
all operating assets and liabilities)....................................... $ (991) $ 188
------------- -------------
Cash flows from investing activities:
Acquisition of property and equipment........................................ (5,262) (18,141)
Acquisition of property held for development................................. (1,659) (4,652)
Proceeds from sale of property and equipment................................. -- 47,293
Purchase of investment securities............................................ (315) (807)
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Net cash provided by (used in) investing activities.................. (7,236) 23,693
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Cash flows from financing activities:
Increase in restricted cash.................................................. (52) (3,964)
Deferred lease costs......................................................... -- (5,044)
Proceeds from long-term borrowings........................................... 8,163 8,883
Proceeds from convertible subordinated debentures............................ -- 30,720
Repayment of borrowings...................................................... (22) (41,041)
Other........................................................................ -- (47)
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Net cash provided by (used in) financing activities.................. 8,089 (10,493)
------------- -------------
Net increase (decrease) in cash...................................... (138) 13,388
Cash at the beginning of the period............................................ 220 9,507
------------- -------------
Cash at the end of the period.................................................. $ 82 $ 22,895
============= =============
Supplemental disclosure of cash flow information -- cash paid during the
period for interest........................................................... $ 554 $ 1,212
============= =============
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited financial information furnished herein, in the opinion
of management, reflects all adjustments which are necessary to state fairly
the consolidated financial position, results of operations, and cash flows
of Emeritus Corporation, (`the Company') as of March 31, 1996 and for the
three month periods ended March 31, 1996 and 1995. The Company presumes
that users of the interim financial information herein have read or have
access to the Company's audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Form 10-K filed March 29, 1996 by the Company under
the Securities Act of 1934 and that the adequacy of additional disclosure
needed for a fair presentation, except in regard to material contingencies,
may be determined in that context. Accordingly, footnote and other
disclosures which would substantially duplicate the disclosures contained
in Form 10-K have been omitted. The financial information herein is not
necessarily representative of a full year's operations.
2. Acquisitions
During the year ended December 31, 1995 and the three months ended
March 31, 1996, the Company completed several acquisitions of assisted-
living, independent-living and skilled nursing communities. These
acquisitions have been accounted for as purchases and, accordingly, the
assets and liabilities of the acquired communities were recorded at their
estimated fair values at the dates of acquisition. No goodwill was
recorded with respect to any of the acquisitions. The results of
operations of the communities acquired have been included in the Company's
consolidated financial statements from the dates of the acquisitions.
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Total
Communities acquired Acquisition date purchase price
-------------------- ---------------- --------------
(in thousands)
Belmont Towers................... Mar 31, 1995 $10,000
Beneva Park Club................. Jun 30, 1995 4,594
Central Park Village............. Jun 30, 1995 8,477
College Park Club................ Jun 30, 1995 3,415
Park Club of Brandon............. Jun 30, 1995 4,219
Park Club of Ft Myers............ Jun 30, 1995 3,671
Park Club of Oakbridge........... Jun 30, 1995 4,799
Laurel Lake Estates.............. Jul 19, 1995 6,950
Other 1995 acquisitions.......... Various 8,860
Heritage Hills Retirement........ Feb 1, 1996 4,338
Lakewood Inn..................... Mar 1, 1996 2,800
--------------
$62,123
==============
The foregoing purchases have generally been financed through
borrowings.
In January 1996, the Company entered into a sale/leaseback transaction
with a health care Real Estate Investment Trust (`REIT'), pursuant to which
the REIT acquired Laurel Lake Estates and leased the community back to the
Company with an initial term of 12 years and three five-year renewal
options.
In February 1996, the Company completed the acquisition of 11 long-
term-care facilities in North and South Carolina (`Carolina Communities')
and entered into a sale/leaseback transaction with a REIT, pursuant to
which the REIT acquired 10 of the 11 Carolina Communities (`Carolina
Leases') and leased such communities back to the Company with initial lease
terms of 15 years and three five-year renewal options.
In March 1996, the Company entered into a sale/leaseback transaction
with a REIT, pursuant to which the REIT acquired seven communities (Beneva
Park Club, Central Park Village, College Park Club, Park Club of Brandon,
Park Club of Ft Myers, Park Club of Oakbridge and The Pines of Tewksbury)
and leased such communities back to the Company with an initial term of 11
years and four five-year renewal options.
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following summary, prepared on a pro forma basis, combines the
results of operations as if the acquisitions, lease financings and
sale/leaseback financings had been consummated as of January 1, 1995, after
including the impact of certain adjustments such as depreciation on assets
acquired, interest expense on acquisition financing and rent expense under
leases entered into in sale/leaseback transactions. Pro forma net loss per
share also gives effect to the issuance of preferred stock on April 17,
1995, and subsequent conversion to common stock and the completion of an
initial public offering of the Company's common stock on November 21, 1995
as if they had occurred on January 1, 1995.
Three months ended March 31,
----------------------------
1995 1996
------------ ------------
(in thousands) (in thousands)
Revenues...................................... $14,123 $14,349
Net loss...................................... (417) (1,079)
Pro forma net loss per share.................. $ (0.04) $ (0.10)
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of
the beginning of the periods presented. In addition, they are not intended
to be a projection of future results of operations and do not reflect any
of the synergies that might be achieved from combined operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since it's organization in July 1993, the Company has achieved
significant growth in revenues, primarily due to the acquisition and
operation of residential communities. The Company's revenues are derived
primarily from rents and service fees charged to its residents. For the
three months ended March 31, 1995 and 1996, the Company generated total
operating revenues of $2.7 million and $12.5 million, respectively. As of
March 31, 1996, the Company's cumulative net losses since inception were
$11.9 million and its total shareholders' equity was $33.2 million. For
the three months ended March 31, 1995 and 1996, the Company generated
losses from operations of $15,000 and $168,000, respectively.
The Company's operating strategy is to increase operating margins at
each acquired or newly developed community primarily by increasing
occupancy levels, encouraging residents to remain at the Company's
communities longer by offering them a range of service options, increasing
revenues through modifications in rate structures, where appropriate, and
identifying opportunities to create operating efficiencies and reduce
costs. For each of its residential communities, the Company seeks to
achieve 100% occupancy with a waiting list of potential residents.
As of May 14, 1996, the Company holds ownership, leasehold or
management interests in 46 residential communities (the `Operating
Communities') consisting of 3,896 units, located in 18 states. Three of the
46 communities were newly developed by the Company in the first quarter of
1996. In addition, the Company owns, has a leasehold interest in or has
acquired an option to purchase development sites for 30 new assisted-living
communities (the `Development Communities'), 13 of which are scheduled to
open in 1996. The Company leases 32 of its residential communities,
typically from a financial institution such as a REIT, and owns 13
communities. Assuming completion of the Development Communities scheduled
to open throughout the remainder of 1996, the Company will own, lease or
manage 59 properties in 19 states, containing an aggregate of approximately
5,000 units. There can be no assurance, however, that the Development
Communities will be completed on schedule and will not be affected by
construction delays, the effects of government regulation or other
unforeseen factors. The Company believes that it is one of the largest
providers of assisted-living services in the United States.
The Company will continue to enter into long-term leases or
sale/leaseback transactions with property owners or REIT's with respect to
the majority of its owned communities, as well as its newly acquired or
developed assisted-living communities. The Company expects that, under
certain circumstances, it may become necessary to hold newly-acquired or
newly developed property for its own account until the property's occupancy
rate has stabilized, at which point the Company would expect to enter into
a sale/leaseback transaction.
When used in this discussion, the words `believes,' `anticipates,'
`intends' and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
See `Factors Affecting Future Results and Regarding Forward-Looking
Statements' in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be
made to reflect recent events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. The Company presumes that
users of the interim financial information herein have read or have access
to the Company's audited consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in Form 10-K filed March 29, 1996 by the Company under the
Securities Act of 1934.
RECENT EVENTS
Subsequent to the end of the first quarter of 1996, the Company
acquired three communities through lease financing, acquired two other
communities for cash, refinanced one community through sale/leaseback
financing and completed sale/leaseback financing on four communities under
development. See `Liquidity and Capital Resources'.
On May 3, 1996 the Company and The Standish Care Company terminated
discussions related to their previously announced agreement in principle to
merge. The parties were unable to agree on a final exchange ratio for the
proposed transaction.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items of the Company's Condensed Consolidated Statements of Operations as a
percentage of total revenues and percentage change of the dollar amounts
from period to period.
Period to Period
Percentage of Revenues Percentage
March 31, Increase (Decrease)
1995 1996 1995-1996
------------ ----------- -------------------
Revenues............................ 100.0% 100.0% 361.4%
Expenses:
Community operations.............. 70.7 70.4 359.3
General and administrative........ 11.9 7.8 205.0
Depreciation and amortization..... 10.2 7.3 229.7
Rent.............................. 7.8 15.9 835.8
------------ ----------- -------------------
Total operating expenses.. 100.6 101.4 365.0
------------ ----------- -------------------
Loss from operations...... (0.6) (1.4) 1020.0
------------ ----------- -------------------
Other expense:
Interest expense, net............. 24.6 8.8 65.7
Other, net........................ (0.4) 0.1 (230.0)
------------ ----------- -------------------
Net loss.................. (24.8)% (10.3)% 91.4%
============ =========== ===================
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
REVENUES. Total operating revenues for the three months ended March
31, 1996 were $12.5 million, representing a $9.8 million, or 361%, increase
over operating revenues of $2.7 million for the comparable period in 1995.
Substantially all of this increase resulted from the acquisition of 31
existing communities after March 31, 1995.
COMMUNITY OPERATIONS. Expenses for community operations for the three
months ended March 31, 1996 were $8.8 million, representing a $6.9 million,
or 359%, increase over expenses for community operations of $1.9 million
for the comparable period in 1995, primarily due to the Company's
acquisition of or lease of 31 existing communities after March 31, 1995. As
a percentage of total operating revenues, expenses for community operations
decreased to 70.4% for the three months ended March 31, 1996, from 70.7%
for the comparable period in 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
the three months ended March 31, 1996 were $982,000, representing an
increase of $ 660,000, or 205%, from general and administrative expenses of
$322,000 for the comparable period in 1995. As a percentage of total
operating revenues, general and administrative expenses decreased to 7.8%
for the three months ended March 31, 1996, from 11.9% for the comparable
period in 1995. The decrease in general and administrative expenses as a
percentage of total operating revenues was due to increased levels of total
operating revenues for the three months ended March 31, 1996. The dollar
increase in general and administrative expenses was attributable to
salaries, related payroll taxes, and employee benefits relating to
additional employment associated with new business, increased accounting
costs, higher travel and other costs relating to the Company's acquisition
and development program. These increases are expected to continue through
1996 as the Company acquires additional existing, and develops new
communities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended March 31, 1996 was $910,000, or 7.3% of total operating
revenues, compared to $276,000 or 10.2% of total operating revenues, for
the comparable period in 1995. The dollar amount increase was due to the
Company's acquisition of 13 existing communities after March 31, 1995. As
the Company enters into sale/leaseback and lease financing transactions,
its depreciation expense will decrease and its rent expense will continue
to increase.
RENT. Rent expense for the three months ended March 31, 1996 was $2.0
million, representing an increase of $1.8 million, or 836%, from rent
expense of $212,000 for the comparable period in 1995. As a percentage of
total operating revenues, rent expense increased to 15.9% for the three
months ended March 31, 1996, from 7.8% for the comparable period in 1995.
The dollar amount and percentage increase was due to the Company entering
into lease financing or sale/leaseback transactions with respect to 27 of
its residential communities as of March 31, 1996 compared to one as of
March 31, 1995. As the Company enters into lease financing and
sale/leaseback transactions, its rent expense will continue to increase.
INTEREST EXPENSE, NET. Interest expense, net, for the three months
ended March 31, 1996 was $1.1 million, compared to $667,000 for the
comparable period in 1995, decreasing as a percentage of total operating
revenues to 8.8% for the three months ended March 31, 1996 from 24.6% for
the comparable period in 1995. The dollar increase was due to an increase
in the number of Operating Communities acquired after March 31,
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1995 and 1996, cash flows
provided by (used in) operating activities were ($991,000), and $188,000,
respectively. During the first quarter of 1996, the Company obtained $47.3
million in proceeds from the sale of communities in sale/leaseback
financing transactions and repaid related mortgage debt of $31.6 million as
well as $9.4 million of unrelated mortgage debt. The Company also incurred
additional long-term debt of $39.6 million, including $30.7 million, net
proceeds from the private placement of convertible subordinated debentures
and purchased additional property and equipment and property held for
development of $22.8 million. As a result of these acquisition and
financing transactions, the Company increased its cash position by
approximately $13.4 million. During the three months ended March 31, 1995,
the Company used $6.9 million to acquire property and equipment and
property held for development and obtained $8.1 million in net cash from
financing activities including net proceeds from long and short-term
borrowings. As of March 31, 1996, the Company had working capital of $17.1
million compared to a working capital of $4.1 million as of December 31,
1995.
The Company has been, and expects to continue to be, dependent on
third-party financing for its acquisition and development programs. There
can be no assurance that financing for the Company's acquisition and
development programs will be available to the Company on acceptable terms.
Moreover, to the extent the Company acquires communities that do not
generate positive cash flow, the Company may be required to seek additional
capital or borrowings for working capital and liquidity purposes.
In January 1996, the Company refinanced approximately $6.4 million of
its mortgage indebtedness secured by an assisted-living community through a
sale/leaseback transaction with a REIT. The REIT financing includes initial
lease term of 12 years, with three five-year options to renew. The lease
payments include base rent and additional rent, including an annual percentage
rent payment based on the community's revenues and an annual increase in
base rent based on the consumer price index.
On January 31, 1996, the Company entered into a letter of intent with
a REIT, pursuant to which the REIT will furnish sale/leaseback financing
for $100.0 million of newly developed facilities and $100.0 million of
lease or sale/leaseback financing for newly purchased properties. On March
19, 1996, pursuant to the financing agreement with the REIT, the Company
completed a $58.0 million sale/leaseback of seven communities and a
construction financing for two developments. The REIT financing includes
initial lease terms of 11 to 12 years, with four five-year options to
renew. Lease payments would include base rent, determined at the time of
closing, based on a formula tied to the 10-year U.S. Treasury note rate,
and additional rent, including an annual percentage rent based on the
communities' revenues. The specific property financings are subject to
satisfactory documentation and customary closing conditions.
On February 1, 1996, the Company completed the acquisition of 11 long-
term-care facilities, four in North Carolina and seven in South Carolina,
containing an aggregate of approximately 750 units, for an aggregate
purchase price of $53.8 million, of which (i) $45.4 million was financed
through a sale/leaseback transaction with a REIT, pursuant to which the
REIT acquired the communities and leased such communities back to the
Company, (ii) $4.0 million was financed by the REIT through a long-term
real estate mortgage, pursuant to which the Company purchased all of the
outstanding stock of Heritage Hills Retirement, Inc., and (iii) $4.4
million was provided by the Company. The Carolina Leases include initial
lease terms of 15 years, with three five-year renewal options. The lease
payments include base rent and additional rent, including an annual
percentage rent payment based on the communities' revenues, and an annual
increase in base rent based on the consumer price index.
On February 15, 1996, the Company completed a $32.0 million Private
Placement Offering (the `Private Placement') of 6.25% convertible
subordinated debentures (the `Debentures') due in 2006. The Debentures,
non-callable for three years, are convertible into common stock at a rate
of $22 per share, which equates to an aggregate of approximately 1,454,545
shares of the Company's common stock. The Company intends to use
approximately $22.1 million of the net proceeds from the Private Placement
(approximately $30.7 million) to repay existing mortgage debt, with
maturities ranging from April 1996 to May 2005 (including approximately
$9.4 million of existing mortgage debt due prior to June 1996) and with
interest rates ranging from 8.93% to 13.18% per annum. The
balance of the net proceeds of approximately $8.6 million will be used for
general corporate purposes, including the acquisition of long-term-care
facilities. Pending their use, the net proceeds of the Private Placement
will be invested principally in short-term, interest-bearing debt
securities rated AA or better.
On March 29, 1996, the Company purchased for $3.5 million the
underlying mortgage on a 140 unit assisted-living community located in
Clearwater, Florida. Prior to the purchase by the Company, a judgment lien
had been entered and foreclosure proceedings had commenced on the
community. Foreclosure proceedings were subsequently completed on May 1,
1996 and the Company expects to commence operations during May 1996.
Subsequent to the end of the first quarter of 1996, the Company
continued to acquire and finance various properties.
On April 1, 1996, the Company completed a $5.5 million lease financing
transaction with a REIT on a 98 unit assisted-living community located in
Federal Way, Washington. The lease includes an initial lease term of 13
years, with four five-year options to renew. Lease payments include base
rent and additional rent, including an annual percentage rent based on the
community's revenues.
On April 2, 1996, the Company refinanced approximately $3.1 million of
its mortgage indebtedness secured by a 69 unit assisted-living community
through a sale/leaseback transaction with a REIT. The lease includes an
initial lease term of 15 years, with three five-year options to renew. The
lease payments include base rent and additional rent, including an annual
percentage rent payment based on the community's revenues and annual
increase in base rent based on the consumer price index.
On April 5, 1996, the Company secured a $2.0 million revolving line of
credit with a regional financial institution. The line of credit is
payable on demand, but no later than April 30, 1997 and bears interest on
the outstanding principal balance computed at one percent over the lenders
prime rate.
In April 1996, the Company completed a $2.9 million sale/leaseback
transaction on a 47 unit residential community located in Coeur d'Alene,
Idaho. The lease financing includes construction funding for a 62 unit
assisted-living expansion project. Additionally, the Company closed $17.3
million in lease financing for a total of 240 assisted-living units in
three to-be-constructed communities located in Midland, Beaumont and
Lubbock, Texas. All three developments will contain 80 assisted-living
units. Construction on all three developments and the expansion project is
scheduled to commence in the second quarter of 1996. The communities will
be constructed and operated by the Company pursuant to an operating lease
and leasehold improvement agreement with a REIT.
On April 25, 1996, the Company purchased a 72 unit senior housing
community located in San Bernardino, California for $2.1 million. Prior to
the purchase, the community was operated as a congregate care facility.
The Company plans to reposition the community to operate as an assisted-
living community. As part of the repositioning process, the Company will
begin a physical plant refurbishment of the community which is scheduled to
commence during the second quarter of 1996.
On May 1, 1996, the Company completed an $18.4 million lease financing
on two long-term-care communities located in Florida. Both communities
contain an aggregate of approximately 326 units, have been operated as
assisted-living communities and were acquired by the Company pursuant to
operating leases with a REIT. The leases consist of initial terms of 12
years and four five-year options to renew and lease payments in the
aggregate amount of $1.8 million per annum.
The Company currently estimates that the remaining net proceeds from
the Private Placement, together with existing financing commitments and
lease, sale/leaseback and mortgage financings and refinancings will be
sufficient to fund its acquisition and development program and its
anticipated operating losses for at least the next twelve months. In part,
the Company's future capital needs depend on arranging sale/leaseback
financing for existing assisted-living communities that have achieved
stabilized occupancy rates, resident mix and operating margins after
initial development or repositioning. There can be no assurance that the
Company will generate sufficient cash flow during such time to fund its
working capital, rent, debt service requirements or growth. In such event,
the Company would have to seek additional financing through debt or equity
offerings, bank borrowings, sale/leaseback transactions or other sources.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the Company.
Inflation could, however, affect the Company's future revenues and
operating income due to the Company's dependence on its senior resident
population, most of whom rely on relatively fixed incomes to pay for the
Company's services. As a result, the Company's ability to increase
revenues in proportion to increased operating expenses may be limited. The
Company typically does not rely to a significant extent on governmental
reimbursement programs. In pricing its services, the Company attempts to
anticipate inflation levels, but there can be no assurance that the Company
will be able to respond to inflationary pressures in the future.
PART II OTHER INFORMATION
ITEMS 1-5 ARE NOT APPLICABLE
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description Reference
- - ------ ----------- ---------
11.1 Statement re computation of per share earnings........................... Filed herewith
27.1 Financial Data Schedule.................................................. Filed herewith
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K with the Securities and
Exchange Commission on February 16, 1996, which is incorporated herein
by reference, reported under Item 2, the Company's acquisition of the Carolina
Communities and under Item 5, the private placement offering of convertible
subordinated debentures.
The Company filed a Report on Form 8-K with the Securities and
Exchange Commission on March 19, 1996, which is incorporated herein by
reference, reported under Item 2, the Company's sale/leaseback financing of
seven communities and two developments with Meditrust Acquisition
Corporation I.
SIGNATURES
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.
Dated: May 14, 1996
EMERITUS CORPORATION
(Registrant)
/s/ Kelly J. Price
--------------------
Kelly J. Price, Chief Financial Officer
/s/ James S. Keller
--------------------
James S. Keller, Controller and Director of Accounting
(Principal Accounting Officer)