UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -----------------------------------------------------------------
FORM 10-Q
- -----------------------------------------------------------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the quarterly period ended June 30, 1997.
( ) 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 JUNE 30, 1997
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
(Address of principal executive offices)
(206) 298-2909
(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 August 14, 1997, 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: Page No.
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997.............. 1
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1996 2
and 1997.........................................
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1997.. 3
Notes to Condensed Consolidated Financial 4
Statements.......................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security 15
Holders..........................................
Item 6. Exhibits......................................... 15
Signatures....................................... 17
Note: Items 1-3 and Item 5 of Part II are omitted
because they are not applicable
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1997
(In thousands, except share data)
ASSETS
June 30,
December 31, 1997
1996 (unaudited)
------------ -----------
Current Assets:
Cash and cash equivalents..................... $ 23,039 $ 13,084
Current portion of restricted deposits........ 934 469
Trade accounts receivable..................... 1,713 1,821
Prepaid expenses and other current assets..... 4,561 8,837
Investment securities available for sale...... 2,152 2,668
Property held for sale........................ - 6,949
------------ -----------
Total current assets.................. 32,399 33,828
------------ -----------
Property and equipment, net..................... 97,150 126,502
Property held for development................... 8,796 13,563
Notes receivable from and investments in
affiliates................................... 2,464 4,762
Lease acquisition costs, net.................... 8,127 8,317
Other assets, net............................... 9,102 11,914
------------ -----------
Total assets.......................... $158,038 $198,886
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings......................... $ - $ 2,000
Current portion of long-term debt............. 5,816 7,696
Trade accounts payable........................ 4,707 4,829
Construction advances - leased communities.... 6,387 -
Other current liabilities..................... 5,732 8,161
------------ -----------
Total current liabilities............. 22,642 22,686
------------ -----------
Security deposits............................... 1,014 1,110
Other long-term liabilities..................... 3,740 7,794
Deferred gain on sale of communities............ 9,433 12,931
Deferred income................................. 843 558
Convertible debentures.......................... 32,000 32,000
Long-term debt, less current portion............ 60,260 100,573
------------ -----------
Total liabilities..................... 129,932 177,652
------------ -----------
Minority interest............................... 1,918 1,589
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 outstanding
11,000,000 shares............................ 1 1
Additional paid-in capital..................... 44,787 44,787
Unrealized gain on investment securities....... 18 894
Foreign currency translation adjustment........ - 1
Accumulated deficit............................ (18,618) (26,038)
------------ -----------
Total shareholders' equity............ 26,188 19,645
------------ -----------
Total liabilities and shareholders'
equity.............................. $158,038 $198,886
============ ===========
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
1
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1996 and 1997
(unaudited)
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
Revenues:
Rent............................ $14,678 $23,749 $25,892 $44,480
Service fees.................... 1,378 5,191 2,681 8,963
--------- --------- --------- ---------
Total operating revenues... 16,056 28,940 28,573 53,443
--------- --------- --------- ---------
Expenses:
Community operations............ 10,790 19,258 19,601 36,142
General and administrative...... 1,402 2,748 2,382 4,955
Depreciation and amortization... 471 1,482 1,305 2,567
Rent............................ 3,633 8,123 5,617 14,986
--------- --------- --------- ---------
Total operating expenses... 16,296 31,611 28,905 58,650
--------- --------- --------- ---------
Loss from operations....... (240) (2,671) (332) (5,207)
--------- --------- --------- ---------
Other income (expense):
Interest expense, net........... (471) (1,584) (1,650) (2,397)
Other, net...................... (108) 407 (121) 184
--------- --------- --------- ---------
Net other expense.......... (579) (1,177) (1,771) (2,213)
--------- --------- --------- ---------
Net loss................... $ (819) $(3,848) $(2,103) $(7,420)
========= ========= ========= =========
Net loss per share................ $ (0.07) $ (0.35) $ (0.19) $ (0.67)
========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding..................... 11,000 11,000 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.
2
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1997
(unaudited)
(In thousands)
1996 1997
--------- ---------
Net cash used in operating activities (including
changes in all operating assets and
liabilities)....................................... $(2,148) $(1,898)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.............. (29,887) (13,925)
Acquisition of property held for development....... (821) (8,119)
Acquisition of property held for sale.............. - (1,495)
Proceeds from sale of property and equipment....... 47,636 20,910
Purchase of investment securities.................. - (1,839)
Sale of investment securities...................... - 3,207
Construction advances - leased communities......... - 14,785
Construction expenditures - leased communities..... - (23,399)
Advances to affiliates............................. (1,614) (1,275)
Acquisition of interest in affiliates.............. - (1,252)
--------- ---------
Net cash provided by (used in) investing
activities.................................. 15,314 (12,402)
--------- ---------
Cash flows from financing activities:
Restricted deposits................................ (4,755) (1,815)
Proceeds from short-term borrowings, net........... 1,000 2,000
Debt issue and other financing costs............... (5,241) (543)
Proceeds from long-term borrowings................. 12,856 20,385
Proceeds from issuance of convertible debentures... 30,720 -
Repayment of long-term borrowings.................. (41,075) (15,682)
Other.............................................. (92) -
--------- ---------
Net cash provided by (used in) financing
activities.................................. (6,587) 4,345
--------- ---------
Net increase (decrease) in cash................ 6,579 (9,955)
Cash at the beginning of the period.................. 9,507 23,039
--------- ---------
Cash at the end of the period........................ $16,086 $13,084
========= =========
Supplemental disclosure of cash flow information -
cash paid during the period for interest........... $ 1,702 $ 2,461
========= =========
Noncash investing and financing activities -
acquisition of communities:
Assets acquired..................................... $ - $37,347
Liabilities assumed................................. - 36,997
Transfer of property held for development to
property and equipment............................ - 12,375
Transfer of property and equipment to property held
for sale.......................................... - 6,949
Vehicle acquisition through debt financing.......... - 640
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
3
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim 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 June 30, 1997 and for the
three and six months ended June 30, 1997 and 1996. The Company
presumes that users of the interim financial information herein
have read or have access to the Company's 1996 audited
consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
contained in the 1996 Form 10-K filed March 31, 1997 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 the Form 10-
K have been omitted. The financial information herein is not
necessarily representative of a full year's operations.
Certain reclassifications of the 1996 amounts have been made
to conform to the 1997 presentation.
2. CHANGE IN ACCOUNTING ESTIMATES
Effective January 1, 1997, the Company changed the period
over which pre-opening costs on newly opened developments are
amortized from 18 months to one-year. The change did not have a
material effect on 1996 results of operations as the majority of
developments were opened late in 1996. The impact for the three
months ended and six months ended June 30, 1997, was $(91,000)
and $(145,000) or $(0.01) and $(0.01) per share, respectively.
Effective January 1, 1997, the Company also changed the
estimate for the useful life of acquired buildings. The impact
on the for the three months ended and six months ended June 30,
1997, was $105,000 and $165,000 or $0.01 and $0.02 per share,
respectively. The impact for the three months ended and six
months ended June 30, 1996 would have been $60,000 and $111,000,
or $0.01 and $0.01 per share, respectively, if the Company had
changed the estimate during the fiscal year 1996.
3. ACQUISITIONS
During the year ended December 31, 1996 and the six months
ended June 30, 1997, 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 or identifiable
intangibles were 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. Summary
information concerning the acquisitions is as follows:
4
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Total
Communities acquired Acquisition date purchase price Units
-------------------- ----------------- -------------- -----
(in thousands)
Heritage Hills Retirement................. February 1, 1996 $ 4,338 100
Lakewood Inn (1).......................... March 1, 1996 2,800 47
Laurel Place (formerly Golden Park)....... April 25, 1996 2,100 72
Madison Glen (formerly Sunshine Manor).... May 15, 1996 3,842 140
The Hearthstone (2)....................... November 1996 5,200 84
Concorde.................................. November 1996 8,400 116
Other 1996 Acquisitions................... Various 8,202 272
Villa Del Rey............................. March 19, 1997 4,252 84
La Casa Communities (3)................... May 1, 1997 33,062 473
---------------- ---------
$72,196 1,338
================ =========
(1) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 13 years with
four five-year renewal options and annual base
rent of approximately $688,000. The Company has
no continuing involvement outside of operating
the community.
(2) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 11 years 11
months with four five-year renewal options and
annual base rent of approximately $596,000. The
Company has no continuing involvement outside of
operating the community.
(3) Consists of three long-term-care communities
located in Florida.
The foregoing purchases have generally been financed through
borrowings.
During the year ended December 31, 1996 and the six months
ended June 30, 1997, the Company completed several acquisitions
of communities through lease financing transactions with certain
Real Estate Investment Trusts' (REITs'), pursuant to which the
REITs' leased such communities to the Company under operating
leases. The results of operations of the communities acquired
have been included in the Company's consolidated financial
statements from the dates the leases commenced for those
communities not previously owned.
Lease Initial Renewal Annual
Communities leased Acquisition date Lease Term Options Rent Units
------------------ ---------------- ----------- -------- ------ -----
Carolina Communities (1)..... February 1996 15 years Three five-year $ 4,145,607 648
Evergreen Lodge.............. April 1996 13 years Four five-year 572,569 98
Rosewood Court (2)........... April 1996 14 yrs/9 mos Three five-year 393,200 71
Barrington Place............. May 1996 11 yrs/11 mos Four five-year 413,601 80
Springtree................... May 1996 11 yrs/11 mos Four five-year 1,410,353 185
The Terrace (3).............. August 1996 11 yrs/8 mos Four five-year 416,887 88
Lodge at Mainlands........... August 1996 11 yrs/7 mos Four five-year 924,530 154
Colonial Park Club........... August 1996 11 yrs/7 mos Four five-year 770,862 90
Ridge Wind................... August 1996 11 yrs/8 mos Four five-year 458,061 80
Other 1996 Leases............ October 1996 11 years Four five-year 1,753,006 226
New York Communities (4)..... November 1996 15 years Two five-year 4,975,000 738
Texas Communities (5)........ April 1, 1997 15 years Three five-year 2,174,328 411
------------ -----
$18,408,004 2,869
============ =====
(1) Consists of 10 long-term-care communities located
in North and South Carolina.
(2) Originally acquired in 1995, refinanced through a
sale/leaseback with a REIT. The Company has no
continuing involvement outside of operating the
community.
5
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(3) Originally acquired in 1996, refinanced through a
sale/leaseback with a REIT. The Company has no
continuing involvement outside of operating the
community.
(4) Consists of 9 long-term-care communities located
in New York.
(5) Consists of 3 long-term-care communities located
in Texas.
The following summary, prepared on a pro forma basis,
combines the results of operations of the acquired
businesses with those of the Company as if the acquisitions,
acquisitions through lease financings and sale/leaseback
financings had been consummated as of January 1, 1996, after
including the impact of certain adjustments such as depreciation
on assets acquired and interest expense on acquisition financing.
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(In thousands, except per share data)
Revenue................. $27,157 $29,791 $53,887 $58,374
Net loss................ (2,054) (3,912) (4,178) (6,359)
Net loss per share...... $ (0.19) $ (0.36) $ (0.38) $ (0.58)
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.
4. PROPERTY HELD FOR SALE
At June 30, 1997, the Company had a commitment with a REIT
to refinance a $5.5 million development securing $2.5 million in
related construction financing (the "Property Held For Sale" or
"Property") through a sale/leaseback transaction, pursuant to
which the REIT will acquire the Property and lease such Property
back to the Company under an operating lease agreement. The
remaining $1.4 million of Property Held For Sale represents land
located in Maryland.
6
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
believes that it is one of the largest providers of assisted-
living services in the United States. The Company's revenues are
derived primarily from rents and service fees charged to its
residents. For the six months ended June 30, 1996 and 1997, the
Company generated total operating revenues of $28.6 million and
$53.4 million, respectively representing an 87% increase. For the
three months ended June 30, 1996 and 1997, the Company generated
total operating revenues of $16.1 million and $28.9 million,
respectively representing an 80% increase. As of June 30, 1997,
the Company's accumulated deficit was $26.0 million and its total
shareholders' equity was $19.6 million. For the six months ended
June 30, 1996 and 1997, the Company generated net losses of $2.1
million and $7.4 million, respectively. For the three months
ended June 30, 1996 and 1997, the Company generated net losses of
$819,000 and $3.8 million, respectively.
The Company's operating strategy is to increase operating
margins at each acquired or newly developed community, whether
leased or owned, 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.
As of August 9, 1997, the Company holds ownership,
leasehold or management interests in 93 residential communities
(the "Operating Communities") consisting of approximately 8,100
units with a capacity of over 9,400 residents, located in 24
states. Of the 93 Operating Communities 11 newly developed
communities were opened during the first and second quarters of
1997 and three commenced operations during the third quarter of
1997. In addition to the 93 Operating Communities, two
communities have received their certificate of occupancy and are
expected to receive their operating license during the third
quarter of 1997. The Company also completed construction on an
expansion to an existing community. The Company owns, has a
leasehold interest in or has acquired an option to purchase
development sites for 27 new assisted-living communities (the
"Development Communities"). Nine of the Development Communities
are currently under construction, four of which are scheduled to
open during 1997. The Company leases 67 of its Operating
Communities, typically from a financial institution such as a
Real Estate Investment Trust ("REIT"), owns 16 communities,
manages three communities and has a joint venture and partnership
interest in four communities. Additionally, the Company holds a
minority interest in Alert Care Corporation ("Alert"), an
Ontario, Canada based owner and operator of 18 assisted-living
communities consisting of approximately 1,000 units. Assuming
completion of the Development Communities scheduled to open
throughout 1997 and the minority interest in Alert, the Company
will own, lease or manage 117 properties in 25 states and Canada
containing an aggregate of approximately 9,600 units with a
capacity of over 11,000 residents. There can be no assurance,
however, that the Pending Development Communities will be
completed on schedule and will not be affected by construction
delays, the effects of government regulation or other factors
beyond the Company's control. The Company's management of
assisted-living communities owned or leased by others has not
been material to the Company's business or revenue.
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, 1996. 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.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 the
percentage change of the dollar amounts from period to period.
Period to Period
Percentage Increase
(Decrease)
Percentage of Revenues Three Months Six Months
Three Months Ended Six Months Ended Ended Ended
June 30, June 30, June 30, June 30,
------------------ ---------------- ------------- -------------
1996 1997 1996 1997 1996-1997 1996-1997
-------- -------- ------- ------- ------------- -------------
Revenues.......................... 100.0 % 100.0 % 100.0 % 100.0 % 80.2 % 87.0 %
Expenses:
Community operations............ 67.2 66.5 68.6 67.6 78.5 84.4
General and administrative...... 8.7 9.5 8.3 9.3 96.0 108.0
Depreciation and amortization... 2.9 5.1 4.6 4.8 214.6 96.7
Rent............................ 22.6 28.1 19.7 28.0 123.6 166.8
-------- -------- ------- ------- ------------- -------------
Total operating expenses..... 101.4 109.2 101.2 109.7 94.0 102.9
-------- -------- ------- ------- ------------- -------------
Loss from operations......... (1.4) (9.2) (1.2) (9.7) 1012.9 1468.4
-------- -------- ------- ------- ------------- -------------
Other income (expense):
Interest expense, net........... (2.9) (5.5) (5.8) (4.5) 236.3 45.3
Other, net...................... (0.7) 1.4 (0.4) 0.3 (476.9) (252.1)
-------- -------- ------- ------- ------------- -------------
Net loss..................... (5.0)% (13.3)% (7.4)% (13.9)% 369.8 % 252.8 %
======== ======== ======= ======= ============= =============
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
REVENUES. Total operating revenues for the six months ended
June 30, 1997 were $53.4 million, representing a $24.8 million,
or 87%, increase over operating revenues of $28.6 million for the
comparable period in 1996. The increase resulted from the
opening of new developments and the acquisition of communities
between June 30, 1996 and 1997 and the modification in rate
structures at the communities. The Company ended with 48 and 90
communities as of June 30, 1996 and 1997, respectively, an
increase of 88%.
COMMUNITY OPERATIONS. Expenses for community operations for
the six months ended June 30, 1997 were $36.1 million,
representing a $16.5 million, or 84% increase over $19.6 million
for the comparable period in 1996, primarily due to the Company's
opening of new developments and the acquisition of communities
between June 30, 1996 and 1997. The Company ended with 48 and 90
communities as of June 30, 1996 and 1997, respectively, an
increase of 88%. As a percentage of total operating revenues,
expenses for community operations decreased to 68% for the six
months ended June 30, 1997, from 69% for the comparable period in
1996.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses for the six months ended June 30, 1997 were $5.0
million, representing an increase of $2.6 million, or 108% from
$2.4 million for the comparable period in 1996. As a percentage
of total operating revenues, general and administrative expenses
increased to 9% for the six months ended June 30, 1997, from 8%
for the comparable period in 1996. The increase in general and
administrative expenses was attributable to salaries and
associated costs relating to additional employment in conjunction
with new business, increased accounting costs and higher travel
and other costs relating to the Company's acquisition and
development program. General and administrative costs are
expected to continue to increase in line with revenues and
community operations at least through 1997 as the Company
acquires additional existing communities and develops new
communities.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization for the six months ended June 30, 1997 was $2.6
million, or 5% of total operating revenues, compared to $1.3
million or 5% of total operating revenues, for the comparable
period in 1996. The dollar increase was primarily due to the
Company's opening new developments and the acquisition of seven
communities owned by the Company net of communities sold in
sale/leaseback transactions between June 30, 1996 and 1997. The
Company owned 16 of its 90 communities at June 30, 1997 compared
to 12 of its 48 communities at June 30, 1996.
RENT. Rent expense for the six months ended June 30, 1997
was $15.0 million, representing an increase of $9.4 million, or
168% from rent expense of $5.6 million for the comparable period
in 1996. As a percentage of total operating revenues, rent
expense increased to 28% for the six months ended June 30, 1997,
from 20% for the comparable period in 1996. The dollar and
percentage increases were due to the Company entering into lease
financing or sale/leaseback transactions with respect to 74% or
67 out of 90 of its residential communities as of June 30, 1997
compared to 71% or 34 out of 48 communities as of June 30, 1996.
Rent expense is expected to continue to increase as the Company
refinances owned communities through sale/leaseback transactions
and acquires additional communities through lease financing
transactions.
INTEREST EXPENSE, NET. Interest expense, net, for the six
months ended June 30, 1997 was $2.4 million compared to $1.7
million for the comparable period in 1996, decreasing as a
percentage of total operating revenues to 5% for the six months
ended June 30, 1997 from 6% for the comparable period in 1996.
The dollar increase was primarily due to the acquisition of four
communities through mortgage financing bearing interest at rates
between 8% and 18% and the opening of three developments owned by
the Company offset by the refinancing of existing debt with lower
interest mortgages in the first quarter of 1997 and the repayment
of existing mortgage debt with convertible debenture proceeds in
1996.
OTHER INCOME AND EXPENSE, NET. Other income and expense,
net, for the six months ended June 30, 1997 was income of
$184,000 compared to expense of $121,000 for the comparable
period in 1996. The dollar variance was primarily due to gains
recognized from the sale of investment securities consisting of
stock and convertible debentures.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996
REVENUES. Total operating revenues for the three months
ended June 30, 1997 were $28.9 million, representing a $12.8
million, or 80%, increase over operating revenues of $16.1
million for the comparable period in 1996. The increase resulted
from the opening of new developments and the acquisition of
communities between June 30, 1996 and 1997 and the modification
of rate structures at the communities. The Company ended with 48
and 90 communities as of June 30, 1996 and 1997, respectively, an
increase of 88%.
COMMUNITY OPERATIONS. Expenses for community operations for
the three months ended June 30, 1997 were $19.3 million,
representing an $8.5 million, or 79% increase over $10.8 million
for the comparable period in 1996, primarily due to the Company's
opening of new developments and the acquisition of communities
between June 30, 1996 and 1997. The Company ended with 48 and 90
communities as of June 30, 1996 and 1997, respectively, an
increase of 88%. As a percentage of total operating revenues,
expenses for community operations decreased to 66.5% for the
three months ended June 30, 1997, from 67.0% for the comparable
period in 1996.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses for the three months ended June 30, 1997 were $2.7
million, representing an increase of $1.3 million, or 93% from
$1.4 million for the comparable period in 1996. As a percentage
of total operating revenues, general and administrative expenses
increased to 10% for the three months ended June 30, 1997, from
9% for the comparable period in 1996. The increase in general
and administrative expenses was attributable to salaries and
associated costs relating to additional employment in conjunction
with new business, increased accounting costs and higher travel
and other costs relating to the Company's acquisition and
development program. General and administrative costs are
expected to continue to increase in line with revenues and
community operations at least through 1997 as the Company
acquires additional existing communities and develops new
communities.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization for the three months ended June 30, 1997 was $1.5
million, or 5% of total operating revenues, compared to $471,000
or 3% of total operating revenues, for the comparable period in
1996. The dollar increase was primarily due to the Company's
opening new developments and the acquisition of seven communities
owned by the Company net of communities sold in sale/leaseback
transactions between June 30, 1996 and 1997. The Company owned
16 of its 90 communities at June 30, 1997 compared to 12 of its
48 communities at June 30, 1996.
RENT. Rent expense for the three months ended June 30, 1997
was $8.1 million, representing an increase of $4.5 million, or
125% from rent expense of $3.6 million for the comparable period
in 1996. As a percentage of total operating revenues, rent
expense increased to 28% for the three months ended June 30,
1997, from 23% for the comparable period in 1996. The dollar and
percentage increases were due to the Company entering into lease
financing or sale/leaseback transactions with respect to 74% or
67 out of 90 of its residential communities as of June 30, 1997
compared to 71% or 34 out of 48 communities as of June 30, 1996.
Rent expense is expected to continue to increase as the Company
refinances owned communities through sale/leaseback transactions
and acquires additional communities through lease financing
transactions.
INTEREST EXPENSE, NET. Interest expense, net, for the three
months ended June 30, 1997 was $1.6 million compared to $471,000
for the comparable period in 1996, increasing as a percentage of
total operating revenues to 6% for the three months ended June
30, 1997 from 3% for the comparable period in 1996. The dollar
increase was primarily due to the acquisition of four communities
through mortgage financing bearing interest at rates between 8%
and 18% and the opening of three developments owned by the
Company offset by the refinancing of existing debt with lower
interest mortgages in the first quarter of 1997.
OTHER INCOME AND EXPENSE, NET. Other income and expense,
net, for the three months ended June 30, 1997 was income of
$407,000 compared to expense of $108,000 for the comparable
period in 1996. The dollar variance was primarily due to gains
recognized from the sale of investment securities consisting of
stock and convertible debentures.
COMMUNITY COMPARISON
The Company operated 37 communities ("Same Community") on a
comparable basis during both the three months ended June 30, 1996
and 1997. Same Community average occupancy for the three months
ended June 30, 1997 was at 86% compared to 87% for the three
months ended June 30, 1996 while net operating margins increased
by $778,000 to 36% on revenue of $15.3 million as compared to 32%
on revenue of $14.4 million for the three months ended June 30,
1996. Same Community pre-tax income increased by 80% to $1.0
million before corporate overhead compared to the comparable
period last year.
The following tables set forth a comparison of Same
Community results of operations before corporate overhead for the
three months ended June 30, 1996 and 1997.
Three Months Ended June 30, 1997
(In thousands)
Increase/
1996 1997 (Decrease) Percentage Change
--------- --------- ---------- ------------------
Revenue........................... $14,390 $15,283 $893 6 %
Community operating expense....... 9,730 9,845 115 1
--------- --------- ---------- ------------------
Community operating income..... 4,660 5,438 778 17
--------- --------- ---------- ------------------
Depreciation and amortization..... 316 350 34 11
Rent.............................. 3,296 3,669 373 11
--------- --------- ---------- ------------------
Operating income............... 1,048 1,419 371 35
--------- --------- ---------- ------------------
Interest income (expense), net.... (457) (383) 74 (16)
Other income (expense), net....... (13) 5 18 (138)
--------- --------- ---------- ------------------
Pre-tax income................. $ 578 $ 1,041 $463 80 %
========= ========= ========== ==================
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
For the three months ended June 30, 1997, the Company had 48
communities that had achieved average occupancy in excess of 90%
during one quarter in the last 12 months ("Group One
Communities") and 42 communities that had average occupancy of
less than 90%, which includes 26 newly opened developments and/or
communities with significant ongoing repositioning and/or
refurbishment activity ("Group Two Communities").
Group One Communities ended the second quarter with an
average occupancy of 90% compared to 95% for the three months
ended June 30, 1996 while net operating margins increased by $3.8
million to 39% on revenue of $19.6 million as compared to 36% on
revenue of $10.8 million for the three months ended June 30,
1996. Group One Community pre-tax income increased by 53% to $1.7
million before corporate overhead compared to the comparable
period last year. The total number of Group One Communities
increased by 24 compared to the second quarter of 1996 due to a
combination of seventeen acquisitions and seven communities
achieving an occupancy greater than 90%.
Group Two Communities ended the second quarter with an
average occupancy of 53% compared to 64% for the three months
ended June 30, 1996 while net operating margins increased by
$640,000 to 22% on revenue of $9.4 million as compared to 27% on
revenue of $5.2 million for the three months ended June 30, 1996.
Group Two Community pre-tax loss increased by 402% to $3.1
million before corporate overhead compared to the comparable
period last year. The total number of Group Two Communities had a
net increase of 18 compared to the second quarter of 1996 due
primarily to the opening of new developments.
The following tables set forth a comparison of Group One and
Group Two communities results of operations for the three months
ended June 30, 1997.
Three Months Ended June 30, 1997
(In thousands)
Three
Group One Group Two Months Ended
Communities Communities Overhead June 30, 1997
----------- ----------- -------- ---------------
Revenue........................... $19,561 $ 9,372 $ 7 $28,940
Community operating expense....... 11,934 7,324 - 19,258
----------- ----------- -------- ---------------
Community operating income..... 7,672 2,048 7 9,682
----------- ----------- -------- ---------------
General and administrative........ - - 2,748 2,748
Depreciation and amortization..... 332 1,055 95 1,482
Rent.............................. 5,180 2,822 121 8,123
----------- ----------- -------- ---------------
Operating income (loss)........ 2,115 (1,829) (2,957) (2,671)
----------- ----------- -------- ---------------
Interest income (expense), net.... (372) (1,384) 172 (1,584)
Other income (expense)............ 5 143 259 407
----------- ----------- -------- ---------------
Net income (loss).............. $ 1,748 $(3,070) $(2,526) $(3,848)
=========== =========== ========= ===============
Communities....................... 48 42
Units............................. 3,662 4,206
Average Occupancy................. 90% 53%
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996 and 1997, net cash
flow used in operating activities was $2.1 million and $1.9
million, respectively. During the six months ended June 30,
1997, the Company obtained $20.9 million in proceeds from the
sale of communities in sale/leaseback financing transactions and
repaid related mortgage debt of $8.8 million as well as $8.8
million of unrelated mortgage debt including refinancing $1.8
million and repaying $2.1 million in long-term debt on two
assisted-living communities located in Arizona. The Company also
incurred additional long-term debt of $43.6 million and purchased
additional property and equipment, property held for development
and property held for sale of $23.5 million. As a result of these
acquisition and financing transactions the Company decreased its
cash position by approximately $10.0 million. At June 30, 1997,
the Company had a commitment with a REIT to refinance one
development through a sale/leaseback transaction (the "Properties
Held For Sale" or "Property"), pursuant to which the REIT would
acquire the Property and lease such Property back to the Company
under an operating lease agreement. Of the $6.9 million in
Properties Held For Sale $5.5 million represents the development
securing $2.5 million in related construction financing. The
remaining $1.4 million represents land located in Maryland.
During the six months ended June 30, 1996, the Company obtained
$47.6 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 $9.5 million of unrelated
mortgage debt. The Company also incurred additional long-term
debt of $43.6 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 $30.7 million. As of June 30, 1997, the
Company had working capital of $11.1 million compared to a
working capital of $9.8 million as of December 31, 1996.
In April 1997, the Company completed $21.0 million in lease
financing on three assisted-living communities located in Texas.
The communities contain an aggregate of 411 units and were
acquired by the Company pursuant to an operating lease with a
REIT. The leases include an initial term of 15 years with three
five-year renewal options and annual base rent aggregating $2.2
million. The Company entered into an agreement with Columbia
House LLC ("Columbia House"), an affiliate of the Company, to
provide administrative and accounting services for a 50 unit
independent-living community located in South Carolina. Under
the agreement the Company shall receive an administrative
services fee of $2,500 payable monthly over the term of the
agreement of four years and nine months. In addition, the
Company completed construction on four developments aggregating
355 units, Elm Grove Estates in Kansas, Spring Meadows Residence
in Montana, Cold Springs Commons in Connecticut and Stonecreek
Lodge in Kentucky. The community located in Kansas received its
license to operate in June and is operated by the Company
pursuant to an operating lease agreement with a REIT. The lease
consists of an initial term of 13 years, with four five-year
renewal options and annual base rent of approximately $972,000.
The community located in Montana received its license in May and
is owned and operated by the Company. The communities located in
Kentucky and Connecticut received their license in May and June,
respectively, and are operated by the Company on a joint venture
basis pursuant to operating lease agreements with a third party.
The leases consist of an initial term of 20 years with two ten-
year renewal options and annual base rent aggregating
approximately $1.5 million. Also, the Company completed
construction on a 62 unit expansion to an existing community
located in Idaho which received its license to operate in June
and completed $533,000 in financing for an 82 unit assisted-
living to-be-constructed community located in Ogden, Utah. The
community will be constructed and operated by the Company
pursuant to an operating lease and leasehold improvement
agreement with a REIT.
On April 25, 1997, the Company and Carematrix Corporation
("Carematrix"), formerly known as The Standish Care Company
("Standish"), entered into an agreement (the "Agreement") with
respect to a community located in New Hampshire (the "Sunny Knoll
Facility"). Under this Agreement the Company agreed to the
transfer and relinquishment of its 49% interest in the Sunny
Knoll Facility and Carematrix agreed to pay $410,000 plus accrued
interest to the Company for all outstanding obligations between
the two parties. Pursuant to the Agreement, the Company was
indemnified for all future liabilities and operations and any
other agreements and obligations related to the Sunny Knoll
Facility. Also, under this Agreement, the Company was
indemnified with respect to all pre-existing agreements and
obligations with respect to Standish.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
In May 1997, the Company acquired three communities located
in Florida for a purchase price of $33.1 million financed through
a first mortgage and subordinated debt. The communities contain
an aggregate of 473 units consisting of independent, assisted-
living and Alzheimer's care. Also, the Company refinanced
approximately $8.8 million of its mortgage indebtedness secured
by four assisted-living communities aggregating 271 units through
sale/leaseback transactions with a REIT. The leases consist of
initial terms of 12 years with four five-year renewal options and
annual base rent of approximately $2.0 million. Additionally,
the Company completed construction on two newly developed
communities, Bellaire Place in South Carolina and Myrtlewood
Estates in Texas aggregating approximately 160 units. The
communities received their certificate of occupancy and upon
completion of licensure, will be operated by the Company pursuant
to operating lease agreements with a REIT. The leases consist of
an initial terms of twelve years nine months and thirteen years
eight months for Bellaire Place and Myrtlewood Estates,
respectively, with four five-year renewal options and annual base
rent of approximately $1.1 million. Bellaire Place is expected
to commence operations during the third quarter of 1997and
Myrtlewood Estates commenced operations in August 1997. In
addition, the Company entered into two agreements
("Management/Lease-Up Agreements") with an independent third
party for two to-be-constructed 82 unit communities located in
Auburn California and Cheyenne, Wyoming. Under the Management
Lease-Up Agreements, the Company will provide management services
for a period of two years commencing on the date that the first
resident occupies one of the units in the community. The Company
will receive a management fee equal to 5% of gross revenues
payable monthly over the term of the agreement. Commencing on
the earlier date to occur (a) two years after commencement of the
management agreement or (b) the first month in which the
community's monthly revenues exceed operating expenses, the
Company will lease the community from the independent third party
under an operating lease agreement with an initial term of 10
years and three five-year renewal options.
In June 1997, the Company entered into an agreement with
Columbia House to provide management services for a 94 unit
congregate care and assisted-living community located in
Missouri. Under the agreement the Company shall receive a base
management fee equal to 4% of gross revenues payable monthly over
the term of the agreement of twelve years with an automatic
extension of two years. In addition to the base management fee,
the Company shall receive monthly incentive fees based on the
operational performance of the community. Also, the Company
opened two newly developed communities aggregating 130 units,
Walking Horse Meadows in Tennessee and Woods at Eddy Pond in
Massachusetts. The community located in Tennessee is operated by
the Company pursuant to an operating lease agreement with a REIT.
The lease consists of an initial term of thirteen years nine
months, with four five-year renewal options and annual base rent
of approximately $361,000. The community located in
Massachusetts is operated by the Company on a joint venture basis
pursuant to an operating lease agreement with a third party. The
lease consist of an initial term of 20 years with two ten-year
renewal options and annual base rent aggregating approximately
$769,500. In addition, the Company completed construction on
three developments aggregating 220 units, Eastman Estates,
Meadowlands Terrace and Lakeridge Place all located in Texas.
The communities received their certificate of occupancy and upon
completion of licensure, Lakeridge Place will be operated by the
Company pursuant to an operating lease agreement with a REIT and
Eastman Estates has a commitment to be refinanced through a
sale/leaseback transaction with a REIT, pursuant to which the
Company would operate the community under an operating lease
agreement. Meadowlands Terrace is owned and will be operated by
the Company. The Lakeridge Place lease consists of an initial
term of thirteen years eight months with four five-year renewal
options and annual base rent of approximately $563,000. Eastman
Estates is expected to commence operations during the third
quarter of 1997 and Meadowlands Terrace and Lakeridge Place
commenced operations in July 1997, and August 1997, respectively.
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. 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 or other sources.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share. This statement establishes standards
for computing and presenting earnings per share (EPS), replacing
the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital
structures, the statement requires that dual presentation of both
Basic EPS and Diluted EPS on the face of the statement of
operations. Under this new statement, Basic EPS is computed
based on weighted average shares outstanding and excludes any
potential dilution. Diluted EPS reflects potential dilution from
the exercise or conversion of securities into common stock or
from other contracts to issue common stock and is similar to the
currently required fully diluted EPS. SFAS 128 is effective for
financial statements issued for earlier periods ending after
December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be
required to restate its EPS data for all prior periods presented.
The Company does not expect the impact of the adoption of this
statement to be material to previously reported EPS amounts.
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.
14
PART II OTHER INFORMATION
Items 1-3 are not applicable.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May
22, 1997. The following summarizes all matters voted on at the
meeting.
(a) To elect two directors into the Class I of the
Company's Board of Directors for a three year term:
Votes Cast
--------------------------
Nominee For Against Withheld
--------------- ------- ------- --------
Patrick Carter 10,326,344 - 13,215
Motoharu Iue 10,326,244 - 13,315
(b) To ratify the appointment of KPMG Peat Marwick LLP as
the Company's independent public accounts for the fiscal year
1997.
For Against Abstain Non-Votes
---- ------- ------- ---------
10,323,774 5,145 - -
Item 5 is not applicable.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Kirkland Lodge at Lakeside in Kirkland, Washington, Park
Place in Casper, Wyoming, The Hearthstone in Moses Lake,
Washington and Meadowbrook Retirement in Ontario, Oregon.
The following agreement is representative of that executed
in connection with these properties.
10.1.1 Lease Agreement dated May 1, 1997 and May 23, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.2 La Villita in Phoenix, Arizona
10.2.1 Promissory Note dated April 22, 1997 in the amount of
$3,500,000 between U.S. Bank of Washington ("Lender")
and Emeritus Properties VI, Inc. ("Borrower").
10.2.2 First Addendum to Promissory Note between Lender and
Borrower.
10.2.3 Second Addendum to Promissory Note between Lender and
Borrower.
10.2.4 Construction Deed of Trust dated April 22, 1997
between Emeritus Properties VI, Inc. ("Trustor"), U.S.
Bank of Washington ("Lender " and "Beneficiary") and
United States National Bank of Oregon ("Trustee").
10.2.5 Addendum to Construction Deed of Trust between
Trustor, Lender and Trustee.
10.2.6 Guaranty dated April 22, 1997 between Daniel R. Baty
("Guarantor") U.S. Bank of Washington ("Lender") and
Emeritus Properties VI, Inc. ("Borrower").
15
10.3 Autumn Ridge Retirement Home in Herculaneum, Missouri
10.3.1 Management Services Agreement dated June 1, 1997
between the registrant ("Manager") and Columbia House
LLC ("Owner").
10.4 Development Property in Ogden, Utah
10.4.1 Lease Agreement dated April 30, 1997 between Emeritus
Properties I, Inc., ("Lessee") and Meditrust
Acquisition Corporation I ("Lessor").
10.4.2 Leasehold Improvement Agreement dated April 30, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.5 Development Properties in Cheyenne, Wyoming and Auburn,
California. The following agreements are representative of
those executed in connection with these properties.
10.5.1 Management Agreement dated May 30, 1997 between
Willard Holdings, Inc., ("Owner") and the registrant
("Manager").
10.5.2 Lease Agreement dated May 30, 1997 between Willard
Holdings, Inc., ("Lessor") and the registrant
("Lessee").
10.6 Senior Management Employment Agreements entered into
between the registrant and each of the following
individuals:
10.6.1 Michelle A. Bickford
10.6.2 Frank A. Ruffo
10.6.3 Kelly J. Price
10.6.4 Gary D. Witte
10.6.5 Sarah J. Curtis
10.6.6 Raymond R. Brandstrom
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K with the Securities
and Exchange Commission on May 16, 1997, which is incorporated
herein by reference, reported under Item 2, the Company's
acquisition of the La Casa Communities.
16
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: August 14, 1997
EMERITUS CORPORATION
(Registrant)
/s/ Kelly J. Price
-------------------------
Kelly J. Price, Vice President, Finance and
Chief Financial Officer
/s/ James S. Keller
-------------------------
James S. Keller, Controller (Principal Accounting
Officer)
17
EXHIBIT INDEX
Exhibit
Number Description
10.1 Kirkland Lodge at Lakeside in Kirkland, Washington, Park
Place in Casper, Wyoming, The Hearthstone in Moses Lake,
Washington and Meadowbrook Retirement in Ontario, Oregon.
The following agreement is representative of that executed
in connection with these properties.
10.1.1 Lease Agreement dated May 1, 1997 and May 23, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.2 La Villita in Phoenix, Arizona
10.2.1 Promissory Note dated April 22, 1997 in the amount of
$3,500,000 between U.S. Bank of Washington ("Lender")
and Emeritus Properties VI, Inc. ("Borrower").
10.2.2 First Addendum to Promissory Note between Lender and
Borrower.
10.2.3 Second Addendum to Promissory Note between Lender and
Borrower.
10.2.4 Construction Deed of Trust dated April 22, 1997
between Emeritus Properties VI, Inc. ("Trustor"), U.S.
Bank of Washington ("Lender " and "Beneficiary") and
United States National Bank of Oregon ("Trustee").
10.2.5 Addendum to Construction Deed of Trust between
Trustor, Lender and Trustee.
10.2.6 Guaranty dated April 22, 1997 between Daniel R. Baty
("Guarantor") U.S. Bank of Washington ("Lender") and
Emeritus Properties VI, Inc. ("Borrower").
10.3 Autumn Ridge Retirement Home in Herculaneum, Missouri
10.3.1 Management Services Agreement dated June 1, 1997
between the registrant ("Manager") and Columbia House
LLC ("Owner").
10.4 Development Property in Ogden, Utah
10.4.1 Lease Agreement dated April 30, 1997 between Emeritus
Properties I, Inc., ("Lessee") and Meditrust
Acquisition Corporation I ("Lessor").
10.4.2 Leasehold Improvement Agreement dated April 30, 1997
between Emeritus Properties I, Inc., ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor").
10.5 Development Properties in Cheyenne, Wyoming and Auburn,
California. The following agreements are representative of
those executed in connection with these properties.
10.5.1 Management Agreement dated May 30, 1997 between
Willard Holdings, Inc., ("Owner") and the registrant
("Manager").
10.5.2 Lease Agreement dated May 30, 1997 between Willard
Holdings, Inc., ("Lessor") and the registrant
("Lessee").
10.6 Senior Management Employment Agreements entered into
between the registrant and each of the following
individuals:
10.6.1 Michelle A. Bickford
10.6.2 Frank A. Ruffo
10.6.3 Kelly J. Price
10.6.4 Gary D. Witte
10.6.5 Sarah J. Curtis
10.6.6 Raymond R. Brandstrom
27.1 Financial Data Schedule.