FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934.
For the transition period from __________ to __________
Commission File Number
000-32607
CNL Retirement Properties, Inc.
(Exact name of registrant as specified in its charter)
|
Maryland (State or other jurisdiction of incorporation or organization) |
59-3491443 (I.R.S. Employment Identification No.) |
450 South Orange Avenue, Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 650-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 day. Yes X No____.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ____.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
The number of shares of common stock outstanding as of November 10, 2003, was 129,525,649.
CONTENTS
Part I: Financial Information
| Part I | Page |
|
Item 1. Financial Statements: |
|
|
Condensed Consolidated Balance Sheets |
1 |
|
Condensed Consolidated Statements of Earnings |
2 |
|
Condensed Consolidated Statments of Stockholders' Equity |
3 |
|
Condensed Consolidated Statements of Cash Flows |
4 |
|
Notes to Condensed Consolidated Financial Statements |
5-16 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
17-30 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
31 |
|
Item 4. Controls and Procedures |
31 |
| Part II: Other Information | |
|
Item 1. Legal Proceedings |
32 |
|
Item 2. Changes in Securities and Use of Proceeds |
32 |
|
Item 3. Defaults Upon Senior Securities |
32 |
|
Item 4. Submission of Matters to a Vote of Security Holders |
32 |
|
Item 5. Other Information |
32 |
|
Item 6. Exhibits and Reports on Form 8-K |
33-40 |
| Signatures | 41 |
| Exhibits |
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
(in thousands)
| September 30, | December 31, | ||||
| ASSETS | 2003 |
2002 | |||
| Investment properties: | |||||
| Accounted for using the operating method, net | $ 872,128 | $ 247,241 | |||
| Accounted for using the direct financing method | 395,632 | 134,382 | |||
| Cash and cash equivalents | 49,848 | 40,800 | |||
| Restricted cash | 12,314 | 1,685 | |||
| Notes and other receivables | 10,195 | 3,192 | |||
| Investment in unconsolidated subsidiary | 86 | 154 | |||
| Loan costs, less accumulated amortization of $941 and $89 | 4,057 | 1,220 | |||
| Lease intangible costs, less accumulated amortization of $917 and $273 | 21,181 | 6,898 | |||
| Accrued rental income | 6,764 | 1,218 | |||
| Other assets | 7,092 | 4,975 | |||
| $ 1,379,297 | $ 441,765 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Liabilities: | |||||
| Mortgages payable | $ 223,382 | $ 45,327 | |||
| Bonds payable | 90,631 | — | |||
| Line of credit | 20,000 | — | |||
| Due to related parties | 1,325 | 348 | |||
| Accounts payable and accrued expenses | 4,625 | 1,337 | |||
| Security deposits | 7,977 | 4,867 | |||
| Rent paid in advance | — | 91 | |||
| Total liabilities | 347,940 | 51,970 | |||
| Commitments and contingencies (Note 8) | |||||
| Stockholders' equity: | |||||
| Preferred stock, without par value | |||||
| Authorized and unissued 3,000 shares | — | — | |||
| Excess shares, $.01 par value per share | |||||
| Authorized and unissued 103,000 shares | — | — | |||
| Common stock, $.01 par value per share | |||||
| Authorized 450,000 and 100,000 shares, respectively, | |||||
| issued 115,294 and 44,255 shares, respectively, | |||||
| outstanding 115,174 and 44,211 shares, respectively | 1,152 | 442 | |||
| Capital in excess of par value | 1,034,240 | 393,308 | |||
| Accumulated distributions in excess of net earnings | (4,035 | ) | (3,955 | ) | |
| Total stockholders' equity | 1,031,357 | 389,795 | |||
| $ 1,379,297 | $ 441,765 | ||||
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(UNAUDITED)
(in thousands, except
per share data)
| Quarter | Nine Months | ||||||||
| Ended September 30, | Ended September 30, | ||||||||
| 2003 |
2002 |
2003 |
2002 | ||||||
| Revenues: | |||||||||
| Rental income from operating leases | $15,587 | $ 3,814 | $36,973 | $ 8,192 | |||||
| Earned income from direct financing leases | 8,854 | 39 | 19,623 | 39 | |||||
| Interest income from mortgage loan receivable | — | 23 | — | 23 | |||||
| Contingent rent | 18 | 4 | 45 | 4 | |||||
| FF&E reserve income | 611 | 69 | 1,468 | 102 | |||||
| Interest and other income | 516 | 778 | 1,111 | 1,340 | |||||
| 25,586 | 4,727 | 59,220 | 9,700 | ||||||
| Expenses: | |||||||||
| Interest and loan cost amortization | 2,556 | 509 | 5,245 | 928 | |||||
| General operating and administrative | 1,350 | 328 | 3,531 | 878 | |||||
| Property expenses | 7 | 20 | 26 | 20 | |||||
| Asset management fees to related party | 1,121 | 190 | 2,626 | 398 | |||||
| Depreciation and amortization | 4,747 | 1,005 | 10,589 | 2,170 | |||||
| 9,781 | 2,052 | 22,017 | 4,394 | ||||||
| Earnings Before Equity in Earnings of Unconsolidated | |||||||||
| Subsidiary and Minority Interest | 15,805 | 2,675 | 37,203 | 5,306 | |||||
| Equity in Earnings of Unconsolidated Subsidiary | 9 | 8 | 28 | 5 | |||||
| Minority Interest | — | (174 | ) | — | (272 | ) | |||
| Net Earnings | $15,814 | $ 2,509 | $37,231 | $ 5,039 | |||||
| Net Earnings Per Share of Common Stock | |||||||||
| (Basic and Diluted) | $ 0.16 | $ 0.10 | $ 0.50 | $ 0.30 | |||||
| Weighted Average Number of Shares of | |||||||||
| Common Stock Outstanding (Basic and Diluted) | 98,567 | 24,999 | 74,175 | 16,932 | |||||
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2003
and Year Ended December 31, 2002
(UNAUDITED)
(in thousands, except
per share data)
| Common stock |
Capital in | Accumulated distributions |
|||||||||||||||
| Number of shares |
Par Value |
excess of par value |
in excess of net earnings |
Total | |||||||||||||
| Balance at December 31, 2001 | 7,134 | $ | 71 | $ | 61,786 | $ | (947 | ) | $ | 60,910 | |||||||
| Subscriptions received for common | |||||||||||||||||
| stock through public offerings and | |||||||||||||||||
| distribution reinvestment plan | 37,114 | 371 | 370,764 | — | 371,135 | ||||||||||||
| Stock issuance costs | — | — | (38,899 | ) | — | (38,899 | ) | ||||||||||
| Retirement of common stock | (37 | ) | — | (343 | ) | — | (343 | ) | |||||||||
| Net earnings | — | — | — | 11,372 | 11,372 | ||||||||||||
| Distributions declared and paid | |||||||||||||||||
| ($0.7002 per share) | — | — | — | (14,380 | ) | (14,380 | ) | ||||||||||
| Balance at December 31, 2002 | 44,211 | 442 | 393,308 | (3,955 | ) | 389,795 | |||||||||||
| Subscriptions received for common | |||||||||||||||||
| stock through public offerings and | |||||||||||||||||
| distribution reinvestment plan | 71,039 | 710 | 709,683 | — | 710,393 | ||||||||||||
| Stock issuance costs | — | — | (68,050 | ) | — | (68,050 | ) | ||||||||||
| Retirement of common stock | (76 | ) | — | (701 | ) | — | (701 | ) | |||||||||
| Net earnings | — | — | — | 37,231 | 37,231 | ||||||||||||
| Distributions declared and paid | |||||||||||||||||
| ($.5297 per share) | — | — | — | (37,311 | ) | (37,311 | ) | ||||||||||
| Balance at September 30, 2003 | 115,174 | $ | 1,152 | $ | 1,034,240 | $ | (4,035 | ) | $ | 1,031,357 | |||||||
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 2003 |
2002 | |||||||
| Increase (decrease) in cash and cash equivalents: | ||||||||
| Net cash provided by operating activities | $ | 37,091 | $ | 9,181 | ||||
| Investing activities: | ||||||||
| Investment in land, buildings and equipment on | ||||||||
| operating leases | (507,796 | ) | (93,623 | ) | ||||
| Investment in direct financing leases | (221,428 | ) | (109,720 | ) | ||||
| Investment in lease intangibles | (14,928 | ) | (7,170 | ) | ||||
| Investment in mortgage loans receivable | — | (1,870 | ) | |||||
| Collection of note receivable | 2,000 | — | ||||||
| Investment in note receivable | — | (2,384 | ) | |||||
| Investment in unconsolidated subsidiary | — | (372 | ) | |||||
| Distributions received from unconsolidated subsidiary | 89 | 73 | ||||||
| Payment of acquisition fees and costs | (54,909 | ) | (8,124 | ) | ||||
| Increase in restricted cash | (10,629 | ) | (763 | ) | ||||
| Net cash used in investing activities | (807,601 | ) | (223,953 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from borrowings on mortgages payable | 168,900 | 32,620 | ||||||
| Principal payments on mortgages payable | (11,480 | ) | (185 | ) | ||||
| Payment of loan costs | (3,689 | ) | (885 | ) | ||||
| Proceeds from borrowings on line of credit | 71,370 | — | ||||||
| Repayments on line of credit | (51,370 | ) | — | |||||
| Proceeds from life care bonds | 4,521 | — | ||||||
| Repayment of life care bonds | (3,655 | ) | — | |||||
| Contributions received from minority interest | — | 8,500 | ||||||
| Distributions to minority interest | — | (221 | ) | |||||
| Subscriptions received from stockholders | 710,393 | 231,061 | ||||||
| Payment of stock issuance costs | (67,527 | ) | (25,728 | ) | ||||
| Distributions to stockholders | (37,311 | ) | (8,236 | ) | ||||
| Retirement of common stock | (594 | ) | (30 | ) | ||||
| Net cash provided by financing activities | 779,558 | 236,896 | ||||||
| Net increase in cash and cash equivalents | 9,048 | 22,124 | ||||||
| Cash and cash equivalents at beginning of period | 40,800 | 26,721 | ||||||
| Cash and cash equivalents at end of period | $ | 49,848 | $ | 48,845 | ||||
| Supplemental schedule of non-cash | ||||||||
| investing and financing activities: | ||||||||
| Mortgage assumed on property purchased | $ | 20,635 | $ | 12,974 | ||||
| Bonds assumed on property purchased | $ | 88,511 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Nine Months Ended
September 30, 2003 and 2002
| 1. | Summary of Significant Accounting Policies: |
| Organization – CNL Retirement Properties, Inc. is a corporation, which was organized pursuant to the laws of the State of Maryland on December 22, 1997. Various other wholly owned subsidiaries of CNL Retirement Properties, Inc. have been or will be formed in the future for the purpose of acquiring and owning real estate. The term “Company” includes CNL Retirement Properties, Inc. and its subsidiaries. The Company operates for federal income tax purposes as a real estate investment trust (“REIT”). |
| The Company acquires investment properties (the “Property” or “Properties”) related to health care and seniors’ housing facilities primarily located across the United States of America. The Properties may include congregate living, assisted living and skilled nursing facilities, continuing care retirement communities and life care communities, medical office buildings and walk-in clinics and similar types of health care related facilities. The Company may provide mortgage financing (“Mortgage Loans”) in the aggregate principal amount of approximately 5 to 10 percent of the Company’s total assets and may offer furniture, fixture and equipment financing (“Secured Equipment Leases”) to operators of retirement and medical Properties. The Company has retained CNL Retirement Corp. (the “Advisor”) as its advisor to provide management, acquisition, advisory and administrative services. |
| Basis of Presentation –The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Operating results for the nine months ended September 30, 2003, may not be indicative of the results that may be expected for the year ending December 31, 2003. Amounts included in the financial statements as of December 31, 2002, have been derived from audited financial statements as of that date. |
| These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Report on Form 10-K for the year ended December 31, 2002. The accompanying unaudited condensed consolidated financial statements include the accounts of CNL Retirement Properties, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. |
| Lease Intangibles – In connection with the acquisition of a Property that is subject to an operating lease, the Company allocates the cost associated with having an in-place lease at the date of acquisition to a lease intangible asset that is amortized on a straight-line basis over the initial term of the lease (generally 15 years). |
| Bonds Payable – In connection with the acquisition of two continuing care retirement communities (“CCRC’s”), the Company assumed non-interest bearing life care bonds payable to certain residents of the CCRC’s. Generally, the bonds are refundable to a resident upon the resident moving out of the CCRC or to a resident’s estate upon the resident’s death. In some instances, the bonds are not refundable until the unit has been successfully remarketed to a new resident. The Company issues new bonds to new residents and the proceeds received from the issuance of the new bonds are used to retire the existing bonds. As the maturity of these obligations is not determinable, interest is not imputed on these obligations. |
| Asset Impairment –Management reviews its Properties and Mortgage Loans for impairment or potential loss as events or circumstances indicate that the carrying amount of the assets may not be recoverable. Management compares the estimated future undiscounted cash flows, including the residual value of the Property or collateral, with the carrying cost of the individual asset. If impairment is indicated, the assets are adjusted to the estimated fair value. |
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended
Septemb