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 March 31, 2004
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 May 3, 2004, was 218,104,665.
CONTENTS
Part I: Financial Information
| Page | |
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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 |
5-17 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
18-31 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
32 |
|
Item 4. Controls and Procedures |
32 |
| Part II: Other Information | |
|
Item 1. Legal Proceedings |
33 |
|
Item 2. Changes in Securities and Use of Proceeds |
33 |
|
Item 3. Defaults Upon Senior Securities |
33 |
|
Item 4. Submission of Matters to a Vote of Security Holders |
33 |
|
Item 5. Other Information |
33 |
|
Item 6. Exhibits and Reports on Form 8-K |
34-43 |
| Signatures | 44 |
| Exhibits |
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
(in thousands, except
per share data)
| March 31, 2004 |
December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Investment properties: | ||||||||
| Accounted for using the operating method, net | $ | 1,669,033 | $ | 1,083,392 | ||||
| Accounted for using the direct financing method | 420,057 | 418,347 | ||||||
| Lease intangible costs, net | 47,228 | 30,205 | ||||||
| Cash and cash equivalents | 275,908 | 167,090 | ||||||
| Restricted cash | 72,738 | 14,812 | ||||||
| Accounts and other receivables, net | 15,809 | 12,223 | ||||||
| Loan costs, less accumulated amortization of $2,440 and $1,429 | 12,995 | 7,386 | ||||||
| Accrued rental income | 22,585 | 14,644 | ||||||
| Other assets | 32,791 | 13,793 | ||||||
| Investment in unconsolidated subsidiary | 20 | 7 | ||||||
| $ | 2,569,164 | $ | 1,761,899 | |||||
| Liabilities and stockholders' equity | ||||||||
| Liabilities: | ||||||||
| Mortgages payable | $ | 648,501 | $ | 275,056 | ||||
| Bonds payable | 90,783 | 90,125 | ||||||
| Line of credit | 20,000 | 20,000 | ||||||
| Construction loans payable | 26,468 | 7,402 | ||||||
| Due to related parties | 5,166 | 3,258 | ||||||
| Accounts payable and accrued expenses | 6,576 | 11,657 | ||||||
| Deferred income | 1,164 | 476 | ||||||
| Security deposits | 22,742 | 7,984 | ||||||
| Total liabilities | 821,400 | 415,958 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| 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 shares, | ||||||||
| issued 194,781 and 150,253 shares, respectively, | ||||||||
| outstanding 194,561 and 150,077 shares, respectively | 1,946 | 1,501 | ||||||
| Capital in excess of par value | 1,752,137 | 1,349,719 | ||||||
| Accumulated distributions in excess of net earnings | (6,319 | ) | (5,279 | ) | ||||
| Total stockholders' equity | 1,747,764 | 1,345,941 | ||||||
| $ | 2,569,164 | $ | 1,761,899 | |||||
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 Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Revenues: | ||||||||
| Rental income from operating leases | $ | 36,692 | $ | 7,095 | ||||
| Earned income from direct financing leases | 12,642 | 4,660 | ||||||
| Contingent rent | 49 | 9 | ||||||
| FF&E reserve | 1,447 | 327 | ||||||
| Interest and other | 602 | 413 | ||||||
| 51,432 | 12,504 | |||||||
| Expenses: | ||||||||
| Interest and loan amortization | 7,969 | 755 | ||||||
| General and administrative | 2,280 | 648 | ||||||
| Property operating | 321 | 12 | ||||||
| Asset management fees to related party | 2,264 | 554 | ||||||
| Provision for doubtful accounts | 1,250 | — | ||||||
| Depreciation and amortization | 9,562 | 2,044 | ||||||
| 23,646 | 4,013 | |||||||
| Earnings before equity in earnings of unconsolidated | ||||||||
| subsidiary | 27,786 | 8,491 | ||||||
| Equity in earnings of unconsolidated subsidiary | 15 | 12 | ||||||
| Net earnings | $ | 27,801 | $ | 8,503 | ||||
| Net earnings per share of common stock (basic and diluted) | $ | 0.16 | $ | 0.16 | ||||
| Weighted average number of shares of common stock outstanding | ||||||||
| (basic and diluted) | 169,112 | 51,672 | ||||||
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Quarter Ended March 31,
2004 and Year Ended December 31, 2003
(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, 2002 | 44,211 | $ | 442 | $ | 393,308 | $ | (3,955 | ) | $ | 389,795 | |||||||
| Subscriptions received for common | |||||||||||||||||
| stock through public offering and | |||||||||||||||||
| distribution reinvestment plan | 105,998 | 1,060 | 1,058,921 | — | 1,059,981 | ||||||||||||
| Stock issuance costs | — | — | (101,299 | ) | — | (101,299 | ) | ||||||||||
| Retirement of common stock | (132 | ) | (1 | ) | (1,211 | ) | — | (1,212 | ) | ||||||||
| Net earnings | — | — | — | 58,460 | 58,460 | ||||||||||||
| Distributions declared and paid | |||||||||||||||||
| ($0.7067 per share) | — | — | — | (59,784 | ) | (59,784 | ) | ||||||||||
| Balance at December 31, 2003 | 150,077 | 1,501 | 1,349,719 | (5,279 | ) | 1,345,941 | |||||||||||
| Subscriptions received for common | |||||||||||||||||
| stock through public offering and | |||||||||||||||||
| distribution reinvestment plan | 44,528 | 445 | 444,833 | — | 445,278 | ||||||||||||
| Stock issuance costs | — | — | (42,009 | ) | — | (42,009 | ) | ||||||||||
| Retirement of common stock | (44 | ) | — | (406 | ) | — | (406 | ) | |||||||||
| Net earnings | — | — | — | 27,801 | 27,801 | ||||||||||||
| Distributions declared and paid | |||||||||||||||||
| ($0.1776 per share) | — | — | — | (28,841 | ) | (28,841 | ) | ||||||||||
| Balance at March 31, 2004 | 194,561 | $ | 1,946 | $ | 1,752,137 | $ | (6,319 | ) | $ | 1,747,764 | |||||||
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| Quarter Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Increase (decrease) in cash and cash equivalents: | ||||||||
| Net cash provided by operating activities | $ | 23,329 | $ | 7,351 | ||||
| Investing activities: | ||||||||
| Investment in land, buildings and equipment | (291,051 | ) | (221,608 | ) | ||||
| Investment in direct financing leases | — | (19,889 | ) | |||||
| Investment in lease intangibles | (17,781 | ) | (8,324 | ) | ||||
| Payment of acquisition costs | (45,645 | ) | (12,382 | ) | ||||
| Proceeds from note receivable | — | 2,000 | ||||||
| (Increase) decrease in restricted cash | (43,174 | ) | 824 | |||||
| Net cash used in investing activities | (397,651 | ) | (259,379 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from borrowings on mortgages payable | 125,044 | 26,000 | ||||||
| Principal payments on mortgage loans | (26,158 | ) | (102 | ) | ||||
| Proceeds from construction financing | 19,066 | — | ||||||
| Proceeds from borrowings on line of credit | — | 71,370 | ||||||
| Proceeds from issuance of life care bonds | 2,159 | — | ||||||
| Retirement of life care bonds | (1,501 | ) | — | |||||
| Payment of loan costs | (9,395 | ) | (2,460 | ) | ||||
| Subscriptions received from stockholders | 445,278 | 163,675 | ||||||
| Payment of stock issuance costs | (42,001 | ) | (14,374 | ) | ||||
| Distributions to stockholders | (28,841 | ) | (8,689 | ) | ||||
| Retirement of common stock | (511 | ) | (192 | ) | ||||
| Net cash provided by financing activities | 483,140 | 235,228 | ||||||
| Net increase (decrease) in cash and cash equivalents | 108,818 | (16,800 | ) | |||||
| Cash and cash equivalents at beginning of period | 167,090 | 40,800 | ||||||
| Cash and cash equivalents at end of period | $ | 275,908 | $ | 24,000 | ||||
| Supplemental schedule of non-cash financing activities: | ||||||||
| Mortgages assumed on properties purchased | $ | 274,559 | $ | 20,635 | ||||
| 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
Quarters Ended March
31, 2004 and 2003
(UNAUDITED)
1. Significant Accounting Policies:
| Organization and Nature of Business – CNL Retirement Properties, Inc., a Maryland corporation, was organized in December 1997 to operate as a real estate investment trust (a “REIT”) for federal income tax purposes. Various other wholly owned subsidiaries of CNL Retirement Properties, Inc. have or will be formed for the purpose of acquiring and owning real estate properties. The term “Company” includes CNL Retirement Properties, Inc. and its subsidiaries. The Company has retained CNL Retirement Corp. (the “Advisor”) as its advisor to provide management, acquisition, advisory and administrative services. |
| The Company acquires real estate properties related to seniors’ housing and health care facilities (the “Properties”) located primarily across the United States. The Properties may include independent living, assisted living and skilled nursing facilities, continuing care retirement communities (“CCRC”), life care communities, specialty clinics, medical office buildings, walk-in clinics and similar types of health care-related facilities. The Properties are generally leased on a long-term, triple-net basis. The Company may also lease medical office space on a shorter-term, gross basis. The Company may provide mortgage financing loans (“Mortgage Loans”) and furniture, fixture and equipment financing (“Secured Equipment Leases”) to operators of seniors’ housing facilities. |
| 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 quarter ended March 31, 2004, may not be indicative of the results that may be expected for the year ending December 31, 2004. Amounts included in the financial statements as of December 31, 2003, have been derived from the audited financial statements. |
| These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Report on Form 10-K of CNL Retirement Properties, Inc. and its subsidiaries for the year ended December 31, 2003. 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. |
| Accounts and Other Receivables– Accounts and other receivables consist primarily of lease payments due from tenants. On a monthly basis, the Company reviews the contractual payments versus the actual cash received. When management identifies delinquencies, an estimate is made as to the amount of provision for loss related to doubtful accounts, if any, that may be needed. At March 31, 2004, the Company had recorded a $1.3 million reserve for doubtful accounts and other receivables. At December 31, 2003, there was no reserve for loss related to accounts and other receivables. |
| Reclassifications– Certain items in the prior periods financial statements have been reclassified to conform with the 2004 presentation. These reclassifications had no effect on reported equity or net earnings. |
2. Public Offerings:
| During the quarter ended March 31, 2004, the Company received subscription proceeds of $445.3 million from its open public offering, bringing total proceeds received from all of the Company’s offerings to $1.9 billion. |
CNL RETIREMENT
PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March
31, 2004 and 2003
(UNAUDITED)
2. Public Offerings – Continued:
| The Company has incurred offering expenses, including selling commissions, marketing support fees, due diligence expense reimbursements, filing fees, legal, accounting, printing and escrow fees, which have been deducted from the gross proceeds of the offerings. Offering expenses together with selling commissions, marketing support fees and due diligence expense reimbursements will not exceed 13% of the proceeds raised in connection with the Company’s public offerings. During the quarters ended March 31, 2004 and 2003, the Company incurred $42.0 million and $15.7 million, respectively, in offering costs, including $35.6 million and $13.1 million, respectively, in selling commissions, marketing support fees and due diligence expense reimbursements. These amounts have been treated as stock issuance costs and charged to stockholders’ equity. The price per share of all the offerings is the same. |
| On July 30, 2003, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission for the sale by the Company of up to 400 million shares of common stock (approximately $4.0 billion) (the “2004 Offering”). The 2004 Offering was declared effective by the Securities and Exchange Commission on March 26, 2004. The current open offering is expected to close and the 2004 Offering is expected to commence in the second quarter of 2004. The board of directors has approved a resolution to amend the Company's Articles of Incorporation to increase the number of authorized shares of common stock from 450 million to one billion. The board of directors has submitted this matter to the stockholders for approval at the 2004 annual meeting. Until such time, if any, that the stockholders approve an increase in the number of authorized shares of common stock, the 2004 Offering will be limited to 213 million shares. |
3. Investment Properties:
| Accounted for Using the Operating Method – Properties subject to operating leases consisted of the following (dollars in thousands): |
| March 31, 2004 |
December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Land | $ | 186,041 | $ | 141,635 | ||||
| Buildings | 1,404,479 | |||||||