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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 333-47411
CNL HEALTH CARE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 59-3491443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
None
(Title of class)
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 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: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
Aggregate market value of the common stock held by nonaffiliates of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares") on Form S-11 under the Securities Act of 1933, as amended. Since no
established market for such Shares exists, there is no market value for such
Shares. Each Share was originally sold at $10 per Share. Based on the $10
offering price of the shares, $5,632,349 of our common stock was held by
non-affiliates as of February 7, 2000.
The number of shares of common stock outstanding as of February 7, 2000 was
583,235.
PART I
Item 1. Business
CNL Health Care Properties, Inc. is a corporation which was organized
pursuant to the laws of the state of Maryland on December 22, 1997. In order for
CNL Health Care Properties, Inc. to operate as an umbrella partnership real
estate investment trust (UPREIT), certain subsidiaries were formed in 1999. CNL
Health Care GP Corp. and CNL Health Care LP Corp. are wholly owned subsidiaries
of CNL Health Care Properties, Inc., each of which were organized pursuant to
the laws of the state of Delaware in December 1999. CNL Health Care Partners, LP
is a Delaware limited partnership (the "Partnership") formed in December 1999.
CNL Health Care GP Corp. and CNL Health Care LP Corp. are the general and
limited partners, respectively, of CNL Health Care Partners, LP. Properties
acquired are generally expected to be held by the Partnership and, as a result,
owned by CNL Health Care Properties, Inc. through the Partnership. The terms
"Company" or "Registrant" include CNL Health Care Properties, Inc. and its
subsidiaries, CNL Health Care GP Corp., CNL Health Care LP Corp. and CNL Health
Care Partners, LP. The Company operates for federal income tax purposes as a
real estate investment trust (a "REIT").
Beginning in September 1998, the Company offered for sale up to
$155,000,000 of shares of common stock (the "Shares") (15,500,000 shares at $10
per share) (the "Offering") pursuant to a registration statement on Form S-11
under the Securities Act of 1933, as amended, effective September 18, 1998. As
of December 31, 1999, the Company had received subscription proceeds of
$5,435,283 (543,528 shares) from the Offering, including $12,540 (1,254 shares)
through the distribution reinvestment plan (the "Reinvestment Plan") provided
under the Company's registration statement and $235,000 (23,500 shares) from
Pennsylvania investors which will be held in escrow until the Company receives
aggregate subscriptions of at least $7,775,000. In accordance with the Company's
prospectus, the Company has elected to extend the Offering until a date no later
than September 18, 2000.
The Company has been formed primarily to acquire real estate properties
(the "Properties") related to health care and seniors' housing facilities (the
"Health Care Facilities") located across the United States. The Health Care
Facilities may include congregate living, assisted living and skilled nursing
facilities, continuing care retirement communities and life care communities,
and medical office buildings and walk-in clinics. The Properties will be leased
on a long-term, "triple-net" basis to operators of Health Care Facilities. Under
the Company's triple-net leases, the lessee will be responsible for repairs,
maintenance, property taxes, utilities, and insurance. The Company also may
offer mortgage financing (the "Mortgage Loans") to operators of Health Care
Facilities secured by real estate owned by the borrower. However, because it
prefers to focus on investing in Properties, which have the potential to
appreciate, the Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company expects that the interest rate and terms of the Mortgage
Loans will be similar to those of its leases. To a lesser extent, the Company
also may offer furniture, fixtures and equipment ("Equipment") financing to
operators of Health Care Facilities through loans or direct financing leases
(collectively, the "Secured Equipment Leases"). The aggregate outstanding
principal amount of Secured Equipment Leases is not expected to exceed 10% of
the Company's total assets. As of February 7, 2000, the Company had not yet
acquired any Properties, made any Mortgage Loans or entered into any Secured
Equipment Leases, nor had any Properties, Mortgage Loans or Secured Equipment
Leases been identified for investment.
The Company's primary investment objectives are to preserve, protect, and
enhance the Company's assets while (i) making distributions commencing in the
initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) listing of the shares on a national securities
exchange or over-the-counter market (the "Listing"), or (b) the commencement of
orderly sales of the Company's assets and distribution of the proceeds thereof
(outside the ordinary course of business and consistent with its objectives of
qualifying as a REIT). There can be no assurance that these investment
objectives will be met. In addition, if the Shares are not listed by December
31, 2008, as to which there can be no assurance, the Company will commence the
orderly sale of its assets and the distribution of the proceeds. Listing does
not assure liquidity.
For the first five to ten years after the commencement of the offering, the
Company intends, to the extent consistent with the Company's objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the sale of a Property or Mortgage Loan that are not required to be
distributed to stockholders in order to preserve the Company's REIT status for
federal income tax purposes. Similarly, and to the extent consistent with REIT
qualification, the Company plans to use the proceeds of the sale of a Secured
Equipment Lease to fund additional Secured Equipment Leases, or to reduce its
outstanding indebtedness on the borrowings. At or prior to the end of such
ten-year period, the Company intends to provide stockholders of the Company with
liquidity of their investment, either in whole or in part, through Listing of
the Shares of the Company (although liquidity cannot be assured thereby) or by
commencing orderly sales of the Company's assets. If Listing occurs, the Company
intends to reinvest in additional Properties, Mortgage Loans and Secured
Equipment Leases any net sales proceeds not required to be distributed to
stockholders in order to preserve the Company's status as a REIT. The Company's
Articles of Incorporation provide, however, that if Listing does not occur by
December 31, 2008, the Company thereafter will undertake the orderly liquidation
of the Company and the sale of the Company's assets and will distribute any net
sales proceeds to stockholders. In addition, the Company will not sell any
assets if such sale would not be consistent with the Company's objective of
qualifying as a REIT.
In deciding the precise timing and terms of Property sales, CNL Health Care
Corp., formerly known as CNL Health Care Advisors, Inc., which acts as the
advisor to the Company, will consider factors such as national and local market
conditions, potential capital appreciation, cash flows, and federal income tax
considerations. The terms of certain leases, however, may require the Company to
sell a Property at an earlier time if the tenant exercises its option to
purchase a Property after a specified portion of the lease term has elapsed. The
Company will have no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain tenants. In connection with sales of
Properties by the Company, purchase money obligations may be taken by the
Company as part payment of the sales price. The terms of payment will be
affected by custom in the area in which the Property is located and prevailing
economic conditions. When a purchase money obligation is accepted in lieu of
cash upon the sale of a Property, the Company will continue to have a mortgage
on the Property and the proceeds of the sale will be realized over a period of
years rather than at closing of the sale.
The Company does not anticipate selling the Secured Equipment Leases prior
to expiration of the lease term, except in the event that the Company undertakes
orderly liquidation of its assets. In addition, the Company does not anticipate
selling any Mortgage Loans prior to the expiration of the loan term, except in
the event (i) the Company owns the Property (land only) underlying the building
improvements which secure the Mortgage Loan and the sale of the Property occurs,
or (ii) the Company undertakes an orderly sale of its assets.
Leases
As of December 31, 1999, the Company had not entered into any commitment
for an acquisition of a Property. However, leases entered into in the future are
expected to be triple-net leases, which means that the tenants generally will be
required to pay all repairs, maintenance, property taxes, utilities, and
insurance. The tenants also will be required to pay for special assessments,
sales and use taxes, and the cost of any renovations permitted under the leases.
The Company will purchase Properties either directly or indirectly through a
joint venture, partnership, or a subsidiary.
The initial terms of the leases are presently anticipated to be 10 to 20
years with up to four, five-year renewal options. The minimum rental payment
under the renewal option generally is expected to be greater than that due for
the final lease year of the initial term of the lease. During the initial term
of each lease, the tenant will pay the Company, as lessor, minimum annual rent
equal to a specified percentage of the Company's cost of purchasing the Property
payable in monthly installments. Typically, the leases will provide for
automatic fixed increases in the minimum annual rent or increases in the base
rent based on increases in consumer price indices at predetermined intervals
during the terms of the leases. If the Company is acquiring a Property that is
to be constructed or renovated pursuant to a development agreement, the cost of
purchasing the Property will include the purchase price of the land, including
all fees, costs, and expenses paid by the Company in connection with its
purchase of the land, and all fees, costs and expenses disbursed by the Company
for construction of building improvements.
It is anticipated that if the Company wishes at any time to sell a Property
pursuant to a bona fide offer from a third party, the tenant of that Property
will have the right to purchase the Property for the same price, and on the same
terms and conditions, as contained in the offer. In certain cases, the tenant
also may have the right to purchase the Property seven to twenty years after
commencement of the lease at a purchase price equal to the greater of (i) the
appraised value of the Property, or (ii) a specified amount, generally equal to
the Company's purchase price of the Property, plus a pre-determined percentage
of the Company's purchase price.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, CNL Health Care Corp. (the "Advisor") provides management services
relating to the Company, the Properties, the Mortgage Loans and the Secured
Equipment Lease program. Under this agreement, the Advisor is responsible for
assisting the Company in negotiating leases, Mortgage Loans, the line of credit
(the "Line of Credit") and Secured Equipment Leases, collecting rental, Mortgage
Loan and Secured Equipment Lease payments, inspecting the Properties and the
tenants' books and records, and responding to tenants inquiries and notices. The
Advisor also will provide information to the Company about the status of the
leases, the Properties, the Mortgage Loans, the Secured Equipment Leases, the
Line of Credit and the permanent financing. In exchange for these services, the
Advisor is entitled to receive certain fees from the Company. For supervision of
the Properties and the Mortgage Loans, the Advisor will receive an asset
management fee, which is payable monthly in an amount equal to one-twelfth of
.60% of the total amount invested in the Properties, exclusive of acquisition
fees and acquisition expenses (the "Real Estate Asset Value") plus one-twelfth
of .60% of the outstanding principal amount of any Mortgage Loans, as of the end
of the preceding month. For negotiating Secured Equipment Leases and supervising
the Secured Equipment Lease program, the Advisor will receive, upon entering
into each lease, a secured equipment lease servicing fee, payable out of the
proceeds of the borrowings, equal to 2% of the purchase price of the equipment
subject to each Secured Equipment Lease (the "Secured Equipment Lease Servicing
Fee"). For identifying the Properties, structuring the terms of the acquisition
and leases of the Properties and structuring the terms of the Mortgage Loans,
the Advisor will receives a fee equal to 4.5% of gross proceeds from the
offering, loan proceeds from permanent financing (the "Permanent Financing") and
amounts outstanding on the Line of Credit, if any, at the time of Listing, but
excluding that portion of the Permanent Financing used to finance Secured
Equipment Leases.
The Advisory Agreement continues until September 15, 2000, and thereafter
may be extended annually upon mutual consent of the Advisor and the Board of
Directors of the Company unless terminated at an earlier date upon 60 days prior
written notice by each party.
Borrowing
The Company plans to obtain a revolving Line of Credit initially in an
amount up to $45,000,000, and may, in addition, also obtain Permanent Financing
to acquire assets and to pay certain fees. The Line of Credit may be increased
at the discretion of the Board of Directors. The Line of Credit may be repaid
with offering proceeds, working capital or Permanent Financing. The Board of
Directors anticipates that the Permanent Financing will not exceed 30% of the
Company's total assets. However, in accordance with the Company's Articles of
Incorporation, the aggregate maximum amount the Company may borrow is 300% of
the Company's net assets (as defined in the Company's prospectus). The Company
has engaged in discussions with a potential lender, but has not yet received a
commitment for the Line of Credit or any Permanent Financing and there is no
assurance that the Company will obtain the Line of Credit or any Permanent
Financing on satisfactory terms. The Board of Directors may elect to encumber
assets in connection with any borrowing.
Competition
The Company anticipates that it will compete with other REITs, real estate
partnerships, health care providers and other investors, including, but not
limited to banks and insurance companies, many of which will have greater
financial resources than the Company, in the acquisition, leasing and financing
of Health Care Facilities. Further, non-profit entities are particularly suited
to make investments in senior care facilities because of their ability to
finance acquisitions through the issuance of tax-exempt bonds, providing
non-profit entities with a relatively lower cost of capital as compared to
for-profit purchasers. In addition, in certain states, health care facilities
owned by non-profit entities are exempt from taxes on real property. As
profitability increases for investors in health care properties, competition
among investors likely will become increasingly intense.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.
Item 2. Properties
Although the Advisor has not yet selected any Properties for investment, it
is expected that any Properties purchased by the Company will conform generally
to the following specifications of size, cost, and type of land and buildings.
The Company anticipates acquiring Properties related to Health Care Facilities
which may include, but will not be limited to, the following types:
Congregate Living Facilities. Congregate living facilities are primarily
apartment buildings which contain a significant amount of common space to
accommodate dining, recreation, activities and other support services for senior
citizens. These properties range in size from 100 to 500 units with an average
size of approximately 225 units. Units include studios and one and two bedrooms
ranging in size from 450 square feet to over 1,500 square feet.
Assisted Living Facilities. Assisted living facilities provide a special
combination of housing, supportive services, personalized assistance and health
care to their residents in a manner which is designed to respond to individual
needs. These facilities offer a lower-cost alternative to skilled nursing
facilities for those who do not require intensive nursing care. Current industry
practice generally is to build freestanding assisted living facilities with an
average of between 40 and 100 units, depending on such factors as market forces,
site constraints and program orientation. Current economics place the size of
the private living space of a unit in the range of 300 gross square feet for an
efficiency unit to 750 square feet for a large one bedroom unit.
Skilled Nursing Facilities. In addition to housing, meals, transportation
and housekeeping, skilled nursing facilities provide comprehensive nursing and
long term care to their residents. Skilled nursing facilities are also generally
freestanding, but are typically more institutional in nature, allowing for
efficient cleaning and sterilization. The rooms in skilled nursing facilities
are equipped with patient monitoring devices and emergency call systems. Oxygen
systems may also be present. Both multiple floor and single floor designs are
common. Individual rooms in skilled nursing facilities may be as small as 100
square feet, with common areas varying greatly in size.
Continuing Care Retirement Communities. Congregate living facilities
sometimes have assisted living and/or skilled nursing facilities attached or
adjacent to their locations. When this occurs, the projects are often referred
to as continuing care retirement communities or life care communities. The
intent of continuing care retirement communities or life care communities is to
provide a continuum of care to the residents. In other words, as residents age
and their health care needs increase, they can receive the care they need
without having to move away from the "community" which has become their home.
Continuing care retirement communities typically operate on a fee-for-service
basis and the units are rented on a monthly basis to residents, while life care
centers generally charge an entrance fee that is partially refundable and covers
the cost of all of the residents' health care- related services, plus a monthly
maintenance fee.
Medical Office Buildings. Medical office buildings, including walk-in
clinics, are conventional office buildings with additional plumbing, mechanical
and electrical service amenities, which facilitate physicians and medical
delivery companies in the practice of medicine and delivery of health care
services. These facilities can range in size from 3,000 square feet (walk-in
clinic) up to 100,000 square feet (medical office building).
Either before or after construction or renovation, the Properties to be
acquired by the Company will be one of a Health Care Facility operator's
approved designs. Generally, Properties to be acquired by the Company will
consist of both land and building, although in a number of cases the Company may
acquire only the land underlying the building with the building owned by the
tenant or a third party, and also may acquire the building only with the land
owned by a third party. In general, the Properties will be freestanding and
surrounded by paved parking areas and landscaping. Although, buildings may be
suitable for conversion to various uses through modifications, some Properties
may not be economically convertible to other uses.
A tenant generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish buildings,
premises, signs, and equipment and maintain the leasehold in a manner that
allows operation for its intended purpose. These capital expenditures generally
will be paid by the tenant during the term of the lease.
Item 3. Legal Proceedings
Neither the Company, nor any of its subsidiaries, nor any of their
respective properties, is a party to, or subject to, any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of February 7, 2000, there were 258 stockholders of record of common
stock. There is no currently public established trading market for the Shares,
and even though the Company intends to list the Shares on a national securities
exchange or over-the-counter market within ten years of commencement of the
offering of Shares, there is no assurance that one will develop and it is not
known at this time if a public market for the Shares will develop. Prior to such
time, if any, as Listing occurs, any stockholder (other than the Advisor) may
present all or any portion equal to at least 25% of such stockholders' Shares to
the Company for redemption at any time, in accordance with the procedures
outlined in the Company's prospectus. At such time, the Company may, at its sole
option, redeem such Shares presented for redemption for cash to the extent it
has sufficient funds available. In addition, the Company may, at its discretion,
use up to $100,000 per calendar quarter of the proceeds of any public offering
of its common stock for redemptions. There is no assurance that there will be
sufficient funds available for redemption and, accordingly, a stockholders'
Shares may not be redeemed. Any Shares acquired pursuant to a redemption will be
retired and no longer available for issuance by the Company. The Board of
Directors of the Company, in its discretion, may amend or suspend the redemption
plan at any time they determine that such amendment or suspension is in the best
interest of the Company. Stockholders who wish to have their distributions used
to acquire additional Shares (to the extent Shares are available for purchase),
may do so pursuant to the Company's Reinvestment Plan.
As of December 31, 1999, the offering price per Share was $10.
The Company expects to make distributions to the stockholders pursuant
to the provisions of the Articles of Incorporation. For the year ended December
31, 1999, the Company declared cash distributions of $50,404 to stockholders.
For federal income tax purposes, 100 percent of distributions paid in 1999 were
considered to be ordinary income. No amounts distributed to stockholders for the
year ended December 31, 1999, were required to be or have been treated by the
Company as a return of capital for purposes of calculating the stockholders'
return on their invested capital. As indicated in the chart below, these
distributions were declared for each month following the first admission of
stockholders to the Company.
Distributions
Record Date (1) 1999 Distribution per Share
---------------- ----------------- ----------------
August 1 $ 7,422 $0.025
September 1 9,038 0.025
October 1 10,373 0.025
November 1 11,289 0.025
December 1 12,282 0.025
-------- ------
Total $50,404 $0.125
======= ======
(1) For the period December 22, 1997 (date of inception) through July 13,
1999, the Company did not make any cash distributions because
operations had not commenced.
On January 1, 2000 and February 1, 2000, the Company declared
distributions to stockholders totalling $13,501 and $14,530, respectively,
($0.025 per Share) payable in March 2000, to stockholders of record on January
1, 2000 and February 1, 2000, respectively.
The Company intends to continue to declare distributions of cash to
stockholders on a monthly basis during the offering period, and quarterly
thereafter.
(b) The information required by this item is set forth in Item 7. Management
Discussion and Analysis of Financial Condition and Results of Operations and is
hereby incorporated by reference. Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8 hereof.
1999 (1) 1998 (2) 1997 (2) (3)
----------- --------- --------------
Year Ended December 31:
Revenues $86,231 $ -- $ --
General operating and administrative expenses 79,621 -- --
Organizational costs 35,000 -- --
Net loss (28,390) -- --
Cash distributions declared 50,404 -- --
Cash from operations 12,851 -- --
Funds from operations (4) (28,390) -- --
Loss per share (.07) -- --
Cash distributions declared per share .125 -- --
Weighted average number of shares outstanding (5) 412,713 -- --
At December 31:
Total assets $5,088,560 $976,579 $280,330
Total stockholders' equity (6) 3,292,137 200,000 200,000
(1) No operations commenced until the Company received minimum offering
proceeds of $2,500,000 and funds were released from escrow on July 14, 1999.
(2) No significant operations had commenced because the Company was in its
development stage.
(3) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
(4) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of NAREIT and as used herein, means net earnings
determined in accordance with generally accepted accounting principles ("GAAP"),
excluding gains or losses from debt restructuring and sales of property, plus
depreciation and amortization of real estate assets and after adjustments for
unconsolidated partnerships and joint ventures. FFO was developed by NAREIT as a
relative measure of performance and liquidity of an equity REIT in order to
recognize that income-producing real estate historically has not depreciated on
the basis determined under GAAP. However, FFO (i) does not represent cash
generated from operating activities determined in accordance with GAAP (which,
unlike FFO, generally reflects all cash effects of transactions and other events
that enter into the determination of net earnings), (ii) is not necessarily
indicative of cash flow available to fund cash needs and (iii) should not be
considered as an alternative to net earnings determined in accordance with GAAP
as an indication of the Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a measure of either
liquidity or the Company's ability to make distributions. Accordingly, the
Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO should be
considered in conjunction with the Company's net earnings and cash flows as
reported in the accompanying financial statements and notes thereto.
(5) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
(6) Includes subscriptions of $5,435,283 received, net of stock issuance
costs of $2,029,352, and excludes subscriptions from Pennsylvania investors.
Stock issuance costs consist of selling commissions, marketing support and due
diligence expense reimbursement fees and organizational and offering expenses.
The ratio of stock issuance costs to subscriptions received was 1:3 during 1999.
The Company's Advisor has agreed to pay all organizational and offering expenses
which exceed 3% of the gross offering proceeds received from the sale of Shares
of the Company.
(7) For the year ended December 31, 1999, operating expenses incurred by
the Company as a percentage of net income, each term as defined in the Company's
prospectus was 280.5 percent. In accordance with the Company's Prospectus, to
the extent that operating expenses payable or reimbursable by the Company, in
any four consecutive fiscal quarters (the "Expense Year") exceed the greater of
2% of average invested assets or 25% of net income (the "2%/25% Guidelines"),
the Advisor shall reimburse the Company within 60 days after the end of the
Expense Year the amount by which the total operating expenses paid or incurred
by the Company exceed the 2%/25% Guidelines. As of December 31, 1999, net
offering proceeds had been invested in short term, highly liquid investment
pending investment in Properties and Mortgage Loans. Therefore, operating
expenses as a percentage of average invested assets, as defined in the Company's
Prospectus, is not applicable. Due to the fact that the Company commenced
operations in July 1999, the Advisor will be required to reimburse the Company
any amounts in excess of the Expense Cap commencing with the Expense Year ending
June 30, 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in real estate conditions, availability of proceeds from the Company's
offering, the ability of the Company to obtain a line of credit or permanent
financing on satisfactory terms, the ability of the Company to locate suitable
tenants for its properties and borrowers for its mortgage loans and secured
equipment leases, and the ability of tenants and borrowers to make payments
under their respective leases, mortgage loans or secured equipment leases. Given
these uncertainties, readers are cautioned not to place undue reliance on such
statements.
Introduction
CNL Health Care Properties, Inc. is a Maryland corporation that was
organized on December 22, 1997. CNL Health Care GP Corp. and CNL Health Care LP
Corp. are wholly owned subsidiaries of CNL Health Care Properties, Inc.,
organized in Delaware in December 1999. CNL Health Care Partners, LP is a
Delaware limited partnership formed in December 1999. CNL Health Care GP Corp.
and CNL Health Care LP Corp. are the general and limited partner, respectively,
of CNL Health Care Partners, LP. Assets acquired are expected to be held by CNL
Health Care Partners, LP and, as a result, owned by CNL Health Care Properties,
Inc. through the partnership. The term "Company" includes CNL Health Care
Properties, Inc. and its subsidiaries, CNL Health Care GP Corp., CNL Health Care
LP Corp. and CNL Health Care Partners, LP.
The Company was formed to acquire Properties related to health care and
seniors' housing facilities located across the United States. The Health Care
Facilities may include congregate living, assisted living and skilled nursing
facilities, continuing care retirement communities and life care communities,
and medical office buildings and walk-in clinics. The Properties will be leased
on a long-term, "triple-net" basis. The Company may also provide Mortgage Loans
to operators of Health Care Facilities in the aggregate principle amount of
approximately 5% to 10% of the Company's total assets. The Company also may
offer Secured Equipment Leases to operators of Health Care Facilities. The
aggregate principal amount of Secured Equipment Leases is not expected to exceed
10% of the Company's total assets.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) Listing of the Shares or (b) the commencement
of the orderly sale of the Company's assets, and distribution of the proceeds
thereof (outside the ordinary course of business and consistent with its
objective of qualifying as a REIT).
Liquidity and Capital Resources
During the period December 22, 1997 (date of inception) through
December 31, 1998, a capital contribution of $200,000 from the Advisor was the
Company's sole source of capital. Until the Company sold the minimum number of
250,000 Shares ($2,500,000), subscription funds were deposited with the escrow
agent for the offering of Shares.
Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, effective September 18, 1998, the Company registered for sale an
aggregate of $155,000,000 of shares of common stock (the "Shares") (15,500,000
Shares at $10 per Share), 500,000 of such Shares available only to stockholders
who elect to participate in the Company's Reinvestment Plan. In accordance with
the Company's prospectus, the Company has elected to extend the offering of
shares until a date no later than September 18, 2000. The Board of Directors may
determine to engage in future offerings of common stock, up to the number of
unissued authorized shares of common stock.
On July 14, 1999, the Company had received aggregate subscription
proceeds of $2,751,052 (275,105 Shares), which exceeded the minimum offering
amount of $2,500,000, and $2,526,052 of the funds were released from escrow. The
remaining subscription proceeds of $225,000 (representing funds received from
Pennsylvania investors) will be held in escrow until the Company receives
aggregate subscriptions of at least $7,775,000.
As of December 31, 1999, the Company had received aggregate
subscription proceeds of $5,435,283 (543,528 Shares), including $12,540 (1,254
Shares) through its distribution reinvestment plan and $235,000 from
Pennsylvania investors. As of December 31, 1999, the Company had approximately
$4,368,000 available to invest in Properties and Mortgage Loans following the
deduction of selling commissions, marketing support and due diligence expense
reimbursement fees, organization and offering expenses of approximately three
percent, and acquisition fees.
As of February 7, 2000, the Company had received subscription proceeds
(excluding the capital contribution from the Advisor and subscriptions from
Pennsylvania investors) of $5,632,349 (563,235 Shares) from its offering of
Shares. As of February 7, 2000, net proceeds to the Company from its offering of
Shares and capital contributions from the Advisor, after deduction of selling
commissions, marketing support and due diligence expense reimbursement fees and
organizational and offering expenses totalled approximately $4,521,000. As of
February 7, 2000, the Company had not acquired any Properties or entered into
any Mortgage Loans.
The Company expects to use net offering proceeds from the sale of
Shares to purchase Properties and to invest in Mortgage Loans. In addition, the
Company intends to borrow money to acquire Properties, to invest in Mortgage
Loans and Secured Equipment Leases, and to pay certain related fees. The Company
intends to encumber assets in connection with such borrowing. The Company plans
to initially obtain a revolving Line of Credit in an amount up to $45,000,000.
The Company also plans to obtain permanent financing. Although the Board of
Directors anticipates that the line of credit initially will be in the amount of
$45,000,000 and the aggregate amount of any Permanent Financing will not exceed
30% of the Company's total assets, the maximum amount the Company may borrow is
300% of the Company's net assets. The Company has engaged in discussions with
potential lenders but has not yet received a commitment for the Line of Credit
or any permanent financing and there is no assurance that the Company will
obtain the Line of Credit or any Permanent Financing on satisfactory terms.
Properties are expected to be leased on a long-term, triple-net basis,
meaning that tenants are generally required to pay all repairs and maintenance,
property taxes, insurance and utilities. Rental payments under the leases are
expected to exceed the Company's operating expenses. For these reasons, no
short-term or long-term liquidity problems currently are anticipated by
management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At December 31, 1999, the
Company had $4,744,222 invested in such short-term investments as compared to
$92 at December 31, 1998. The increase in the amount invested in short-term
investments reflects subscriptions proceeds received from the sale of Shares
during the year ended December 31, 1999. These funds will be used primarily to
purchase Properties, to make Mortgage Loans, to pay offering and acquisition
expenses, to pay distributions to stockholders, to meet other Company expenses
and, in management's discretion, to create cash reserves.
During the years ended December 31, 1999 and 1998 and the period
December 22, 1997 (date of inception) through December 31, 1997, affiliates of
the Company incurred on behalf of the Company $421,878, $562,739 and $43,398,
respectively, for certain organizational and offering expenses. In addition,
during the year ended December 31, 1999, affiliates of the Company incurred
$98,206 for certain acquisition expenses and $41,307 for certain operating
expenses on behalf of the Company. As of December 31, 1999 and 1998, the Company
owed the Advisor and its affiliates $1,775,256 and $685,372, respectively, for
such amounts, unpaid fees and administrative expenses. The Advisor has agreed to
pay or reimburse the Company all organizational and offering expenses (excluding
commissions and marketing support and due diligence expense reimbursement fees)
in excess of three percent of gross offering proceeds.
Since the commencement of the Company's public offering through
December 31, 1999, approximately $416,023 has been incurred by the Company in
selling commissions, marketing support and due diligence reimbursement fees to
related parties, the majority of which were subsequently paid to unrelated
broker-dealer firms. In addition, since the commencement of the Company's public
offering through December 31, 1999, the Company has reimbursed affiliates
approximately $135,339 for certain organizational and offering expenses incurred
on behalf of the Company and administrative services related to the offering.
During the year ended December 31, 1999, the Company generated cash
from operations (which includes interest received less cash paid for operating
expenses) of $12,851. Based on current and anticipated future cash from
operations the Company declared distributions to its stockholders of $50,404
during the period July 14, 1999 (the date operations commenced) through December
31, 1999. No distributions were paid or declared for the period December 22,
1997 (date of inception) through July 13, 1999 because operations had not
commenced. On January 1, 2000 and February 1, 2000, the Company declared
distributions to stockholders of record on January 1, 2000 and February 1, 2000,
totalling $13,501 and $14,530, respectively, ($0.025 per share), payable in
March 2000. For the year ended December 31, 1999, 100 percent of the
distributions received by stockholders were considered to be ordinary income for
federal income tax purposes. No amounts distributed or to be distributed to the
stockholders as of February 7, 2000, were required to be or have been treated by
the Company as a return of capital for purposes of calculating the stockholders'
return on their invested capital.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's working capital
needs.
As of February 7, 2000, the Company had not entered into any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular Mortgage Loan or Secured Equipment Lease
would be funded. The number of Properties to be acquired and Mortgage Loans to
be invested in will depend upon the amount of net offering proceeds and loan
proceeds available to the Company. The amount invested in Secured Equipment
Leases is not expected to exceed 10% of the Company's total assets.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
Results of Operations
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on July 14, 1999. The Company did not acquire any
Properties or enter into any Mortgage Loans during the year ended December 31,
1999.
During the year ended December 31, 1999, the Company earned $86,231 in
interest income from investments in money market accounts. Interest income is
expected to increase as the Company invests subscription proceeds received in
the future in highly liquid investments pending investment in Properties and
Mortgage Loans. However, as net offering proceeds are invested in Properties and
used to make Mortgage Loans, the percentage of the Company's total revenues from
interest income from investments in money market accounts or other short term,
highly liquid investments is expected to decrease.
Operating expenses were $114,621, including organizational expenses of
$35,000, for the year ended December 31, 1999. Operating expenses represent only
a portion of operating expenses which the Company is expected to incur during a
full year in which the Company owns Properties or in which the Company is
operational. The dollar amount of operating expenses is expected to increase as
the Company acquires Properties and invests in Mortgage Loans. Organizational
expenses represent the cost related to forming a new entity and are not expected
to be incurred on an ongoing basis.
When the Company files its 1999 income tax return, it will elect,
pursuant to Internal Revenue Code Section 856(c)(1), to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and
related regulations. As a REIT, for federal income tax purposes, the Company
generally will not be subject to federal income tax on income that it
distributes to its stockholders. If the Company fails to qualify as a REIT in
any taxable year, it will be subject to federal income tax on its taxable income
at regular corporate rates and will not be permitted to qualify for treatment as
a REIT for federal income tax purposes for four years following the year during
which qualification is lost. Such an event could materially affect the Company's
net earnings. However, the Company believes that it is organized and operates in
such a manner as to qualify for treatment as a REIT for the year ended December
31, 1999. In addition, the Company intends to continue to operate the Company so
as to remain qualified as a REIT for federal income tax purposes.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the effect of
inflation. Such provisions will include clauses requiring the payment of
percentage rent based on certain gross sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
Year 2000 Readiness Disclosure
Overview of Year 2000 Compliance Issues
The year 2000 compliance issues concern the ability of information and
non-information technology systems to properly recognize and process
date-sensitive information beyond January 1, 2000. The failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.
Readiness Status
The Advisor and its affiliates generally provide all services requiring
the use of information and some non-information technology systems pursuant to
the Advisory Agreement with the Company. The Company generally does not directly
own information technology systems. In early 1998, affiliates of the Advisor
formed a year 2000 committee ("the Y2K Team") that assessed the readiness of any
systems that were date sensitive and completed upgrades for the hardware
equipment and software that was not year 2000 compliant, as necessary. The cost
for these upgrades and other remedial measures was the responsibility of the
Advisor and its affiliates. The Company has not incurred, and the Advisor and
its affiliates do not expect that the Company will incur, any costs in
connection with the year 2000 readiness measures. In addition, the Y2K team
requested and received certifications of compliance from other companies with
which the Advisor, its affiliates, and the Company have material third party
relationships.
In assessing the risks presented by the year 2000 compliance issues,
the Y2K Team identified potential worst case scenarios involving the failure of
the information and non-information technology systems used by the Company's
transfer agent and financial institutions. As of February 7, 2000, the Advisor
and its affiliates have tested the information and non-information technology
systems used by the Company and have not experienced material disruption or
other significant problems. In addition, as of the same date, the Advisor is not
aware of any material year 2000 compliance issues relating to information and
non-information technology systems of third parties with which the Company
maintains material relationships, including those of the Company's transfer
agent and financial institutions. In addition, in the Company's interactions
with its transfer agent and financial institutions, the systems of these third
parties have functioned normally. Until the Company's first distribution in 2000
and the delivery of the information by the transfer agent to stockholders in
early 2000, the Advisor will continue to monitor the year 2000 compliance of the
transfer agent. In addition, the Advisor will continue to monitor the systems
used by the Company and to maintain contact with third parties with which the
Company has material relationships with respect to year 2000 compliance and any
year 2000 issues that may arise at a later date. The Advisor will develop
contingency plans relating to ongoing year 2000 issues at the time that such
issues are identified and such plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the Advisor and its affiliates, and the normal functioning
to date of information and non-information technology systems used by the
Company and those third parties, the Advisor does not foresee significant risks
associated with its year 2000 compliance at this time. In addition, the Advisor
and its affiliates do not expect to incur any material additional costs in
connection with the year 2000 compliance efforts. However, there can be no
assurance that the Advisor and its affiliates or any third parties will not have
ongoing year 2000 compliance issues that may have adverse effects on the
Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 8. Financial Statements and Supplementary Data
CNL HEALTH CARE PROPERTIES, INC.
CONTENTS
Page
Report of Independent Certified Public Accountants 15
Financial Statements:
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Stockholders' Equity 18
Consolidated Statements of Cash Flows 19-20
Notes to Consolidated Financial Statements 21-26
Report of Independent Certified Public Accountants
To the Board of Directors
CNL Health Care Properties, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of CNL Health Care Properties, Inc. (a Maryland corporation)
and its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the two years ended December 31,
1999 and 1998, and the period December 22, 1997 (date of inception) through
December 31, 1997 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 14, 2000
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
------------ -----------
ASSETS
Cash $4,744,222 $ 92
Deferred offering and organizational costs -- 975,339
Other assets 344,338 1,148
------------- ------------
$5,088,560 $976,579
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to related parties $1,775,256 $685,372
Accounts payable and accrued expenses 21,167 91,207
------------- ------------
Total liabilities 1,796,423 776,579
------------- ------------
Stockholders' equity:
Preferred stock, without par value per share
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share
Authorized and unissued 103,000,000 shares -- -- Common stock, $.01 par
value per share.
Authorized 100,000,000 shares, issued and
outstanding 540,028 and 20,000 shares,
respectively 5,400 200
Capital in excess of par value 3,365,531 199,800
Accumulated deficit (78,794 ) --
------------- ------------
Total stockholders' equity 3,292,137 200,000
------------- ------------
$5,088,560 $976,579
============= ============
See accompanying notes to consolidated financial statements.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
December 22,
1997
(Date of
Inception)
Year Ended through
December 31, December 31,
1999 1998 1997
------------ ------------ -------------
Revenues:
Interest income $ 86,231 $ -- $ --
------------- ------------- --------------
Expenses:
General operating and
administrative 79,621 -- --
Organizational costs 35,000 -- --
------------- ------------- --------------
114,621 -- --
------------- ------------- --------------
Net Loss $ (28,390 ) $ -- $ --
============= ============= ==============
Net Loss Per Share of Common
Stock (Basic and Diluted) $ (.07 ) $ -- $ --
============= ============= ==============
Weighted Average Number of
Shares of Common Stock
Outstanding 412,713 -- --
============= ============= ==============
See accompanying notes to consolidated financial statements.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
Common stock
---------------------- Capital in
Number Par excess of Accumulated
of Shares value par value deficit Total
---------- ---------- ------------ ----------------- ------------
Balance at December 22, 1997 -- $ -- $ -- $ -- $ --
Sale of common stock to related
party 20,000 200 199,800 -- 200,000
---------- ---------- ------------ ----------------- ------------
Balance at December 31, 1997 20,000 200 199,800 -- 200,000
Subscriptions received for common
stock through public offering 2,550 26 25,474 -- 25,500
Subscriptions held in escrow at
December 31, 1998 (2,550 ) (26 ) (25,474 ) -- (25,500 )
---------- ---------- ------------ ----------------- ------------
Balance at December 31, 1998 20,000 200 199,800 -- 200,000
Subscriptions received for common
stock through public offering
and distribution reinvestment
plan 543,528 5,435 5,429,848 -- 5,435,283
Subscriptions held in escrow at
December 31, 1999 (23,500 ) (235 ) (234,765 ) -- (235,000 )
Stock issuance costs -- -- (2,029,352 ) -- (2,029,352 )
Net loss -- -- -- (28,390 ) (28,390 )
Distributions declared and paid
($.125 per share) -- -- -- (50,404 ) (50,404 )
---------- ---------- ------------ ----------------- ------------
Balance at December 31, 1999 540,028 $ 5,400 $3,365,531 $ (78,794 ) $3,292,137
========== ========== ============ ================= ============
See accompanying notes to consolidated financial statements.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 22,
1997
(Date of
Inception)
Year Ended through
December 31, December 31,
1999 1998 1997
------------- ------------- -------------
Increase (Decrease) in Cash and Cash Equivalents:
Operating Activities:
Interest received $ 86,231 $ -- $ --
Cash paid for expenses (73,380 ) -- --
-------------- -------------- -------------
Net cash provided by operating 12,851 -- --
activities
-------------- -------------- -------------
Financing Activities:
Reimbursement of amounts paid by related
parties on behalf of the Company (2,447 ) (135,339 ) --
Sale of common stock to related party -- -- 200,000
Subscriptions received from stockholders 5,200,283 -- --
Distributions to stockholders (50,404 ) -- --
Payment of stock issuance costs (416,153 ) (64,569 ) --
-------------- -------------- -------------
Net cash provided by (used in)
financing activities 4,731,279 (199,908 ) 200,000
-------------- -------------- -------------
Net Increase (Decrease) in Cash and Cash 4,744,130 (199,908 ) 200,000
Equivalents
Cash and Cash Equivalents at Beginning
of Period 92 200,000 --
-------------- -------------- -------------
Cash and Cash Equivalents at End of Period $ 4,744,222 $ 92 $ 200,000
============== ============== =============
See accompanying notes to consolidated financial statements.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
December 22,
1997
(Date of
Inception)
Year Ended through
December 31, December 31,
1999 1998 1997
------------- ------------- -------------
Reconciliation of Net Loss to Net Cash Provided
by Operating Activities:
Net loss $ (28,390 ) $ -- $ --
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Organizational costs 20,000 -- --
Changes in operating assets and
liabilities:
Other assets (5,535 ) -- --
Accounts payable and -- --
other accrued expenses 20,037
Due to related parties 6,739 -- --
============== ============== =============
Net cash provided by operating
activities $ 12,851 $ -- $ --
============== ============== =============
Supplemental Schedule of Non-Cash
Financing Activities:
Amounts incurred by the Company and
paid by related parties on behalf of
the Company and its subsidiaries are as follows:
Acquisition costs $98,206 $ -- $ --
Organizational costs -- 20,000 --
Deferred offering costs -- 542,739 43,398
Stock issuance costs 421,878 -- --
============== ============== ==============
$ 520,084 $ 562,739 $ 43,398
============== ============== ==============
Costs incurred by the Company and unpaid at
period end are as follows:
Acquisition costs $ 239,449 $ 1,148 $ --
Deferred offering costs -- 267,701 36,932
Stock issuance costs 235,982 -- --
-------------- -------------- --------------
$ 475,431 $ 268,849 $ 36,932
============== ============== ==============
See accompanying notes to consolidated financial statements.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Health Care Properties, Inc.
was organized pursuant to the laws of the state of Maryland on December
22, 1997. CNL Health Care GP Corp. and CNL Health Care LP Corp. are
wholly owned subsidiaries of CNL Health Care Properties, Inc., each of
which were organized pursuant to the laws of the state of Delaware in
December 1999. CNL Health Care Partners, LP is a Delaware limited
partnership formed in December 1999. CNL Health Care GP Corp. and CNL
Health Care LP Corp. are the general and limited partners,
respectively, of CNL Health Care Partners, LP. The term "Company"
includes, unless the context otherwise requires, CNL Health Care
Properties, Inc., CNL Health Care Partners, LP, CNL Health Care GP
Corp. and CNL Health Care LP Corp.
The Company intends to use the proceeds from its public offering (the
"Offering") (see Note 2), after deducting offering expenses, primarily
to acquire real estate properties (the "Properties") related to health
care and seniors' housing facilities (the "Health Care Facilities")
located across the United States. The Health Care Facilities may
include congregate living, assisted living and skilled nursing
facilities, continuing care retirement communities and life care
communities, and medical office buildings and walk-in clinics. The
Company may provide mortgage financing (the "Mortgage Loans") to
operators of Health Care Facilities in the aggregate principal amount
of approximately 5 to 10 percent of the Company's total assets. The
Company also may offer furniture, fixture and equipment financing
("Secured Equipment Leases") to operators of Health Care Facilities.
Secured Equipment Leases will be funded from the proceeds of a loan in
an amount up to ten percent of the Company's total assets.
The Company was a development stage enterprise from December 22, 1997
through July 13, 1999. Since operations had not begun, activities
through July 13, 1999 were devoted to organization of the Company.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CNL Health Care Properties, Inc. and
its wholly owned subsidiaries, CNL Health Care GP Corp. and CNL Health
Care LP Corp., as well as the accounts of CNL Health Care Partners, LP.
All significant intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments
to financial institutions with high credit standing; therefore,
management believes it is not exposed to any significant credit risk on
cash and cash equivalents.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
1. Significant Accounting Policies - Continued:
Income Taxes - When the Company files its 1999 income tax return, it
will elect, pursuant to Internal Revenue Code Section 856(c)(1), to be
taxed as a REIT under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended, and related regulations. The Company
generally will not be subject to federal corporate income taxes on
amounts distributed to stockholders, providing it distributes at least
95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. For the year ended December 31,
1999, the Company believes it has qualified as a REIT; accordingly, no
provision for federal income taxes has been made in the accompanying
consolidated financial statements.
Earnings Per Share - Basic earnings per share are calculated based upon
net earnings (income available to common stockholders) divided by the
weighted average number of shares of common stock outstanding during
the period. The weighted average number of shares of common stock
outstanding for the period July 14, 1999 through December 31, 1999 was
412,713. As of December 31, 1999, the Company did not have any
potentially dilutive common shares.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform with the 1999
presentation. These reclassifications had no effect on stockholders'
equity or net earnings.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles.
Actual results could differ from those estimates.
2. Public Offering:
The Company has filed a currently effective registration statement on
Form S-11 with the Securities and Exchange Commission. A maximum of
15,500,000 shares ($155,000,000) may be sold, including 500,000 shares
($5,000,000) which are available only to stockholders who elect to
participate in the Company's reinvestment plan. The Company has adopted
a reinvestment plan pursuant to which stockholders may elect to have
the full amount of their cash distributions from the Company reinvested
in additional shares of common stock of the Company. In addition, the
Company has registered 600,000 shares issuable upon the exercise of
warrants granted to the managing dealer of the Offering. As of December
31, 1999, the Company had received subscription proceeds of $5,435,283
(543,528 shares), including $12,540 (1,254 shares) through the
distribution reinvestment plan and $235,000 (23,500 shares) from
Pennsylvania investors which will be held in escrow until the Company
receives aggregate subscriptions of at least $7,775,000.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
3. Other Assets:
Other assets as of December 31, 1999 and 1998 were $344,338 and $1,148,
respectively, which consisted of acquisition fees and miscellaneous
acquisition expenses that will be allocated to future properties and
miscellaneous prepaid expenses.
4. Stock Issuance Costs:
The Company has incurred certain expenses of its Offering, including
commissions, marketing support and due diligence expense reimbursement
fees, filing fees, legal, accounting, printing and escrow fees, which
have been deducted from the gross proceeds of the Offering. Preliminary
costs incurred prior to raising capital were advanced by an affiliate
of the Company, CNL Health Care Corp. (formerly known as CNL Health
Care Advisors, Inc.) (the "Advisor"). The Advisor has agreed to pay all
organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which
exceed three percent of the gross proceeds received from the sale of
shares of the Company in connection with the Offering.
During the years ended December 31, 1999 and 1998, the Company incurred
$1,089,013 and $975,339, respectively, in organizational and offering
costs, including $413,983 and $2,040, respectively, in commissions and
marketing support and due diligence expense reimbursement fees (see
Note 6). Of these amounts $1,074,013 and $955,339, respectively, have
been treated as stock issuance costs and $15,000 and $20,000,
respectively, have been treated as organization costs and expensed in
the current year. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
5. Distributions:
For the year ended December 31, 1999, 100 percent of the distributions
paid to stockholders were considered ordinary income for federal income
tax purposes. No amounts distributed to the stockholders for the year
ended December 31, 1999 are required to be or have been treated by the
Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
6. Related Party Arrangements:
On December 22, 1997 (date of inception), the Advisor contributed
$200,000 in cash to the Company and became its sole stockholder.
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer of the Offering, CNL
Securities Corp. These affiliates are entitled to receive fees and
compensation in connection with the Offering, and the acquisition,
management and sale of the assets of the Company.
During the years ended December 31, 1999 and 1998, the Company incurred
$388,109 and $1,912, respectively, in selling commissions due to CNL
Securities Corp. for services in connection with the Offering. A
substantial portion of these amounts ($370,690 and $1,785,
respectively) was or will be paid by CNL Securities Corp. as
commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5
percent of the total amount raised from the sale of shares, a portion
of which may be reallowed to other broker-dealers. During the years
ended December 31, 1999 and 1998, the Company incurred $25,874 and
$128, respectively, of such fees, the majority of which were reallowed
to other broker-dealers and from which all bona fide due diligence
expenses were paid.
In addition, the Company has agreed to issue and sell soliciting dealer
warrants ("Soliciting Dealer Warrants") to CNL Securities Corp. The
price for each warrant will be $0.0008 and one warrant will be issued
for every 25 shares sold by the managing dealer, except when prohibited
by federal or state securities laws. All or a portion of the Soliciting
Dealer Warrants may be reallowed to soliciting dealers with prior
written approval from, and in the sole discretion of the managing
dealer, except where prohibited by either federal or state securities
laws. The holder of a Soliciting Dealer Warrant will be entitled to
purchase one share of common stock from the Company at a price of
$12.00 during the five year period commencing with the date the
offering begins. No Soliciting Dealer Warrants, however, will be
exercisable until one year from the date of issuance. As of December
31, 1999, CNL Securities Corp. was entitled to receive approximately
19,000 Soliciting Dealer Warrants; however, no such warrants had been
issued as of that date.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of leases of the
Properties and Mortgage Loans equal to 4.5 percent of the gross
proceeds of the Offering, loan proceeds from permanent financing and
amounts outstanding on the line of credit, if any, at the time of
listing, but excluding that portion of the permanent financing used to
finance Secured Equipment Leases. During the years ended December 31,
1999 and 1998, the Company incurred $232,865 and $1,148, respectively,
of such fees. Such fees are included in other assets.
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
6. Related Party Arrangements - Continued:
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the Advisory Agreement, the Advisor is required to
reimburse the Company the amount by which the total operating expenses
paid or incurred by the Company exceed in any four consecutive fiscal
quarters (the "Expense Year"), the greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap"). Due to
the fact that the Company commenced operations in July 1999, the
Advisor will be required to reimburse the Company any amounts in excess
of the Expense Cap commencing with the Expense Year ending June 30,
2000.
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the Offering), on
a day-to-day basis. The expenses incurred for these services were
classified as follows:
December 22,
1997
(Date of)
Inception)
Year Ended Through
December 31, December 31,
1999 1998 1997
----------- ----------- ---------------
Deferred offering costs $ -- $196,184 $15,202
Stock issuance costs 328,229 -- --
Other assets 6,455 -- --
General operating and
administrative expenses 38,796 -- --
=========== =========== ============
$373,480 $196,184 $15,202
=========== =========== ============
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
6. Related Party Arrangements - Continued:
Amounts due to related parties consisted of the following at December
31:
1999 1998
-------------- --------------
Due to the Advisor:
Expenditures incurred for organizational
and offering expenses on behalf
of the Company $1,432,291 $470,798
Accounting and administrative
services 6,739 211,386
Acquisition fees 336,226 1,148
------------- -----------
1,775,256 683,332
------------- -----------
Due to CNL Securities Corp.:
Commissions -- 1,912
Marketing support and due diligence
expense reimbursement fee -- 128
------------- -----------
-- 2,040
------------- -----------
$1,775,256 $685,372
============= ===========
7. Subsequent Events:
During the period January 1, 2000 through January 14, 2000, the Company
received subscription proceeds for an additional 30,329 shares
($303,290) of common stock.
In addition, on January 1, 2000, the Company declared distributions
totalling $13,501 or $0.025 per share of common stock, payable in March
2000, to stockholders of record on January 1, 2000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and executive officers of the Company are listed below:
Name Age Position with the Company
---- --- -------------------------
James M. Seneff, Jr. 53 Director, Chairman of the Board,
and Chief Executive Officer
Robert A. Bourne 52 Director and President
David W. Dunbar 47 Independent Director
Timothy S. Smick 48 Independent Director
Edward A. Moses 57 Independent Director
Phillip M. Anderson, Jr. 40 Chief Operating Officer and
Executive Vice President
Thomas J. Hutchison III 58 Executive Vice President
Jeanne A. Wall 41 Executive Vice President
Lynn E. Rose 51 Secretary and Treasurer
James M. Seneff, Jr. Director, Chairman of the Board and Chief
Executive Officer. Since 1971, Mr. Seneff has been active in the acquisition,
development, and management of real estate projects and, directly or through an
affiliated entity, has served as a general partner or co-venturer in over 100
real estate ventures. These ventures have involved the financing, acquisition,
construction, and leasing of restaurants, office buildings, apartment complexes,
hotels, and other real estate. Mr. Seneff is a principal stockholder of CNL
Holdings, Inc., the parent company of CNL Financial Group, Inc. (formerly CNL
Group, Inc.), a diversified real estate company, and has served as a director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company of
CNL Real Estate Services, Inc., and the parent company of CNL Health Care Corp.,
the Advisor; and of CNL Capital Markets, Inc., the parent company of CNL
Investment Company. CNL Investment Company is the parent company of CNL
Securities Corp., the managing dealer in this offering. Mr. Seneff serves as a
director, Chairman of the Board and Chief Executive Officer of CNL Health Care
Corp., the Advisor to the Company. He also serves as director, Chairman of the
Board and Chief Executive Officer of CNL Hospitality Properties, Inc., a public,
unlisted real estate investment trust, as well as CNL Hospitality Corp., its
advisor. Since 1992, Mr. Seneff has served as Chairman of the Board and Chief
Executive Officer of Commercial Net Lease Realty, Inc., a public real estate
investment trust that is listed on the New York Stock Exchange. In addition, he
has served as a director and Chairman of the Board since inception in 1994, and
served as Chief Executive Officer from 1994 through September 1999, of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust.
He also served as a director, Chairman of the Board and Chief Executive Officer
of CNL Fund Advisors, Inc., the advisor to CNL American Properties Fund, Inc.
until it merged with the company in September 1999. Mr. Seneff has also served
as a director, Chairman of the Board and Chief Executive Officer of the
following affiliated companies since formation: CNL Securities Corp., since
1979; CNL Investment Company, since 1990; and CNL Institutional Advisors, a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNLBank. Mr. Seneff served on
the Florida State Commission on Ethics and is a former member and past Chairman
of the State of Florida Investment Advisory Council, which recommends to the
Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration is Florida's principal
investment advisory and money management agency and oversees the investment of
more than $60 billion of retirement funds. Mr. Seneff received his degree in
Business Administration from Florida State University in 1968.
Robert A. Bourne. Director and President. Since joining CNL Securities
Corp. in 1979, Mr. Bourne has participated as a general partner or co-venturer
in over 100 real estate ventures involved in the financing, acquisition,
construction, and leasing of restaurants, office buildings, apartment complexes,
hotels, and other real estate. Mr. Bourne is the President and Treasurer of CNL
Financial Group, Inc. (formerly CNL Group, Inc.). Mr. Bourne is a director and
President of CNL Health Care Corp., the Advisor to the Company. He is also a
director, Vice Chairman of the Board and President of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, as well as
CNL Hospitality Corp., its advisor. Mr. Bourne also serves as a director of
CNLBank. He has served as a director since 1992, Vice Chairman of the Board
since February 1996, Secretary and Treasurer from February 1996 through 1997,
and President from July 1992 through February 1996, of Commercial Net Lease
Realty Inc., a public real estate investment trust listed on the New York Stock
Exchange. Mr. Bourne has served as a director since inception in 1994, President
from 1994 through February 1999, Treasurer from February 1999 through August
1999, and Vice Chairman of the Board since February 1999 of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust. He also
served in the following positions for CNL Fund Advisors, Inc., the advisor to
CNL American Properties Fund, Inc. prior to its merger with the company:
director from 1994 through August 1999, Treasurer from July 1998 through August
1999, President from 1994 through September 1997, and Vice Chairman of the Board
from September 1997 through August 1999. Mr. Bourne holds the following
positions for these affiliates of CNL Financial Group, Inc.: director, President
and Treasurer of CNL Investment Company; director, President, Treasurer, and
Registered Principal of CNL Securities Corp., a subsidiary of CNL Investment
Company and the managing dealer for this offering; and director, President,
Treasurer, and Chief Investment Officer of CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans. Mr. Bourne began his career as
a certified public accountant employed by Coopers & Lybrand, Certified Public
Accountants, from 1971 through 1978, where he attained the position of tax
manager in 1975. Mr. Bourne graduated from Florida State University in 1970
where he received a B.A. in Accounting, with honors.
David W. Dunbar. Independent Director. Mr. Dunbar serves as chairman and
chief executive officer of Peoples Bank, which he organized and founded in 1996.
Mr. Dunbar is also a member of the board of trustees of Bay Care Health Systems,
an alliance of ten non-profit hospitals in the Tampa Bay area, as well as a
member of the board of directors of Morton Plant Mease Health Care, Inc., an
841-bed, not-for-profit hospital and North Bay Hospital, a 122-bed facility. He
is a former member of the board of directors of Morton Plant Mease Hospital
Foundation. In addition, Mr. Dunbar serves as a member of the Florida Elections
Commission, the body responsible for investigating and holding hearings
regarding alleged violations of Florida's campaign finance laws. During 1994 and
1995, Mr. Dunbar was a member of the board of directors and an executive officer
of Peoples State Bank. Mr. Dunbar was the chief executive officer of Republic
Bank from 1981 through 1988 and from 1991 through 1993. From 1988 through 1991,
Mr. Dunbar developed commercial and medical office buildings and, through a
financial consulting company he founded, provided specialized lending services
for real estate development clients, specialized construction litigation support
for national insurance companies and strategic planning services for
institutional clients. In 1990, Mr. Dunbar was the chief executive officer,
developer and owner of a 60,000 square foot medical office building located on
the campus of Memorial Hospital in Tampa, Florida. In addition, in 1990, Mr.
Dunbar served as the Governor's appointee to the State of Florida Taxation and
Budget Reform Commission, a 25 member, blue ribbon commission established to
review, study and make appropriate recommendations for changes to state tax
laws. Mr. Dunbar received a degree in finance from Florida State University. He
is also a graduate of the American Bankers Association National Commercial
Lending School at the University of Oklahoma and the School of Banking of the
South at Louisiana State University.
Timothy S. Smick. Independent Director. Mr. Smick is currently an
independent investor. From 1996 through February 1998, he served as chief
operating officer, executive vice president and a member of the board of
directors of Sunrise Assisted Living, Inc., one of the nation's leading
providers of assisted living care for seniors with 68 communities located in 13
states. In addition, Mr. Smick served as president of Sunrise Management Inc., a
wholly owned subsidiary of Sunrise Assisted Living, Inc. During 1995, Mr. Smick
served as a senior housing consultant to LaSalle Advisory, Ltd., a pension fund
advisory company. From 1985 through 1994, Mr. Smick was chairman and chief
executive officer of PersonaCare, Inc., a company he co-founded that provided
sub-acute, skilled nursing and assisted living care with 12 facilities in six
states. Mr. Smick's health care industry experience also includes serving as the
regional operations director for Manor Healthcare, Inc., a division of
ManorCare, Inc., and as operations director for Allied Health and Management,
Inc. Prior to co-founding PersonaCare, Inc., Mr. Smick was a partner in Duncan &
Smick, a commercial real estate development firm. Mr. Smick received a B.A. in
English from Wheaton College and pursued graduate studies at Loyola College.
Edward A. Moses. Independent Director. Dr. Moses has served as dean of
the Roy E. Crummer Graduate School of Business at Rollins College since 1994,
and as a professor and NationsBank professor of finance since 1989. As dean, Dr.
Moses is presently establishing a comprehensive program of executive education
for health care management at the Roy E. Crummer Graduate School of Business.
From 1985 to 1989 he served as dean and professor of finance at the University
of North Florida. He has also served in academic and administrative positions at
the University of Tulsa, Georgia State University and the University of Central
Florida. Dr. Moses has written six textbooks in the fields of investments and
corporate finance as well as numerous articles in leading business journals. He
has held offices in a number of professional organizations, including president
of the Southern Finance and Eastern Finance Associations, served on the Board of
the Southern Business Administration Association, and served as a consultant for
major banks as well as a number of Fortune 500 companies. He currently serves as
a faculty member in the Graduate School of Banking at Louisiana State
University, and is a member of the board of directors of HTE, Inc. Dr. Moses
received a B.S. in Accounting from the Wharton School at the University of
Pennsylvania in 1965 and a Masters of Business Administration (1967) and Ph.D.
in finance from the University of Georgia in 1971.
Phillip M. Anderson, Jr. Chief Operating Officer and Executive Vice
President. Mr. Anderson joined CNL Health Care Corp. in January 1999 and is
responsible for the planning and implementation of CNL's interest in health care
industry investments, including acquisitions, development, project analysis and
due diligence. He currently serves as the Chief Operating Officer of both CNL
Health Care Corp., the Company's Advisor, and of CNL Health Care Development,
Inc. From 1987 through 1998, Mr. Anderson was employed by Classic Residence by
Hyatt. Classic Residence by Hyatt ("Classic") is affiliated with Hyatt Hotels
and Chicago's Pritzker family. Classic acquires, develops, owns and operates
seniors' housing, assisted living, skilled nursing and Alzheimer's facilities
throughout the United States. Mr. Anderson's responsibilities grew from
overseeing construction of Classic's first properties to acquiring and
developing new properties. After assuming responsibility for acquisitions, Mr.
Anderson doubled the number of senior living apartments/beds ("units") in the
portfolio by adding over 1,200 units. In addition, the development of an
additional 1,000 units of seniors' housing commenced under Mr. Anderson's
direction. Mr. Anderson also served on Classic's Executive Committee charged
with the responsibility of monitoring performance of existing properties and
development projects. Mr. Anderson has been a member of the American Senior
Housing Association since 1994 and currently serves on the executive board. He
graduated from the Georgia Institute of Technology in 1982, where he received a
B.S. in Civil Engineering, with honors.
Thomas J. Hutchison III. Executive Vice President. Mr. Hutchison serves
as President and Chief Operating Officer of CNL Real Estate Services, Inc.,
which is the parent company of CNL Health Care Corp., the Advisor of the
Company. He is the Chief Operating Officer of CNL Community Development Corp.
Mr. Hutchison joined CNL in January 2000 with more than 30 years of senior
management and consulting experience in the real estate development and services
industries. He currently serves on the board of directors of Restore Orlando, a
nonprofit community volunteer organization. Prior to joining CNL, Mr. Hutchison
was president and owner of numerous real estate services and development
companies. From 1995 to 2000, he was chairman and chief executive officer of
Atlantic Realty Services, Inc. and TJH Development Corporation. Since 1990, he
has fulfilled a number of long-term consulting assignments for large
corporations, including managing a number of large international joint ventures.
From 1990 to 1991, Mr. Hutchison was the court-appointed president and chief
executive officer of General Development Corporation, a real estate community
development company, where he assumed the day-to-day management of the $2.6
billion NYSE-listed company entering re-organization. From 1986 to 1990, he was
the chairman and chief executive officer of a number of real estate-related
companies engaged in the master planning and land acquisition of forty
residential, industrial and office development projects. From 1978 to 1986, Mr.
Hutchison was the president and chief executive officer of Murdock Development
Corporation and Murdock Investment Corporation, as well as Murdock's nine
service divisions. In this capacity, he managed an average of $350 million of
new development per year for over nine years. Additionally, he expanded the
commercial real estate activities to a national basis, and established both a
new extended care division and a hotel division that grew to 14 properties. Mr.
Hutchison was educated at Purdue University and the University of Maryland
Business School.
Jeanne A. Wall. Executive Vice President. Ms. Wall also serves as Executive
Vice President of CNL Health Care Corp., the Advisor to the Company. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, and serves as
Executive Vice President and a director of CNL Hospitality Corp., its advisor.
She also serves as a director for CNLBank. Ms. Wall serves as Executive Vice
President of CNL Financial Group, Inc. (formerly CNL Group, Inc.). Ms. Wall has
served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since 1994 and has served as Executive Vice President of CNL
Investment Company since January 1991. In 1984, Ms. Wall joined CNL Securities
Corp. and in 1985, became Vice President. In 1987, she became a Senior Vice
President and in July 1997, became Executive Vice President of CNL Securities
Corp. In this capacity, Ms. Wall serves as national marketing and sales director
and oversees the national marketing plan for the CNL investment programs. In
addition, Ms. Wall oversees product development, communications and investor
services for programs offered through participating brokers. Ms. Wall also
served as Senior Vice President of CNL Institutional Advisors Inc., a registered
investment advisor, from 1990 to 1993. Ms. Wall served as Vice President of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange, from 1992 through 1997, and served as Vice
President of CNL Realty Advisors, Inc. from its inception in 1991 through 1997.
Ms. Wall also served as Executive Vice President of CNL American Properties
Fund, Inc., a public, unlisted real estate investment trust, from 1994 through
August 1999, and as Executive Vice President of CNL Fund Advisors, Inc., its
advisor, from 1994 through August 1999, at which point it merged with CNL
American Properties Fund, Inc. Ms. Wall currently serves as a trustee on the
Board of the Investment Program Association, is a member of the Corporate
Advisory Council for the International Association for Financial Planning and is
a member of IWF, International Women's Forum. In addition, she previously served
on the Direct Participation Program committee for the National Association of
Securities Dealers, Inc. Ms. Wall holds a B.A. in Business Administration from
Linfield College and is a registered principal of CNL Securities Corp.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose also serves as
Secretary of the Company's subsidiaries. In addition, she serves as Secretary,
Treasurer and a director of CNL Health Care Corp., the Advisor to the Company.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc., a public, unlisted real estate investment trust, as Secretary, Treasurer
and a director of CNL Hospitality Corp., its Advisor, and as Secretary of the
subsidiaries of the Company. Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994 through
July 1998, and served as Secretary and a director from 1994 through August 1999,
at which point it merged with CNL American Properties Fund, Inc. Ms. Rose served
as Secretary and Treasurer of Commercial Net Lease Realty, Inc., a public real
estate investment trust listed on the New York Stock Exchange, from 1992 to
February 1996, and as Secretary and a director of CNL Realty Advisors, Inc., its
advisor, from its inception in 1991 through 1997. She also served as Treasurer
of CNL Realty Advisors, Inc. from 1991 through February 1996. Ms. Rose, a
certified public accountant, has served as Secretary of CNL Financial Group,
Inc. (formerly CNL Group, Inc.) since 1987, served as Controller from 1987 to
1993 and has served as Chief Financial Officer since 1993. She also serves as
Secretary of the subsidiaries of CNL Financial Group, Inc. and holds various
other offices in the subsidiaries. In addition, she serves as Secretary for
approximately 50 additional corporations affiliated with CNL Financial Group,
Inc. and its subsidiaries. Ms. Rose oversees the tax and legal compliance for
over 375 corporations, partnerships and joint ventures, and the accounting and
financial reporting for over 200 entities. Prior to joining CNL, Ms. Rose was a
partner with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A.,
Certified Public Accountants. Ms. Rose holds a B.A. in Sociology from the
University of Central Florida. She was licensed as a certified public accountant
in 1979.
Item 11. Executive Compensation
No annual or long-term compensation was paid by the Company to the
Chief Executive Officer for services rendered in all capacities to the Company
during the period December 22, 1997 (date of inception) through December 31,
1997 or during the years ended December 31, 1998 and 1999. In addition, no
executive officer of the Company received an annual salary or bonus from the
Company during the fiscal year ended December 31, 1999. The Company's executive
officers also are employees and executive officers of the Advisor and receive
compensation from CNL Financial Group, Inc. in part for services in such
capacities. See Item 13 for a description of the fees payable and expenses
reimbursed to the Advisor.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 7, 2000, the number and
percentage of outstanding shares beneficially owned by all persons known by the
Company to own beneficially more than five percent of the Company's Common
Stock, by each director and nominee, and by all officers and directors as a
group, based upon information furnished to the Company by such stockholders,
officers and directors.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Shares
James M. Seneff, Jr. 20,000 (1) 3.4%
Robert A. Bourne 0 --
David W. Dunbar 0 --
Timothy S. Smick 0 --
Edward A. Moses 0 --
Phillip M. Anderson, Jr. 1,075 (2)
All directors and executive 21,075 3.6%
officers as a group (9 persons)
(1) Includes 20,000 shares held by the Advisor of which Mr. Seneff is director.
Mr. Seneff and his wife share beneficial ownership of the Advisor through
their ownership of CNL Financial Group, Inc. The Advisor is a wholly owned
subsidiary of CNL Financial Group, Inc.
(2) Less than one percent.
Item 13. Certain Relationships and Related Transactions
All of the executive officers of the Company are executive officers of the
Advisor, a wholly owned subsidiary of CNL Financial Group, Inc., of which
Messrs. Seneff and Bourne are executive officers and directors and whose shares
are beneficially owned by Mr. Seneff and his wife. In addition, Messrs. Seneff
and Bourne, Ms. Rose and Ms. Wall are executive officers of CNL Securities
Corp., the managing dealer of the Company's offering of shares of common stock,
and a wholly owned subsidiary of CNL Financial Group, Inc. Messrs. Seneff and
Bourne are directors of the Company, the Advisor and CNL Securities Corp., and
Ms. Rose is a director of the Advisor. Administration of the day-to-day
operations of the Company is provided by the Advisor, pursuant to the terms of
the Advisory Agreement. The Advisor also serves as the Company's consultant in
connection with policy decisions to be made by the Company's Board of Directors,
manages the Company's assets and renders such other services as the Board of
Directors deems appropriate. The Advisor also bears the expense of providing the
executive personnel and office space to the Company. The Advisor is at all times
subject to the supervision of the Board of Directors of the Company and has only
such functions and authority as the Company may delegate to it as the Company's
agent.
CNL Securities Corp. is entitled to receive selling commissions amounting
to 7.5% of the total amount raised from the sale of Shares of common stock for
services in connection with the offering of Shares, a substantial portion of
which will be paid as commissions to other broker-dealers. For the year ended
December 31, 1999, the Company incurred $388,109 of such fees, the majority of
which were paid by CNL Securities Corp. as commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the total
amount raised from the sale of Shares, a portion of which may be reallowed to
other broker-dealers. For the year ended December 31, 1999, the Company incurred
$25,874 of such fees, the majority of which were reallowed to other
broker-dealers and from which all bona fide due diligence expenses will be paid.
The Advisor is entitled to receive acquisition fees for services in
identifying the properties and structuring the terms of the leases of the
Properties and Mortgage Loans equal to 4.5% of gross proceeds of the Company's
stock offering, loan proceeds from Permanent Financing and amounts outstanding
on the Company's Line of Credit, if any, at the time of Listing, but excluding
that portion of the Permanent Financing used to finance Secured Equipment
Leases. For the year ended December 31, 1999, the Company incurred $232,865 of
such fees.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the year
ended December 31, 1999, the Company incurred a total of $373,480 for these
services, $328,229 of such costs representing stock issuance costs, $6,455
representing acquisition related costs and $38,796 representing general
operating and administrative expenses, including costs related to preparing and
distributing reports required by the Securities and Exchange Commission.
The Company has and will continue to incur certain costs in connection with
the Offering, including filing fees, legal, accounting, marketing and printing
costs and escrow fees, which will be deducted from the gross proceeds of the
Offering. Certain preliminary costs incurred prior to raising capital have been
and will be advanced by an affiliate of the Company. The Advisor has agreed to
pay all organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which exceed
three percent of the gross offering proceeds received from the sale of shares of
the Company. For the year ended December 31, 1999, the Company incurred $421,878
for such costs.
All amounts incurred by the Company to affiliates of CNL Financial Group,
Inc. are believed by the Company to be fair and comparable to amounts that would
be paid for similar services provided by unaffiliated third parties.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998, and the period December 22, 1997
(date of inception) through December 31, 1997
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999 and 1998, and the period December 22,
1997 (date of inception) through December 31, 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998, and the period December 22, 1997
(date of inception) through December 31, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 CNL Health Care Properties, Inc. Amended and Restated
Articles of Incorporation (Included as Exhibit 3.1 to
the Registrant's 1998 Report on Form 10K filed with
the Securities and Exchange Commission on March 5,
1999 and incorporated herein by reference.)
3.2 CNL Health Care Properties, Inc. Bylaws (Included as
Exhibit 3.2 to the Registrant's 1998 Report on Form
10-K filed with the Securities and Exchange
Commission on March 5, 1999 and incorporated herein
by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-47411 on Form S-11
and incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 15, 1998,
between CNL Health Care Properties, Inc. and CNL
Health Care Advisors, Inc. (Included as Exhibit 10.1
to the Registrant's 1998 Report on Form 10-K filed
with the Securities and Exchange Commission on March
5, 1999 and incorporated herein by reference.)
10.2 Indemnification Agreement between CNL Health Care
Properties, Inc. and Phillip M. Anderson, Jr. dated
February 19, 1999. Each of the following director
and/or officer has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A.
Moses, Curtis B. McWilliams, Jeanne A. Wall and Lynn
E. Rose dated September 15, 1998 (Included as Exhibit
10.2 to the Registrant's 1998 Report on Form 10-K
filed with the Securities and Exchange Commission on
March 5, 1999 and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) No reports on Form 8-K were filed during the period October 1, 1999
through December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 11th day of
February, 2000.
CNL HEALTH CARE PROPERTIES, INC.
By: ROBERT A. BOURNE
President (Principal Financial
and Accounting Officer)
/s/ Robert A. Bourne
--------------------------
ROBERT A. BOURNE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James M. Seneff, Jr. Chairman of the Board and Chief February 11, 2000
- --------------------------- Executive Officer (Principal
James M. Seneff, Jr. Executive Officer)
/s/ Robert A. Bourne Director and President (Principal February 11, 2000
- --------------------------- Financial and Accounting Officer)
Robert A. Bourne
/s/ David W. Dunbar Independent Director February 11, 2000
- ---------------------------
David W. Dunbar
/s/ Timothy S. Smick Independent Director February 11, 2000
- ---------------------------
Timothy S. Smick
/s/ Edward A. Moses Independent Director February 11, 2000
- ---------------------------
Edward A. Moses
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
An annual report and a proxy, proxy statement and notice of annual meeting will
be sent to stockholders subsequent to the filing of this Annual Report on Form
10-K and copies of such material shall be furnished to the Securities and
Exchange Commission when it is sent to stockholders.
EXHIBITS
EXHIBIT INDEX
Exhibit Number
3.1 CNL Health Care Properties, Inc. Amended and Restated
Articles of Incorporation (Included as Exhibit 3.1 to
the Registrant's 1998 Report on Form 10K filed with
the Securities and Exchange Commission on March 5,
1999 and incorporated herein by reference.)
3.2 CNL Health Care Properties, Inc. Bylaws (Included as
Exhibit 3.2 to the Registrant's 1998 Report on Form
10-K filed with the Securities and Exchange
Commission on March 5, 1999 and incorporated herein
by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 15, 1998,
between CNL Health Care Properties, Inc. and CNL
Health Care Advisors, Inc. (Included as Exhibit
10.1 to the Registrants 1998 Report on Form 10-K
filed with the Securities and Exchange Commission on
March 5, 1999 and incorporated herein by reference.)
10.2 Indemnification Agreement between CNL Health Care
Properties, Inc. and Phillip M. Anderson, Jr. dated
February 19, 1999. Each of the following director
and/or officer has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A.
Moses, Curtis B. McWilliams, Jeanne A. Wall and Lynn
E. Rose dated September 15, 1998 (Included as Exhibit
10.2 to the Registrant's 1998 Report on Form 10-K
filed with the Securities and Exchange Commission on
March 5, 1999 and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)