Back to GetFilings.com
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, 2000
-------------------------------
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 333-37480
CNL RETIREMENT 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, $12,730,646 of our common stock was held by
non-affiliates as of February 19, 2001.
The number of Shares of common stock outstanding as of February 19,
2001 was 1,293,872.
PART I
Item 1. Business
CNL Retirement Properties, Inc., formerly known as CNL Health Care
Properties, Inc., is a corporation, which was organized pursuant to the laws of
the state of Maryland on December 22, 1997. CNL Retirement GP Corp. and CNL
Retirement LP Corp. are wholly owned subsidiaries of CNL Retirement Properties,
Inc., each of which were organized pursuant to the laws of the state of Delaware
in December 1999. CNL Retirement GP Corp. and CNL Retirement LP Corp. are the
general and limited partner, respectively, of CNL Retirement Partners, LP. CNL
Retirement Partners, LP (the "Partnership") is a Delaware limited partnership
formed in December 1999. Properties acquired are generally expected to be held
by the Partnership and, as a result, owned by CNL Retirement Properties, Inc.
through the Partnership. The terms "Company" or "Registrant" include CNL
Retirement Properties, Inc. and its subsidiaries, CNL Retirement GP Corp., CNL
Retirement LP Corp. and CNL Retirement Partners, LP. The Company operates for
federal income tax purposes as a real estate investment trust (a "REIT").
The Company was 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 lessees will be responsible for repairs,
maintenance, property taxes, utilities and insurance. The Company may provide
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 percent to 10 percent 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
provide 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
percent of the Company's total assets.
The Company acquired its first private-pay assisted living Property, a
Brighton Gardens(R) by Marriott(R), on April 20, 2000. The Property is located
in Orland Park, Illinois. In connection with the purchase of the Property, the
Company, as lessor, entered into a long-term, triple-net lease agreement.
On September 18, 1998, the Company commenced an offering to the public
of up to 15,500,000 shares of common stock (the "Shares") ($155,000,000) (the
"Initial Offering") pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended. Of the 15,500,000 Shares of common stock
offered, 500,000 ($5,000,000) were available only to stockholders who elected to
participate in the Company's reinvestment plan. Upon completion of the Initial
Offering on September 18, 2000, the Company had received aggregate subscription
proceeds of $9,718,974 (971,898 Shares), including $50,463 (5,046 Shares)
through the Company's reinvestment plan. Immediately following the completion of
the Initial Offering, the Company commenced an offering of up to 15,500,000
Shares of common stock ($155,000,000) (the "2000 Offering"). Of the 15,500,000
Shares of common stock offered, up to 500,000 are available to stockholders
purchasing Shares through the distribution reinvestment plan. The price per
Share and other terms of the 2000 Offering, including the percentage of gross
proceeds payable (i) to the managing dealer for the selling commissions and
expenses in connection with the offering and (ii) to CNL Retirement Corp. (the
"Advisor"), formerly CNL Health Care Corp., for acquisition fees, are
substantially the same as for the Company's Initial Offering. The 2000 Offering
will expire no later than September 5, 2001, unless the Company elects to extend
it to a date no later than September 5, 2002, in states that permit the Company
to make this election. As of December 31, 2000, the Company had received total
proceeds from the Initial Offering, the 2000 Offering and the sale of warrants
of $11,691,593 (1,169,156 Shares), including $134,919 (13,492 Shares) through
the distribution reinvestment plan.
As of December 31, 2000, net proceeds to the Company from its offerings
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 of three percent, totaled approximately
$10,570,000. The Company had used approximately $5,800,000 of net offering
proceeds and $8,100,000 in advances relating to its line of credit, described
below to invest approximately $13,900,000 in one assisted living Property. As of
December 31, 2000, the Company had repaid advances totaling $4,305,000 relating
to its line of credit and had paid approximately $834,000 in acquisition fees
and acquisition expenses.
During the period January 1, 2001, through February 19, 2001, the
Company received additional net offering proceeds of approximately $1,080,000, a
majority of which has been used to reduce the amount outstanding on the
Company's line of credit. The Company expects to use the uninvested net
proceeds, plus any additional net proceeds from the sale of Shares from the 2000
Offering to purchase additional Properties and, to a lesser extent, invest in
Mortgage Loans. In addition, the Company intends to borrow money to acquire
additional 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 borrowings. The Company currently has a $25,000,000 line of
credit available, as described below. Borrowings on the line of credit may be
repaid with offering proceeds, working capital or permanent financing. The
maximum amount the Company may borrow is 300 percent of the Company's net
assets. The Company believes that the net proceeds received from the 2000
Offering will enable the Company to continue to grow and take advantage of
acquisition opportunities until such time, if any, that the Company lists its
Shares on a national securities exchange or over-the-counter market ("Listing"),
although there is no assurance that Listing will occur. In addition, if Listing
does not occur by December 31, 2008, the Company will commence the orderly sale
of its assets and the distribution of the proceeds. Listing does not assure
liquidity.
The Company's primary investment objectives are to preserve, protect
and enhance the Company's assets while (i) making quarterly distributions to
stockholders; (ii) obtaining fixed income through the receipt of base rent, and
increasing the Company's income (and distributions to stockholders) and
providing protection against inflation through automatic increases in base rent,
and/or receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
continuing to qualify as a REIT for federal income tax purposes; and (iv)
providing stockholders of the Company with liquidity of their investment,
through (a) Listing of the Shares on a national securities exchange or
over-the-counter market, 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.
For the next three to eight years, 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 eight-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, the Advisor
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, 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.
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 20 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.
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.
Property Lease
As of December 31, 2000, the Company had acquired one Property, which
is subject to a long-term, triple-net lease. The lease provides for an initial
term of 15 years and expires in 2015. The lease is on a triple-net lease basis,
and the tenant is required to pay all repairs, maintenance, property taxes,
utilities and insurance. The tenant is also required to pay for special
assessments and the cost of any renovations permitted under the lease. The lease
provides for minimum base annual rent payments (generally payable every four
weeks) totaling $1,350,267. The lease provides that, after 24 months, the base
rent required under the terms of the lease will increase. In addition to annual
base rent, the tenant will pay contingent rent computed as a percentage of gross
sales of the Property commencing in the second year of the lease. The lease also
provides for the tenant to fund, in addition to its lease payments, a reserve
fund. Generally, money in that fund may be used by the tenant to pay for
replacement of furniture and fixtures. The Company may be responsible for
capital expenditures or repairs in excess of the amounts in the reserve fund,
and the tenant generally will be responsible for replenishing the reserve fund
and for paying a specified return on the amount of capital expenditures or
repairs paid for by the Company in excess of amounts in the reserve fund.
Major Tenant
During the year ended December 31, 2000, the Company owned one
Property. The lessee, BG Orland Park, LLC, contributed 100 percent of the
Company's total rental income. The Property is operated as a Marriott brand
chain. Although the Company intends to acquire additional Properties located in
various states and regions and to carefully screen its tenants in order to
reduce risks of default, failure of this lessee or the Marriott brand chain
would significantly impact the results of operations of the Company. However,
management believes that the risk of such a default is reduced due to the
essential or important nature of this Property for the ongoing operations of the
lessee. It is expected that the percentage of total rental income contributed by
this lessee will decrease as additional Properties are acquired and leased
during subsequent years.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, 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
provides 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 0.60 percent
of the total amount invested in the Properties, exclusive of acquisition fees
and acquisition expenses (the "Real Estate Asset Value") plus one-twelfth of
0.60 percent 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 percent 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 receive an acquisition fee equal to 4.5 percent
of gross proceeds from the offerings, 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, 2001, 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 either party.
Borrowing
On April 20, 2000, the Company entered into a revolving Line of Credit
and security agreement with a bank to be used by the Company to acquire
Properties. The Line of Credit provides that the Company will be able to receive
advances of up to $25,000,000 until April 19, 2005, with an annual review to be
performed by the bank to indicate that there has been no substantial
deterioration, as determined by the bank in its reasonable discretion, of the
Company's credit quality. Interest expense on each advance shall be payable
monthly, with all unpaid interest and principal due no later than five years
from the date of the advance. Generally, advances under the Line of Credit will
bear interest at either (i) a rate per annum equal to the London Interbank
Offered Rate (LIBOR) plus the difference between LIBOR and the bank's base rate
at the time of the advance or (ii) a rate equal to the bank's base rate,
whichever the Company selects at the time advances are made. The interest rate
will be adjusted daily in accordance with fluctuations with the bank's rate or
the LIBOR rate, as applicable. Notwithstanding the above, the interest rate on
the first $9,700,000 drawn will be 8.75 percent through April 1, 2002, and
thereafter will bear interest at either (i) or (ii) above as of April 1, 2002.
In addition, a fee of 0.5 percent per advance will be due and payable to the
bank on funds as advanced. Each advance made under the Line of Credit will be
collateralized by the assignment of rents and leases. In addition, the Line of
Credit provides that the Company will not be able to further encumber the
applicable Property during the term of the advance without the bank's consent.
The Company will be required, at each closing, to pay all costs, fees and
expenses arising in connection with the Line of Credit. The Company must also
pay the bank's attorney's fees, subject to a maximum cap, incurred in connection
with the Line of Credit and each advance. The Company obtained an advance of
$8,100,000 relating to the Line of Credit during the year ended December 31,
2000. As of December 31, 2000, the Company had repaid $4,305,000 of such amount
and had an outstanding balance of $3,795,000. In connection with the Line of
Credit, the Company incurred a commitment fee, legal fees and closing costs of
$55,917. The proceeds were used in connection with the purchase of the Company's
Property.
The Company currently plans to obtain one or more additional revolving
lines of credit in an aggregate amount of 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 percent 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 percent of the Company's
net assets (as defined in the Company's prospectus). There is no assurance that
the Company will obtain an additional Line of Credit or Permanent Financing on
satisfactory terms. The Board of Directors may elect to encumber assets in
connection with any borrowing.
Competition
The Company will be in competition 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
As of December 31, 2000, the Company owned one private-pay, assisted
living Property located in Orland Park, Illinois. As of February 19, 2001, the
Company had not acquired any additional Properties. Generally, Properties
acquired or to be acquired by the Company conform to the following
specifications of size, cost and type of land and buildings:
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
bedroom units 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 their respective
Property, 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 19, 2001, there were 541 stockholders of record of common
stock. There is no public 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 three to eight years, 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 percent 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, at a redemption price of $9.20 per
Share 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. For the year ended December
31, 2000, 3,316 Shares were retired pursuant to the redemption plan.
As of December 31, 2000, 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 years ended December
31, 2000 and 1999, the Company declared cash distributions of $502,078 and
$50,404, respectively, to stockholders. For the year ended December 31, 2000,
approximately 54 percent of distributions paid to stockholders were considered
ordinary income and approximately 46 percent were considered a return of capital
for federal income tax purposes. For the year ended December 31, 1999, 100
percent of distributions paid to stockholders were considered ordinary income
for federal tax purposes. No amounts distributed to stockholders for the years
ended December 31, 2000 and 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. The following table presents total
distribution and distributions per Share:
2000 Quarter First Second Third Fourth Year
- ------------------------------- ------------ ----------- ----------- ----------- -----------
Total distributions declared $43,593 $108,932 $160,911 $188,642 $502,078
Distributions per Share 0.075 0.1537 0.1749 0.1749 0.5785
1999 Quarter First Second Third Fourth Year
- ------------------------------- ------------ ----------- ----------- ----------- -----------
Total distributions declared (1) (1) $16,460 $33,944 $50,404
Distributions per Share (1) (1) 0.050 0.075 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, 2001 and February 1, 2001, the Company declared
distributions to stockholders totalling $69,134 and $74,465, respectively,
($0.0583 per Share) payable in March 2001, to stockholders of record on January
1, 2001 and February 1, 2001, 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's
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 consolidated financial statements and related notes in Item 8 hereof.
2000 1999 (1) 1998 (2) 1997 (2)(3)
--------------- --------------- --------------- ---------------
Year Ended December 31:
Revenues $ 1,084,730 $ 86,231 $ -- $ --
General operating and
administrative expenses (4) 340,086 79,261 -- --
Organizational costs -- 35,000 -- --
Net earnings (loss) 224,778 (28,390 ) -- --
Cash distributions declared 502,078 50,404 -- --
Cash from operations 1,096,019 12,851 -- --
Cash used in investing
activities (14,428,703 ) -- -- --
Cash from financing activities 8,766,346 4,731,279 (199,908) 200,000
Funds from operations (5) 425,806 (28,390 ) -- --
Earnings (loss) per Share 0.27 (0.07 ) -- --
Cash distributions declared
per Share 0.58 0.13 -- --
Weighted average number
of Shares outstanding (6) 845,833 412,713 -- --
At December 31:
Total assets $14,688,560 $ 5,088,560 $ 976,579 $ 280,330
Total stockholders' equity (7) 9,203,548 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) 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 percent of average invested assets or 25 percent of net income (the
"2 Percent/25 Percent 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 Percent/25 Percent Guidelines. During the year ended
December 31, 2000, the Advisor reimbursed the Company $213,886 in
operating expenses. No such amounts were reimbursed in 1999.
(5) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of the National Association of Real Estate
Investment Trusts ("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. (Net earnings determined in accordance with GAAP includes the
noncash effect of straight-lining rent increases throughout the lease
term. This straight-lining is a GAAP convention requiring real estate
companies to report rental revenue based on the average rent per year
over the life of the lease. During the year ended December 31, 2000,
net earnings included $21,128 of these amounts. No such amounts were
earned during 1999.) 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 consolidated financial
statements and notes thereto.
(6) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
(7) Includes subscriptions received in 2000 and 1999 of $6,256,310 and
$5,435,283, respectively, net of stock issuance costs of $1,027,216 and
$2,029,352, respectively. Stock issuance costs consist of selling
commissions, marketing support and due diligence expense reimbursement
fees and offering expenses. The ratio of stock issuance costs to
subscriptions received was 1:6 during 2000 and 1:3 during 1999. The
Company's Advisor has agreed to pay all organizational and offering
expenses which exceed 3 percent of the gross offering proceeds received
from the sale of Shares of the Company.
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. These statements are generally characterized by the use of
terms such as "believe," "expect" and "may." 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 capital from
borrowings under the Company's Line of Credit, continued availability of
proceeds from the Company's offerings, the ability of the Company to obtain
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 such 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
The Company
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 principal amount of
approximately 5 percent to 10 percent 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 percent of the Company's total assets.
Liquidity and Capital Resources
Common Stock Offerings
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 up to $155,000,000 of Shares of common stock (15,500,000 Shares at
$10 per Share), with 500,000 of such Shares available only to stockholders who
elected to participate in the Company's reinvestment plan. As of July 13, 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)
were held in escrow until the Company received aggregate subscriptions, in
excess of $7,775,000 on June 13, 2000. The Initial Offering of Shares concluded
on September 18, 2000. In connection with the Initial Offering, the Company
received subscription proceeds of $9,718,974 (971,898 Shares), including $50,463
(5,046 Shares) through the reinvestment plan.
Immediately following the completion of the Initial Offering, the
Company commenced an offering of up to 15,500,000 Shares of common stock
($155,000,000). Of the 15,500,000 Shares of common stock offered, up to 500,000
are available to stockholders purchasing Shares through the reinvestment plan.
The price per Share and other terms of the 2000 Offering, including the
percentage of gross proceeds payable (i) to the managing dealer for selling
commissions and expenses in connection with the offering and (ii) the Advisor
for acquisition fees, are substantially the same as for the Company's Initial
Offering. The managing dealer of the offerings of Shares of the Company is CNL
Securities Corp., an affiliate of the Advisor.
As of December 31, 2000, the Company had received aggregate proceeds
from its Initial Offering, the 2000 Offering, the sale of warrants and
contributions from the Advisor of $11,891,593 (1,189,156 Shares), including
$134,919 (13,492 Shares) through its reinvestment plan. As of December 31, 2000,
the Company had received net offering proceeds of approximately $10,570,000
following the deduction of selling commissions, marketing support and due
diligence expense reimbursement fees and organizational and offering expenses of
approximately 3 percent. The Company has used approximately $5,800,000 of the
net proceeds and $8,100,000 in advances from its Line of Credit to invest in a
Brighten Gardens by Marriott property in Orland Park, Illinois (see "Property
Acquisitions and Investments" below.)
During the period January 1, 2001 to February 19, 2001, the Company
received additional net offering proceeds of $1,080,000, a majority of which was
used to reduce the amount outstanding on the Line of Credit. The Company expects
to use any uninvested net proceeds, plus any additional net proceeds from the
2000 Offering to purchase additional Properties and to invest in Mortgage Loans.
In addition, the Company intends to borrow money to acquire assets and to pay
certain related fees. The Company intends to encumber assets in connection with
such borrowing. The Company has obtained a revolving $25,000,000 initial Line of
Credit. The Company also plans to obtain Permanent Financing. The Line of Credit
may be repaid with offering proceeds, proceeds from the sale of assets, working
capital or Permanent Financing. The aggregate amount of any Permanent Financing
is not expected to exceed 30 percent of the Company's total assets and the
maximum amount the Company may borrow is 300 percent of the Company's net
assets.
Redemptions
In October 1998, the Board of Directors elected to implement the
Company's redemption plan. Under the redemption plan, prior to such time, if
any, as Listing occurs any stockholder who has held Shares for at least one year
may present all or any portion equal to at least 25 percent of their Shares to
the Company for redemption in accordance with the procedures outlined in the
redemption plan. Upon presentation, the Company may, at its option, redeem the
Shares, subject to certain conditions and limitations. However, at no time
during a 12-month period may the number of Shares redeemed by the Company exceed
5 percent of the number of Shares of the Company's outstanding common stock at
the beginning of such 12-month period. During the year ended December 31, 2000,
3,316 Shares were redeemed at $9.20 per Share ($30,508) and retired from Shares
outstanding of common stock. No Shares were redeemed in 1999 or1998.
Line of Credit and Security Agreement
On April 20, 2000, the Company entered into a revolving Line of Credit
and security agreement with a bank to be used by the Company to acquire
Properties. The Line of Credit provides that the Company may receive advances of
up to $25,000,000 until April 19, 2005, with an annual review to be performed by
the bank to indicate that there has been no substantial deterioration, in the
bank's reasonable discretion, of the Company's credit quality. Interest expense
on each advance shall be payable monthly, with all unpaid interest and principal
due no later than five years from the date of the advance. Generally, advances
under the Line of Credit will bear interest at either (i) a rate per annum equal
to the London Interbank Offered Rate (LIBOR) plus the difference between LIBOR
and the bank's base rate at the time of the advance or (ii) a rate equal to the
bank's base rate, whichever the Company selects at the time advances are made.
The interest rate will be adjusted daily in accordance with fluctuations with
the bank's rate or the LIBOR rate, as applicable. Notwithstanding the above, the
interest rate on the first $9,700,000 drawn will be 8.75 percent through April
1, 2002, and thereafter will bear interest at either (i) or (ii) above as of
April 1, 2002. In addition, a fee of 0.5 percent per advance will be due and
payable to the bank on funds as advanced. Each advance made under the Line of
Credit will be collateralized by the assignment of rents and leases. In
addition, the Line of Credit provides that the Company will not be able to
further encumber the applicable Property during the term of the advance without
the bank's consent. The Company will be required, at each closing, to pay all
costs, fees and expenses arising in connection with the Line of Credit. The
Company must also pay the bank's attorney's fees, subject to a maximum cap,
incurred in connection with the Line of Credit and each advance. During the year
ended December 31, 2000, the Company obtained an advance on the Line of Credit
of $8,100,000. As of December 31, 2000, the Company had repaid $4,305,000
relating to the Line of Credit and had an outstanding balance of $3,795,000.
In connection with the advances on the Line of Credit, the Company
incurred an origination fee, legal fees and closing costs of $55,917 that are
being amortized on the straight-line method over five years. The proceeds from
borrowing on the Line of Credit were used in connection with the purchase of the
Company's Property, described below.
Market Risk
As of December 31, 2000, the Company had a balance of $3,795,000
outstanding on the Line of Credit. As discussed above, the interest rate on the
first $9,700,000 drawn on the Company's Line of Credit will be 8.75 percent
through April 1, 2002. However, the Company is subject to interest rate risk
through advances greater than $9,700,000 on its variable rate Line of Credit.
The Company may mitigate this risk by paying down its Line of Credit from
offering proceeds should interest rates rise substantially.
Property Acquisition
On April 20, 2000, the Company used offering proceeds of $5,748,900 and
advances under its Line of Credit of $8,100,000 to acquire a private-pay
assisted living community for a total cost of $13,848,900. The Property is a
Brighton Gardens by Marriott in Orland Park, Illinois (the "Orland Park
Property"). In connection with the purchase of the Property, the Company, as
lessor, entered into a long-term, triple-net lease agreement.
The Orland Park Property, which opened in October 1999, includes 82
assisted living units and 24 special care units for residents with Alzheimer's
and related memory disorders. The facility provides assistance with daily living
activities such as bathing, dressing and medication reminders. Special amenities
include a common activities room and common dining room, a private dining area,
library and garden.
As of February 19, 2001, the Company had not acquired any additional
Properties or entered into any Mortgage Loans. In addition, as of February 19,
2001, the Company had not entered into any arrangements creating a reasonable
probability that any additional Properties or a particular Mortgage Loan or
Secured Equipment Lease would be funded.
Cash and Cash Equivalents
Until Properties are acquired or Mortgage Loans are entered into, net
offering proceeds are held in short-term (defined as investments with a maturity
of three months or less), 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, 2000, the Company had $177,884 invested in
such short-term investments as compared to $4,744,222 at December 31, 1999. The
decrease in the amount invested in short-term investments was primarily
attributable to the purchase of the Company's Property and repayments on the
Line of Credit, partially offset by subscription proceeds received from the sale
of Shares during the year ended December 31, 2000. The funds remaining at
December 31, 2000, along with additional funds expected to be received from the
sale of Shares, will be used primarily to repay amounts outstanding on the Line
of Credit, to purchase additional Properties, to make Mortgage Loans, to pay
offering expenses and acquisition expenses, to pay distributions to
stockholders, to meet other Company expenses and, in management's discretion, to
create cash reserves.
Liquidity Requirements
During the years ended December 31, 2000 and 1999, the Company
generated cash from operations (which includes cash received from its tenant and
interest, less cash paid for operating expenses) of $1,096,019 and $12,851,
respectively. For the year ended December 31, 2000, cash from operations
includes a security deposit of $553,956 which was received from the tenant. The
Company expects to meet its short-term liquidity requirements, other than for
offering expenses, the acquisition and development of Properties, and the
investment in Mortgage Loans and Secured Equipment Leases, through cash flow
provided by operating activities. The Company believes that cash flow provided
by operating activities will be sufficient to fund normal recurring operating
expenses, regular debt service requirements and distributions to stockholders.
To the extent that the Company's cash flow provided by operating activities is
not sufficient to meet such short-term liquidity requirements as a result, for
example, of unforeseen expenses due to the tenant defaulting under the terms of
its lease agreement, the Company will use borrowings under its Line of Credit.
The Company expects to meet its other short-term liquidity requirements,
including payment of offering expenses, property acquisitions and development,
and investment in Mortgage Loans and Secured Equipment Leases, with additional
advances under its Line of Credit and proceeds from its offerings. The Company
expects to meet its long-term liquidity requirements through short- or
long-term, unsecured or secured debt financing or equity financing.
Management believes that the Property is adequately covered by
insurance. In addition, the Advisor has obtained contingent liability and
property coverage for the Company. This insurance policy is intended to reduce
the Company's exposure in the unlikely event tenant's insurance policy lapses or
is insufficient to cover a claim relating to the Property.
As of December 31, 2000, the tenant of the Property owned by the
Company had established a reserve fund which will be used for the replacement
and renewal of furniture, fixtures and equipment relating to the Property (the
"FF&E Reserve"). Funds in the FF&E Reserve have been paid, granted and assigned
to the Company. For the year ended December 31, 2000, revenue relating to the
FF&E Reserve totaled $19,672. Due to the fact that the Property is leased on a
long-term, triple-net basis, meaning the tenant is required to pay repairs and
maintenance, property taxes, insurance and utilities, management does not
believe that other working capital reserves are necessary at this time.
Management has the right to cause the Company to maintain additional reserves
if, in their discretion, they determine such reserves are required to meet the
Company's working capital needs.
Distributions
The Company declared and paid distributions to its stockholders
totaling $502,078 and $50,404 during the years ended December 31, 2000 and 1999,
respectively. In addition, on January 1, 2001 and February 1, 2001, the Company
declared distributions of $0.0583 per Share of common stock. These distributions
are payable in March 2001.
For the year ended December 31, 2000, approximately 54 percent of the
distributions received by stockholders were considered to be ordinary income and
approximately 46 percent were considered a return of capital for federal income
tax purposes. For the year ended December 31, 1999, 100 percent of distributions
received by stockholders were considered ordinary income for federal income tax
purposes. No amounts distributed to stockholders for the years ended December
31, 2000 and 1999 were required to be or have been treated by the Company as
return of capital for purposes of calculating the stockholders' return on their
invested capital. The Company intends to continue to make distributions of cash
available for such purpose to the stockholders on a monthly basis, payable
quarterly.
Due to Related Parties
During the years ended December 31, 2000, 1999 and 1998, affiliates
incurred on behalf of the Company $387,704, $421,878 and $562,739, respectively,
for certain organizational and offering expenses. During the years ended
December 31, 2000 and 1999, affiliates incurred on behalf of the Company
$112,961 and $98,206, respectively, for certain acquisition expenses and
$157,878 and $41,307, respectively, for certain operating expenses. No amounts
were incurred for acquisition or operating expenses in 1998. As of December 31,
2000, the Company owed affiliates $1,117,799, for such amounts and unpaid fees
and administrative expenses. The Advisor of the Company has agreed to pay all
organizational and offering expenses (excluding selling commissions and
marketing support and due diligence expense reimbursement fees) in excess of 3
percent of gross offering proceeds.
In connection with the Initial Offering, the Company incurred $777,518
in selling commissions and marketing support and due diligence reimbursement
fees to related parties, a majority of which was reallowed to other
broker-dealer firms. In addition, in connection with the Initial Offering, the
Company reimbursed affiliates $291,569 for certain organizational and offering
expenses incurred on behalf of the Company and administrative services related
to the Initial Offering.
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 Expense Year the greater of 2 percent of
average invested assets or 25 percent of net income (the "Expense Cap"). During
the four quarters ended June 30, 2000, the Company's operating expenses exceeded
the Expense Cap by $213,886 (the "June 2000 Reimbursement"); therefore, the
Advisor reimbursed the Company such amount in accordance with the Advisory
Agreement. During the Expense Years ended September 30, 2000 and December 31,
2000, the Company's operating expenses, net of the June 2000 Reimbursement, did
not exceed the Expense Cap.
Other
Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources. 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
Comparison of year ended December 31, 2000 to the years ended December 31, 1999
and December 31, 1998
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on July 14, 1999. The Company acquired its first
private-pay, assisted living Property, a Brighton Gardens by Marriott, on April
20, 2000. As a result of the acquisition, the Company earned rental income from
operating leases and FF&E Reserve income of $981,672 during the year ended
December 31, 2000. No rental income was earned for the years ended December 31,
1999 and 1998.
All of the Company's rental income for the year ended December 31,
2000, was earned from one lessee, BG Orland Park, LLC. Although the Company
intends to acquire additional Properties, including Properties located in
various states and regions, and to carefully screen its tenants in order to
reduce risks of default, failure of the lessee or the Marriott brand chain would
significantly impact the results of operations of the Company. However,
management believes that the risk of such a default is reduced due to the
essential or important nature of this Property for the ongoing operations of the
lessee. It is expected that the percentage of total rental income contributed by
this lessee will decrease as additional Properties are acquired in subsequent
periods.
During the years ended December 31, 2000 and 1999, the Company earned
$103,058 and $86,231, respectively, in interest income from investments in money
market accounts. The increase in interest income is attributable to increased
subscription proceeds received in 2000 being temporarily invested in highly
liquid investments pending investment in Properties and Mortgage Loans. 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 including interest, depreciation and amortization
for the years ended December 31, 2000 and 1999 were $859,952 and $114,621,
respectively, including organizational expenses of $35,000 in 1999. Operating
expenses increased during the year ended December 31, 2000, primarily due to the
fact that the Company did not commence operations until July 14, 1999 and that
the Company acquired its Property and received an advance on its Line of Credit
in 2000. As discussed above, during the year ended December 31, 2000, the
Company's operating expenses exceeded the Expense Cap by $213,886; therefore,
the Advisor reimbursed the Company such amount in accordance with the Advisory
Agreement. The dollar amount of operating expenses is expected to increase as
the Company acquires additional 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.
Other
The Company has made an election under 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 years ended December 31, 2000 and 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.
Management of the Company currently knows of no trends that will have a
material adverse effect on liquidity, capital resources or results of
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk for information related to quantitative
and qualitative disclosures about market risk.
Item 8. Financial Statements and Supplementary Data
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONTENTS
Page
Report of Independent Certified Public Accountants 17
Financial Statements:
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Consolidated Statements of Stockholders' Equity 20
Consolidated Statements of Cash Flows 21-22
Notes to Consolidated Financial Statements 23-30
Report of Independent Certified Public Accountants
To the Board of Directors
CNL Retirement Properties, Inc.
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 14(a)(1) present fairly, in all material respects,
the financial position of CNL Retirement Properties, Inc. (a Maryland
corporation) and its subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements. These
financial statements and the financial statement schedule are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, 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 our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 26, 2001
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
--------------- -------------
ASSETS
Land, building and equipment on operating lease, net $ 14,417,908 $ --
Cash and cash equivalents 177,884 4,744,222
Restricted cash 17,312 --
Receivables 2,472 --
Loan costs, less accumulated amortization of $7,798 48,119 --
Accrued rental income 21,128 --
Other assets 3,737 344,338
--------------- --------------
$ 14,688,560 $ 5,088,560
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 3,795,000 $ --
Due to related parties 1,117,799 1,775,256
Accounts payable and accrued expenses 5,864 21,167
Interest payable 11,045 --
Security deposit 553,956 --
Rent paid in advance 1,348 --
--------------- --------------
Total liabilities 5,485,012 1,796,423
--------------- --------------
Stockholders' equity:
Preferred stock, without par value.
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 1,189,156
and 540,028 shares, respectively, outstanding 1,185,840
and 540,028 shares,respectively 11,858 5,400
Capital in excess of par value 9,547,784 3,365,531
Accumulated distributions in excess of net earnings (356,094 ) (78,794 )
--------------- --------------
Total stockholders' equity 9,203,548 3,292,137
--------------- --------------
$ 14,688,560 $ 5,088,560
=============== ==============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2000 1999 1998
------------ ------------ --------------
Revenues:
Rental income from operating lease $ 962,000 $ -- $ --
FF&E reserve income 19,672 -- --
Interest income 103,058 86,231 --
------------- ------------- ---------------
1,084,730 86,231 --
------------- ------------- ---------------
Expenses:
Interest 367,374 -- --
General operating and administrative 340,086 79,621 --
Asset management fees to related party 55,396 -- --
Organizational costs -- 35,000 --
Reimbursement of operating expenses
from related party (213,886 ) -- --
Depreciation and amortization 310,982 -- --
------------- ------------- ---------------
859,952 114,621 --
------------- ------------- ---------------
Net Earnings (Loss) $ 224,778 $ (28,390 ) $ --
============= ============= ===============
Net Earnings (Loss) Per Share of Common
Stock (Basic and Diluted) $ 0.27 $ (0.07 ) $ --
============= ============= ===============
Weighted Average Number of Shares of
Common Stock Outstanding (Basic
and Diluted) 845,833 412,713 --
============= ============= ===============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
Common stock Accumulated
---------------------- Capital in distributions in
Number Par excess of excess of net
of Shares value par value earnings Total
---------- ---------- ------------- --------------- ------------
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 ($0.125 per share) -- -- -- (50,404 ) (50,404 )
---------- ---------- ------------- --------------- ------------
Balance at December 31, 1999 540,028 5,400 3,365,531 (78,794 ) 3,292,137
Subscriptions received for common stock
through public offering and distribution
reinvestment plan 625,628 6,256 6,250,054 -- 6,256,310
Subscriptions released from escrow 23,500 235 234,765 -- 235,000
Retirement of common stock (3,316 ) (33 ) (30,475 ) -- (30,508 )
Stock issuance costs -- -- (1,027,216 ) -- (1,027,216 )
Adjustment to previously accrued stock
issuance costs -- -- 755,125 -- 755,125
Net earnings -- -- -- 224,778 224,778
Distributions declared and paid ($0.5785 per share) -- -- -- (502,078 ) (502,078 )
---------- ---------- ------------- --------------- ------------
Balance at December 31, 2000 1,185,840 $ 11,858 $ 9,547,784 $ (356,094 ) $ 9,203,548
========== ========== ============= =============== ============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
------------- ------------- ------------
Increase (Decrease) in Cash and Cash Equivalents:
Operating Activities:
Cash received from tenant $ 1,513,376 $ -- $ --
Interest received 103,058 86,231 --
Cash paid for expenses (377,972 ) (73,380 ) --
Reimbursement of operating expenses from
related party 213,886 -- --
Cash paid for interest (356,329 ) -- --
-------------- -------------- ------------
Net cash provided by operating activities 1,096,019 12,851 --
-------------- -------------- ------------
Investing Activities:
Additions to land, building and equipment on
operating lease (13,848,900 ) -- --
Payment of acquisition costs (562,491 ) -- --
Increase in restricted cash (17,312 ) -- --
-------------- -------------- ------------
Net cash used in investing activities (14,428,703 ) -- --
-------------- -------------- ------------
Financing Activities:
Reimbursement of organizational, offering
and acquisition costs paid by related party
on behalf of the Company (411,875 ) (2,447 ) (135,339 )
Proceeds from line of credit 8,100,000 -- --
Payment of loan costs (55,917 ) -- --
Repayment of borrowings on line of credit (4,305,000 ) -- --
Subscriptions received from stockholders 6,491,310 5,200,283 --
Distributions to stockholders (502,078 ) (50,404 ) --
Retirement of common stock (30,508 ) -- --
Payment of stock issuance costs (519,586 ) (416,153 ) (64,569 )
-------------- -------------- ------------
Net cash provided by (used in)
financing activities 8,766,346 4,731,279 (199,908 )
-------------- -------------- ------------
Net Increase (Decrease) in Cash and Cash
Equivalents (4,566,338 ) 4,744,130 (199,908 )
Cash and Cash Equivalents at Beginning of Year 4,744,222 92 200,000
-------------- -------------- ------------
Cash and Cash Equivalents at End of Year $ 177,884 $ 4,744,222 $ 92
============== ============== ============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2000 1999 1998
------------- ------------- ------------
Reconciliation of Net Earnings (Loss) to Net Cash
Provided by Operating Activities:
Net earnings (loss) $ 224,778 $ (28,390 ) $ --
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 303,184 -- --
Amortization 7,798 -- --
Organizational costs -- 20,000 --
Changes in operating assets and liabilities:
Receivables (2,472 ) -- --
Accrued rental income (21,128 ) -- --
Other assets 1,798 (5,535 ) --
Interest payable 11,045 -- --
Accounts payable and other accrued
expenses (14,173 ) 20,037 --
Due to related parties 29,885 6,739 --
Security deposit 553,956 -- --
Rent paid in advance 1,348 -- --
-------------- -------------- --------------
Net cash provided by operating
activities $ 1,096,019 $ 12,851 $ --
============== ============== ==============
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Amounts incurred by the Company and paid by
related parties on behalf of the Company and
its subsidiaries were as follows:
Acquisition costs $ 112,961 $ 98,206 $ --
Organizational costs -- -- 20,000
Deferred offering costs -- -- 542,739
Stock issuance costs 387,704 421,878 --
-------------- -------------- --------------
$ 500,665 $ 520,084 $ 562,739
============== ============== ==============
Adjustment to previously accrued stock
issuance costs $ 755,125 $ -- $ --
============== ============== ==============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Retirement Properties, Inc.,
formerly known as CNL Health Care Properties, Inc., was organized
pursuant to the laws of the state of Maryland on December 22, 1997. CNL
Retirement GP Corp. and CNL Retirement LP Corp. are wholly owned
subsidiaries of CNL Retirement Properties, Inc., each of which was
organized pursuant to the laws of the state of Delaware in December
1999. CNL Retirement Partners, LP is a Delaware limited partnership
formed in December 1999. CNL Retirement GP Corp. and CNL Retirement LP
Corp. are the general and limited partner, respectively, of CNL
Retirement Partners, LP. The term "Company" includes, unless the
context otherwise requires, CNL Retirement Properties, Inc., CNL
Retirement Partners, LP, CNL Retirement GP Corp. and CNL Retirement LP
Corp.
The Company intends to use the proceeds from its public offerings (see
Note 2), after deducting offering expenses, primarily to acquire real
estate properties (the "Property or Properties") related to health care
and seniors' housing facilities ("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 ("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 10 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 Retirement Properties, Inc. and
its wholly owned subsidiaries, CNL Retirement GP Corp. and CNL
Retirement LP Corp., as well as the accounts of CNL Retirement
Partners, LP. All significant intercompany balances and transactions
have been eliminated.
Real Estate and Lease Accounting - The Company recorded the acquisition
of land, building, and equipment at cost, including acquisition and
closing costs. Land, building and equipment are leased to an unrelated
third party on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the Property,
including property taxes, insurance, maintenance and repairs.
The Property lease is accounted for using the operating method. Under
the operating method, land, building and equipment are recorded at
cost, revenue is recognized as rentals are earned and depreciation is
charged to operations as incurred. Building and equipment are
depreciated on the straight-line method over their estimated useful
lives of 40 and 7 years, respectively. Income is recognized on a
straight-line basis so as to produce a constant periodic rent over the
lease term commencing on the date the Property is placed in service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED
Years Ended December 31, 2000, 1999 and 1998
1. Significant Accounting Policies - Continued:
-------------------------------------------
When the Property is sold, the related costs and accumulated
depreciation, plus any accrued rental income, will be removed from the
accounts and any gain or loss from sale will be reflected in income.
Management reviews its assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may
not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future
undiscounted cash flows, including the residual value of the Property,
with the carrying cost of the Property. If an impairment is indicated,
the assets are adjusted to their fair value.
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.
Loan Costs - Loan costs incurred in connection with the Company's line
of credit have been capitalized and are being amortized over the term
of the loan using the straight-line method, which approximates the
effective interest method.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("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. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements.
Earnings Per Share - Basic earnings per share is 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 years ended December 31, 2000 and 1999 was 845,833
and 412,713, respectively. As of December 31, 2000 and 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 2000
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 consolidated financial statements in
conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. Significant Accounting Policies - Continued:
-------------------------------------------
New Accounting Standard - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("FAS 133.") FAS 133, as amended by FAS 137, "Deferral of Effective
Date of FAS 133," is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000 (January 1, 2001 for the Company.)
FAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on the type of derivative. As of
December 31, 2000, the Company has not engaged in any transactions that
include derivative instruments. Management of the Company plans to
limit its use of derivative instruments and, therefore, anticipates
that the adoption of FAS 133 will not have a significant effect on the
Company's results of operations or its financial position.
2. Public Offerings:
----------------
On September 18, 2000, the Company completed its offering of up to
15,500,000 shares of common stock ($155,000,000) (the "Initial
Offering"), which included 500,000 shares ($5,000,000) available only
to stockholders who elected to participate in the Company's
distribution reinvestment plan. In addition, the Company registered up
to 600,000 shares issuable upon the exercise of warrants granted to the
managing dealer of the Initial Offering as shares were sold. In
connection with the Initial Offering, the Company received subscription
proceeds of $9,718,974 (971,898 shares) including $50,463 (5,046
shares) through the distribution reinvestment plan and had issued
approximately 35,776 warrants to the managing dealer of the Initial
Offering (see Note 9).
Immediately following the completion of the Initial Offering, the
Company commenced an offering of up to 15,500,000 shares of common
stock ($155,000,000) (the "2000 Offering"). Of the 15,500,000 shares of
common stock offered, up to 500,000 are available to stockholders
purchasing shares through the distribution reinvestment plan. The price
per share and other terms of the 2000 Offering, including the
percentage of gross proceeds payable (i) to the managing dealer for the
selling commissions and expenses in connection with the offering and
(ii) to CNL Retirement Corp. (the "Advisor") for acquisition fees, are
substantially the same as for the Company's Initial Offering. As of
December 31, 2000, the Company had received total proceeds from the
Initial Offering, the 2000 Offering and the sale of warrants of
$11,691,593 (1,169,156 shares), including $134,919 (13,492 shares)
through the distribution reinvestment plan.
3. Land, Building and Equipment on Operating Lease:
-----------------------------------------------
As of December 31, 2000, the Company owned one Property consisting of
land, building and equipment, which was leased on a long-term,
triple-net basis to a Health Care Facility operator. The lease is
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," and has been classified as
an operating lease. The lease is for 15 years, provides for minimum and
contingent rent and requires the tenant to pay executory costs. In
addition, the tenant pays all property taxes and assessments and
carries insurance coverage for public liability, property damage, fire
and extended coverage. The lease options allow the tenant to renew the
lease for four successive five-year periods subject to the same terms
and conditions of the initial lease. The lease also requires the
establishment of a capital expenditure reserve fund, which will be used
for the replacement and renewal of furniture, fixtures and equipment
relating to the Property (the "FF&E Reserve"). Funds in the FF&E
Reserve have been paid, granted and assigned to the Company as
additional rent. For the year ended December 31, 2000, revenues from
the FF&E Reserve totaled $19,672.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
3. Land, Building and Equipment on Operating Lease - Continued:
-----------------------------------------------------------
Land, building and equipment on operating lease consisted of the
following at December 31:
2000 1999
------------- ------------
Land $ 2,162,388 $ --
Building 11,533,074 --
Equipment 1,025,630 --
------------- ------------
14,721,092 --
Less accumulated depreciation (303,184 ) --
------------- ------------
$ 14,417,908 $ --
============= ============
The lease provides for an increase in the minimum annual rent
commencing at the beginning of the third lease year. Such amount is
recognized on a straight-line basis over the term of the lease
commencing on the date the Property was placed in service. For the year
ended December 31, 2000, the Company recognized $21,128 of such rental
income. This amount is included in rental income from operating lease
in the accompanying consolidated statements of operations.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating lease at December 31, 2000:
2001 $ 1,350,267
2002 1,374,311
2003 1,384,890
2004 1,384,890
2005 1,384,890
Thereafter 12,892,959
--------------
$ 19,772,207
==============
Since the lease is renewable at the option of the tenant, the above
table only presents future minimum lease payments due during the
initial lease term. In addition, this table does not include any
amounts for future contingent rents, which may be received on the lease
based on a percentage of the tenant's gross sales.
4. Other Assets:
------------
Other assets as of December 31, 2000, were $3,737 and consisted of
miscellaneous prepaid expenses. Other assets as of December 31, 1999,
were $344,338 and consisted of acquisition fees and miscellaneous
acquisition expenses that were allocated to the Company's Property and
miscellaneous prepaid expenses.
5. Redemption of Shares:
--------------------
The Company has a redemption plan under which the Company may elect to
redeem shares, subject to certain conditions and limitations. Under the
redemption plan, prior to such time, if any, as listing occurs any
stockholder who has held Shares for at least one year may present all
or any portion equal to at least 25 percent of their Shares to the
Company for redemption in accordance with the procedures outlined in
the redemption plan. Upon
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
5. Redemption of Shares - Continued:
--------------------------------
presentation, the Company may, at its option, redeem the Shares,
subject to certain conditions and limitations. However, at no time
during a 12-month period may the number of Shares redeemed by the
Company exceed 5 percent of the number of shares of the Company's
outstanding common stock at the beginning of such 12-month period.
During the year ended December 31, 2000, 3,316 shares of common stock
were redeemed and retired. No shares were redeemed in 1999 or 1998.
6. Line of Credit:
--------------
On April 20, 2000, the Company entered into a revolving Line of Credit
and security agreement with a bank to be used by the Company to acquire
Properties. The Line of Credit provides that the Company will be able
to receive advances of up to $25,000,000 until April 19, 2005, with an
annual review to be performed by the bank to indicate that there has
been no substantial deterioration, as determined by the bank in its
reasonable discretion, of the Company's credit quality. Interest
expense on each advance shall be payable monthly, with all unpaid
interest and principal due no later than five years from the date of
the advance. Generally, advances under the Line of Credit will bear
interest at either (i) a rate per annum equal to the London Interbank
Offered Rate (LIBOR) plus the difference between LIBOR and the bank's
base rate at the time of the advance or (ii) a rate equal to the bank's
base rate, whichever the Company selects at the time advances are made.
The interest rate will be adjusted daily in accordance with
fluctuations with the bank's rate or the LIBOR rate, as applicable.
Notwithstanding the above, the interest rate on the first $9,700,000
drawn will be 8.75 percent through April 1, 2002, and thereafter will
bear interest at either (i) or (ii) above as of April 1, 2002. In
addition, a fee of 0.5 percent per advance will be due and payable to
the bank on funds as advanced. Each advance made under the Line of
Credit will be collateralized by the assignment of rents and leases. In
addition, the Line of Credit provides that the Company will not be able
to further encumber the applicable Property during the term of the
advance without the bank's consent. The Company will be required, at
each closing, to pay all costs, fees and expenses arising in connection
with the Line of Credit. The Company must also pay the bank's
attorney's fees, subject to a maximum cap, incurred in connection with
the Line of Credit and each advance. The Company obtained an advance of
$8,100,000 relating to the Line of Credit during the year ended
December 31, 2000. As of December 31, 2000, the Company had repaid
$4,305,000 of such amount and had an outstanding balance of $3,795,000.
In connection with the Line of Credit, the Company incurred a
commitment fee, legal fees and closing costs of $55,917. The proceeds
were used in connection with the purchase of the Company's Property.
7. Stock Issuance Costs:
--------------------
The Company has incurred certain expenses in connection with its
offerings, including commissions, marketing support and due diligence
expense reimbursement fees, filing fees, and legal, accounting,
printing and escrow fees, which have been deducted from the gross
proceeds of the offerings. Preliminary costs incurred prior to raising
capital were advanced 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 offerings.
During the years ended December 31, 2000, 1999 and 1998, the Company
incurred $1,027,216, $1,089,013 and $975,339, respectively, in
organizational and offering costs, including $519,302, $413,983 and
$2,040, respectively, in commissions and marketing support and due
diligence expense reimbursement fees (see Note 9). All amounts incurred
for the year ended December 31, 2000, have been treated as stock
issuance costs. For the years ended December 31, 1999 and 1998,
$1,074,013 and $955,339, respectively, were treated as stock issuance
costs, $15,000 and $20,000, respectively, were treated as organization
costs and expensed in 1999. The stock issuance costs have been charged
to stockholders' equity subject to the three percent cap described
above.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
8. Distributions:
-------------
For the years ended December 31, 2000 and 1999, approximately 54
percent and 100 percent, respectively, of the distributions paid to
stockholders were considered ordinary income, and for the year ended
December 31, 2000, approximately 46 percent was considered a return of
capital to stockholders for federal income tax purposes. No amounts
distributed to the stockholders for the years ended December 31, 2000
and 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.
9. 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 Company's public
offerings, CNL Securities Corp. These affiliates are entitled to
receive fees and compensation in connection with the offerings, and the
acquisition, management and sale of the assets of the Company.
During the years ended December 31, 2000, 1999 and 1998, the Company
incurred $486,846, $388,109 and $1,912, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
the offerings. A substantial portion of these amounts ($437,940,
$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, 2000, 1999 and 1998, the Company incurred $32,456,
$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 agreed to issue and sell soliciting dealer
warrants ("Soliciting Dealer Warrants") to CNL Securities Corp. in
connection with the Initial Offering. The price for each warrant was
$0.0008 and one warrant was issued for every 25 shares sold by the
managing dealer in the Initial Offering, 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 September 18, 1998. No
Soliciting Dealer Warrants, however, are exercisable until one year
from the date of issuance. During the year ended December 31, 2000, the
Company issued approximately 35,776 Soliciting Dealer Warrants.
CNL Securities Corp. will also receive, in connection with the 2000
Offering, a soliciting dealer servicing fee payable annually by the
Company beginning on December 31 of the year following the year in
which the 2000 Offering is completed in the amount of 0.20 percent of
the aggregate investment of stockholders who purchase shares in the
2000 Offering. CNL Securities Corp. in turn may reallow all or a
portion of such fees to soliciting dealers whose clients hold shares on
such date. As of December 31, 2000, no such fees had been incurred.
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 the Company's common stock on a national securities exchange or
over-the-counter market, but excluding that portion of the
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
9. Related Party Arrangements - Continued:
--------------------------------------
permanent financing used to finance Secured Equipment Leases. During
the years ended December 31, 2000, 1999 and 1998, the Company incurred
$292,108, $232,865 and $1,148, respectively, of such fees. Such fees
are included in other assets prior to being allocated to individual
Properties.
The Company incurs operating expenses which, in general, are those
expenses relating to the 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 2 percent of average
invested assets or 25 percent of net income (the "Expense Cap"). During
the four quarters ended June 30, 2000, the Company's operating expenses
exceeded the Expense Cap by $213,886 (the "June 2000 Reimbursement");
therefore, the Advisor reimbursed the Company such amount in accordance
with the advisory agreement. During the Expense Years ended September
30, 2000 and December 31, 2000, the Company's operating expenses, net
of the June 2000 Reimbursement, did not exceed the Expense Cap. For the
years ended December 31, 1999 and 1998, the Expense Cap was not
applicable.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor receives a monthly asset management fee
of one-twelfth of 0.60 percent of the Company's real estate asset value
and the outstanding principal balance of any Mortgage Loan as of the
end of the preceding month. During the year ended December 31, 2000,
the Company incurred $55,396 of such fees. No such fees were incurred
by the Company for 1999 or 1998.
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 offerings),
on a day-to-day basis. The expenses incurred for these services were
classified as follows:
Years Ended December 31,
2000 1999 1998
----------- ----------- ------------
Deferred offering costs $ -- $ -- $ 196,184
Stock issuance costs 117,679 328,229 --
Land, building and equipment on
operating lease and other
assets 31,370 6,455 --
General operating and
administrative expenses 197,869 38,796 --
----------- ----------- ------------
$346,918 $373,480 $ 196,184
=========== =========== ============
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999 and 1998
9. Related Party Arrangements - Continued:
--------------------------------------
Amounts due to related parties consisted of the following at December
31:
2000 1999
------------ -------------
Due to the Advisor:
Expenditures incurred for offering
expenses on behalf of the Company $ 982,100 $ 1,432,291
Accounting and administrative
services 32,964 6,739
Acquisition fees and miscellaneous
acquisition expenses 96,526 336,226
------------- -------------
1,111,590 1,775,256
------------- -------------
Due to CNL Securities Corp.:
Commissions 5,819 --
Marketing support and due diligence
expense reimbursement fee 390 --
------------- -------------
6,209 --
------------- -------------
$1,117,799 $1,775,256
============= =============
10. Concentration of Credit Risk:
-----------------------------
All of the Company's rental income for the year ended December 31,
2000, was earned from one lessee, BG Orland Park, LLC, which operates
the Property as a Brighton Gardens by Marriott.
Although the Company intends to acquire additional Properties,
including Properties located in various states and regions, and to
carefully screen its tenants in order to reduce risks of default,
failure of the lessee or the Marriott brand chain would significantly
impact the results of operations of the Company. However, management
believes that the risk of such a default is reduced due to the
essential or important nature of this Property for the ongoing
operations of the lessee.
It is expected that the percentage of total rental income contributed
by this lessee will decrease as additional Properties are acquired in
subsequent periods.
11. Subsequent Events:
-----------------
During the period January 1, 2001, through February 19, 2001, the
Company received subscription proceeds for an additional 108,031 shares
($1,080,311) of common stock.
In addition, on January 1, 2001 and February 1, 2001, the Company
declared distributions totalling $69,134 and $74,465, respectively, or
$.0583 per share of common stock, payable in March 2001, to
stockholders of record on January 1, 2001 and February 1, 2001,
respectively.
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. 54 Director, Chairman of the Board and Chief
Executive Officer
Robert A. Bourne 53 Director and President
David W. Dunbar 48 Independent Director
Timothy S. Smick 49 Independent Director
Edward A. Moses 58 Independent Director
Phillip M. Anderson, Jr. 41 Chief Operating Officer and Executive Vice
President
Thomas J. Hutchison III 59 Executive Vice President
Lynn E. Rose 52 Secretary and Treasurer
James M. Seneff, Jr. Director, Chairman of the Board and Chief
Executive Officer. Mr. Seneff is a director, Chairman of the Board and Chief
Executive Officer of the Advisor. Mr. Seneff is a principal stockholder of CNL
Holdings, Inc., the parent company of CNL Financial 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. and its subsidiaries since
its formation in 1973. CNL Financial Group, Inc. is the parent company, either
directly or indirectly through subsidiaries, of CNL Real Estate Services, Inc.,
the Advisor, CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., the managing dealer in the Company's offerings. CNL and the
entities it has established have more than $4 billion in assets, representing
interests in approximately 2,000 properties and 1,000 mortgage loans in 48
states. 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 a director, 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, served as Chief
Executive Officer from 1994 through August 1999, and currently serves as
Co-Chief Executive Officer 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 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. Mr. Bourne serves as a
director and President of the Advisor. Mr. Bourne is also the President and
Treasurer of CNL Financial Group, Inc; a director, Vice Chairman of the Board
and President of CNL Hospitality Properties, Inc., a public, unlisted real
estate investment trust; as well as director, Vice Chairman of the Board and
President of 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 as a director and held various executive positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with such company, from 1994 through August 1999. Mr. Bourne also serves
as a director, President and Treasurer for various affiliates of CNL Financial
Group, Inc. including CNL Investment Company, CNL Securities Corp., the managing
dealer in the Company's offerings; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans. Since joining CNL Securities
Corp. in 1979, Mr. Bourne has overseen CNL's real estate and capital markets
activities including the investment of nearly $2 billion in equity and the
financing, acquisition, construction and leasing of restaurants, office
buildings, apartment complexes, hotels and other real estate. 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
System, an alliance of ten non-profit hospitals in the Tampa Bay area, as well
as vice chairman of the board of directors of Morton Plant Mease Health Care,
Inc., an 841-bed, not-for-profit hospital and a member of the board of directors
of 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 began his professional career with
Southeast Banking Corporation in Miami, from 1975 through 1981, serving as
regional vice president of commercial mortgage lending. Mr. Dunbar received a
B.S. degree in finance from Florida State University in 1975. 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 the Bank
of America professor of finance since 1989. Dr. Moses served as dean of the Roy
E. Crummer Graduate School of Business at Rollins College from 1994 to June
2000, and as a professor of finance. As dean, Dr. Moses established 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 director of HTE, Inc. and DemandStar.com. 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 in 1967 and a 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 the Advisor 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 the
Advisor and of CNL Retirement Development, Inc. (formerly 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 and
insurance committee. 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 also
serves as Executive Vice President of the Advisor of the Company, as well as,
President and Chief Operating Officer of CNL Real Estate Services, Inc., which
is the parent company of the Advisor and CNL Hospitality Corp. He is President
and Chief Operating Officer of CNL Realty and Development Corp. Mr. Hutchison
joined CNL Financial Group 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.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose serves as Secretary,
Treasurer and a director of CNL Retirement Corp., the Advisor. Ms. Rose is
Secretary and Treasurer of CNL Hospitality Properties, Inc., a public unlisted
real estate investment trust, and serves as Secretary of its subsidiaries. In
addition, she serves as Secretary, Treasurer and a director of CNL Hospitality
Corp., the advisor to CNL Hospitality Properties, Inc. Ms. Rose served as
Secretary to CNL American Properties Fund, Inc., a public unlisted real estate
investment trust from December 1994 to September 1999, and Secretary and a
director to CNL Fund Advisors, Inc., its advisor from March 1994 to September
1999. She 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 1992 to February
1996. Ms. Rose, a certified public accountant, has served as Secretary of CNL
Financial Group, Inc. since 1987, its Controller from 1987 to 1993, and its
Chief Financial Officer from 1993 to present. She also serves as Secretary of
the subsidiaries of CNL Financial Group, Inc. and hold various other offices in
such subsidiaries. In addition, she serves as Secretary for approximately 75
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 during the years
ended December 31, 2000, 1999, and 1998. In addition, no executive officer of
the Company received an annual salary or bonus from the Company during the
fiscal years ended December 31, 2000 and 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 19, 2001, the number and
percentage of outstanding shares beneficially owned by all persons known by the
Company to own beneficially more than 5 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) 1.5%
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 1.6%
officers as a group (8 persons)
(1) Includes 20,000 shares held by the Advisor of which Mr. Seneff is a
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 1 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 through its parent
corporation, CNL Holdings, Inc. In addition, Messrs. Seneff and Bourne and Ms.
Rose are executive officers of CNL Securities Corp., the managing dealer in the
Company's offerings 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 percent 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, 2000, the Company incurred
$486,846 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 percent of the
total amount raised from the sale of shares, all or a portion of which may be
reallowed to other broker-dealers. For the year ended December 31, 2000, the
Company incurred $32,456 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 percent 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, 2000, the Company incurred
$292,108 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, 2000, the Company incurred a total of $346,918 for these
services, $117,679 of such costs representing stock issuance costs, $31,370
representing acquisition related costs and $197,869 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 offerings, including filing fees, legal, accounting, marketing and
printing costs and escrow fees, which will be deducted from the gross proceeds
of the offerings. 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
3 percent of the gross offering proceeds received from the sale of shares of the
Company. For the year ended December 31, 2000, the Company incurred $387,704 for
such costs.
The Company agreed to issue and sell soliciting dealer warrants
("Soliciting Dealer Warrants") to CNL Securities Corp. in connection with the
Initial Offering. The price for each warrant was $0.0008 and one warrant was
issued for every 25 shares sold by the managing dealer in the Initial Offering,
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
September 18, 1998. No Soliciting Dealer Warrants, however, are exercisable
until one year from the date of issuance. During the year ended December 31,
2000, the Company issued approximately 35,776 Soliciting Dealer Warrants.
CNL Securities Corp. will also receive, in connection with the 2000
Offering, a soliciting dealer servicing fee payable annually by the Company
beginning on December 31 of the year following the year in which the 2000
Offering is completed in the amount of 0.20 percent of the aggregate investment
of stockholders who purchase shares in the 2000 Offering. CNL Securities Corp.
in turn may reallow all or a portion of such fees to soliciting dealers whose
clients hold shares on such date. As of December 31, 2000, no such fees had been
incurred.
The Company incurs operating expenses which, in general, are those
expenses relating to the 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 2 percent of average invested assets or 25 percent of net income (the
"Expense Cap"). During the four quarters ended June 30, 2000, the Company's
operating expenses exceeded the Expense Cap by $213,886 (the "June 2000
Reimbursement"); therefore, the Advisor reimbursed the Company such amount in
accordance with the advisory agreement. During the Expense Years ended September
30, 2000 and December 31, 2000, the Company's operating expenses, net of the
June 2000 Reimbursement, did not exceed the Expense Cap.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor receives a monthly asset management fee of
one-twelfth of 0.60 percent of the Company's real estate asset value and the
outstanding principal balance of any Mortgage Loan as of the end of the
preceding month. During the year ended December 31, 2000, the Company incurred
$55,396 of such fees.
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, 2000 and 1999
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2000.
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2000.
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
(a) 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 10-K 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.)
3.3 CNL Health Care Properties, Inc. Articles of Amendment
to Amended and Restated Articles of Incorporation dated
June 27, 2000. (Included as Exhibit 3.3 to the
Registrant's June 30, 2000 Report on Form 10-Q filed
with the Securities and Exchange Commission on August
1, 2000 and incorporated herein by reference.)
3.4 Articles of Amendment to the Amended and Restated
Articles of Incorporation of CNL Health Care
Properties, Inc. dated August 24, 2000. (Included as
Exhibit 3.5 to Registration Statement No. 333-37480 on
Form S-11 and incorporated herein by reference.)
3.5 Amendment No. 1 to the Bylaws of CNL Health Care
Properties, Inc. (Included as Exhibit 3.6 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 16, 2000,
between CNL Retirement Properties, Inc. and CNL
Retirement Corp. (Filed herewith.)
10.2 Indemnification Agreement between CNL Health Care
Properties, Inc. and Thomas J. Hutchison III dated
February 29, 2000. Each of the following directors
and/or officers has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A.
Moses, Jeanne A. Wall and Lynn E. Rose dated September
15, 1998 and Phillip M. Anderson, Jr. dated February
19, 1999. (Included as Exhibit 10.2 to the Registrant's
March 31, 2000 Report on Form 10-Q filed with the
Securities and Exchange Commission on May 3, 2000 and
incorporated herein by reference.)
10.3 Agreement of Limited Partnership of CNL Health Care
Partners, LP. (Included as Exhibit 10.10 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.4 Purchase and Sale Agreement between CNL Health Care
Partners, LP and Marriott Senior Living Services, Inc.,
relating to the Brighton Gardens by Marriott - Orland
Park, Illinois. (Included as Exhibit 10.4 to the
Registrant's March 31, 2000 Report on Form 10-Q filed
with the Securities and Exchange Commission on May 3,
2000 and incorporated herein by reference.)
10.5 Lease Agreement between CNL Health Care Partners, LP
and BG Orland Park, LLC dated April 20, 2000, relating
to the Brighton Gardens by Marriott - Orland Park,
Illinois. (Included as Exhibit 10.5 to the Registrant's
March 31, 2000 Report on Form 10-Q filed with the
Securities and Exchange Commission on May 3, 2000 and
incorporated herein by reference.)
10.6 Revolving Line of Credit Agreement with CNL Health Care
Properties, Inc., CNL Health Care Partners, LP and
Colonial Bank, dated April 20, 2000. (Included as
Exhibit 10.6 to the Registrant's March 31, 2000 Report
on Form 10-Q filed with the Securities and Exchange
Commission on May 3, 2000 and incorporated herein by
reference.)
(b) No reports on Form 8-K were filed during the period October 1,
2000 through December 31, 2000.
(b) Other Financial Information
The Company is required to file audited financial information of a
guarantor, Marriott International, Inc. ("Marriott"), of its tenant as
a result of Marriott guaranteeing lease payments for the Company's
tenant which leased more than 20 percent of the Company's total assets
for the year ended December 31, 2000. Marriott is a public company and
as the date hereof, had not filed its Form 10-K; therefore, the
financial statements are not available to the Company to include in
this filing. The Company will file this financial information under
cover of a Form 10-K/A as soon as it is available.
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 22nd day of
February, 2001.
CNL RETIREMENT 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 Executive Officer February 22, 2001
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
/s/ Robert A. Bourne Director and President February 22, 2001
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting Officer)
/s/ David W. Dunbar Independent Director February 22, 2001
- ---------------------------
David W. Dunbar
/s/ Timothy S. Smick Independent Director February 22, 2001
- ---------------------------
Timothy S. Smick
/s/ Edward A. Moses Independent Director February 22, 2001
- ---------------------------
Edward A. Moses
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Costs Capitalized
Initial Cost Subsequent To Acquisition
------------------------------------------------ --------------------------
Encum Improve- Carrying
brances Land Building Equipment ments Costs
---------- ------------- --------------- ------------- ---------- -----------
Property the Company has Invested
in Under Operating Lease:
Brighton Gardens by Marriott:
Orland Park, Illinois $ -- $2,162,388 $11,533,074 $1,025,630 $ -- $ --
========== ============= =============== ============= ========== ===========
Life
Gross Amount at Which Carried on Which
At Close of Period (d) Depreciation
- ---------------------------------------------- in Latest
Date Income
Accumulated of Con- Date Statement is
Land Building Equipment Total Depreciation struction Acquired Computed
- ------------- -------------- ------------- -------------- -------------- ----------- ---------- --------------
$2,162,388 $11,533,074 $1,025,630 $ 14,721,092 $ 303,184 1999 4/00 (c)
============= ============== ============= ============== ==============
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL Health Care Properties, Inc.)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(a) Transactions in real estate and accumulated depreciation during 2000
are summarized as follows:
Accumulated
Cost (b) (d) Depreciation
-------------- --------------
Property the Company has Invested
in Under Operating Leases:
Balance, December 31, 1999 $ -- $ --
Acquisition 14,721,092 --
Depreciation expense (c) -- 303,184
-------------- --------------
Balance, December 31, 2000 $ 14,721,092 $ 303,184
============== ==============
(b) As of December 31, 2000, the aggregate cost of the Property owned by
the Company and its subsidiaries for federal income tax purposes was
$14,721,092. The lease is treated as an operating lease for federal
income tax purposes.
(c) Depreciation expense is computed for building and equipment based upon
estimated lives of 40 and seven years, respectively.
(d) Acquisition fees and miscellaneous expenses of $872,192 are included in
land, building and equipment on operating lease at December 31, 2000.
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 10-K 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.)
3.3 CNL Health Care Properties, Inc. Articles of
Amendment to Amended and Restated Articles of
Incorporation dated June 27, 2000. (Included as
Exhibit 3.3 to the Registrant's June 30, 2000 Report
on Form 10-Q filed with the Securities and Exchange
Commission on August 1, 2000 and incorporated herein
by reference.)
3.4 Articles of Amendment to the Amended and Restated
Articles of Incorporation of CNL Health Care
Properties, Inc. dated August 24, 2000. (Included as
Exhibit 3.5 to Registration Statement No. 333-37480
on Form S-11 and incorporated herein by reference.)
3.5 Amendment No. 1 to the Bylaws of CNL Health Care
Properties, Inc. (Included as Exhibit 3.6 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
4.1 Reinvestment Plan. (Included as Exhibit 4.4 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 16, 2000,
between CNL Retirement Properties, Inc. and CNL
Retirement Corp. (Filed herewith.)
10.5 Indemnification Agreement between CNL Health Care
Properties, Inc. and Thomas J. Hutchison III dated
February 29, 2000. Each of the following directors
and/or officers has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A.
Moses, Jeanne A. Wall and Lynn E. Rose dated
September 15, 1998 and Phillip M. Anderson, Jr. dated
February 19, 1999. (Included as Exhibit 10.2 to the
Registrant's March 31, 2000 Report on Form 10-Q filed
with the Securities and Exchange Commission on May 3,
2000 and incorporated herein by reference.)
10.6 Agreement of Limited Partnership of CNL Health Care
Partners, LP. (Included as Exhibit 10.10 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.7 Purchase and Sale Agreement between CNL Health Care
Partners, LP and Marriott Senior Living Services,
Inc., relating to the Brighton Gardens by Marriott -
Orland Park, Illinois. (Included as Exhibit 10.4 to
the Registrant's March 31, 2000 Report on Form 10-Q
filed with the Securities and Exchange Commission on
May 3, 2000 and incorporated herein by reference.)
10.8 Lease Agreement between CNL Health Care Partners, LP
and BG Orland Park, LLC dated April 20, 2000,
relating to the Brighton Gardens by Marriott - Orland
Park, Illinois. (Included as Exhibit 10.5 to the
Registrant's March 31, 2000 Report on Form 10-Q filed
with the Securities and Exchange Commission on May 3,
2000 and incorporated herein by reference.)
10.9 Revolving Line of Credit Agreement with CNL Health
Care Properties, Inc., CNL Health Care Partners, LP
and Colonial Bank, dated April 20, 2000. (Included as
Exhibit 10.6 to the Registrant's March 31, 2000
Report on Form 10-Q filed with the Securities and
Exchange Commission on May 3, 2000 and incorporated
herein by reference.)