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, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-32607
CNL RETIREMENT PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 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:
Common Stock, $0.01 par value per share
(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
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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, $93,262,611 of our common stock was held by
non-affiliates as of February 11, 2002.
The number of Shares of common stock outstanding as of February 11, 2002
was 9,346,833.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant incorporates by reference portions of the CNL Retirement
Properties, Inc. Definitive Proxy Statement for the 2002 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than
April 30, 2002.
Contents
Page
Part I
Item 1. Business 1-5
Item 2. Properties 5-6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8-9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 17-32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 33
Part III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33-35
Signatures 36-37
Schedule III - Real Estate and Accumulated Depreciation 38-40
Exhibits
PART I
Item 1. Business
CNL Retirement 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 ("Retirement Partners") is
a Delaware limited partnership formed in December 1999. Properties acquired are
generally expected to be held by Retirement Partners or its wholly owned
subsidiaries and, as a result, owned by CNL Retirement Properties, Inc. through
such entities. CNL Retirement - GP/Holding Corp. was formed in June 2001 to
serve as the general partner of various other wholly owned subsidiaries which
have been or will be formed for the purpose of acquiring future properties. The
terms "Company" or "Registrant" include CNL Retirement Properties, Inc. and its
subsidiaries, CNL Retirement GP Corp., CNL Retirement LP Corp., CNL Retirement -
GP/Holding Corp., CNL Retirement Partners, LP and each of their subsidiaries.
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
("Properties") related to seniors' housing and retirement facilities
("Retirement Facilities") located across the United States. The Retirement
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 Retirement Facilities. Under
the Company's triple-net leases, the lessees generally will be responsible for
repairs, maintenance, property taxes, utilities and insurance. The Company may
provide mortgage financing (the "Mortgage Loans") to operators of Retirement
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 no more than 5 percent to 10 percent of the
Company's total assets. The Company expects that the interest rates 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 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.
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 termination 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 termination
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 2000 Offering
will expire no later than September 5, 2002. As of December 31, 2001, the
Company had received total proceeds from the Initial Offering and the 2000
Offering of $71,211,344 (7,121,131 Shares), including $381,407 (38,141 Shares)
through the distribution reinvestment plan.
As of December 31, 2001, net proceeds to the Company from its offerings of
Shares and capital contributions from the CNL Retirement Corp. (the "Advisor"),
after deduction of selling commissions, marketing support and due diligence
expense reimbursement fees and organizational and offering expenses, totaled
approximately $63,100,000. The Company had used approximately $26,000,000 of net
offering proceeds and $8,100,000 in advances relating to its line of credit,
described below, to invest approximately $34,100,000 in three assisted living
Properties. As of December 31, 2001, the Company had repaid the advance on its
line of credit and had also paid approximately $4,080,000 in acquisition fees
and acquisition expenses, leaving approximately $24,920,000 available for
investment in Properties and Mortgage Loans.
On January 10, 2002, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to an additional 45,000,000 Shares of common stock
($450,000,000) (the "2002 Offering") in an offering expected to commence
immediately following the completion of the 2000 Offering. Of the 45,000,000
Shares of common stock to be offered, up to 5,000,000 will be available to
stockholders purchasing Shares through the reinvestment plan.
During the period January 1, 2002, through February 11, 2002, the Company
received additional net offering proceeds of approximately $19,300,000, received
permanent financing of approximately $13,000,000 and invested approximately
$28,200,000 in two additional assisted living Properties. The Company also paid
additional acquisition fees and costs of approximately $1,610,000, leaving
approximately $27,410,000 for investment in Properties and Mortgage Loans as of
February 11, 2002. The Company expects to use the uninvested net proceeds, plus
any additional net proceeds from the sale of Shares from the 2000 Offering and
the 2002 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, proceeds from the sale of assets, 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 and the 2002 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.
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,
or increases in base rent based on increase in consumer price indices over the
term of the lease 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) if Listing
does not occur by December 31, 2008, the commencement of orderly sales of the
Company's assets (outside the ordinary course of business and consistent with
its objectives of qualifying as a REIT) and distribution of the proceeds
thereof. There can be no assurance that these investment objectives will be met.
For the next seven 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 from 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 from the sale of a Secured Equipment Lease to fund
additional Secured Equipment Leases, or to reduce its outstanding indebtedness.
At or prior to the end of such seven-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 use any net sales proceeds not
required to be distributed to stockholders in order to preserve the Company's
status as a REIT to reinvest in additional Properties, Mortgage Loans and
Secured Equipment Leases. The Company's Articles of Incorporation provide,
however, that if Listing does not occur by December 31, 2008, the Company
thereafter will undertake the orderly liquidation of the Company and the sale of
the Company's assets and will distribute any net sales proceeds to stockholders.
In addition, the Company will not sell any assets if such sale would not be
consistent with the Company's objective of qualifying as a REIT.
In deciding the precise timing and terms of Property sales, CNL Retirement
Corp. ("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 partial
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 predetermined percentage of
the Company's purchase price.
If the Company enters into any Secured Equipment Leases, 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, if the Company provides any Mortgage Loans, 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 secures the Mortgage Loan and
the sale of the Property occurs, or (ii) the Company undertakes an orderly sale
of its assets.
Property Leases
As of December 31, 2001, the Company had acquired three Properties located
in Orland Park, Illinois (the "Orland Park Property"), Arlington, Texas (the
"Arlington Property") and Boca Raton, Florida (the "Boca Raton Property"). The
leases provide for an initial term of 15 years and expire between 2015 and 2016.
The leases are on a triple-net lease basis, meaning the tenants are required to
pay all repairs, maintenance, property taxes, utilities and insurance. The
tenants are also required to pay for special assessments and the cost of any
renovations permitted under the leases. The leases provide for minimum base
annual rent payments (generally payable in monthly installments) ranging from
approximately $991,000 to $1,350,000. The leases provide that the base rent
required under the terms of the leases will increase at predetermined intervals
during the terms of the leases. In addition to annual base rent, the tenants
will also pay contingent rent computed as a percentage of gross sales of the
Properties. The lease for the Orland Park Property also provides for the tenant
to fund, in addition to its lease payments, an FF&E reserve fund. The tenant
deposits funds into the FF&E reserve account and periodically uses these funds
to cover the cost of the replacement, renewal and additions to furniture,
fixtures and equipment. 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 Tenants
BG Orland Park, LLC, ARC Pecan Park LP, and ARC Boca Raton, Inc. each
contributed more than 10 percent of the Company's total rental income for the
year ended December 31, 2001. These Properties operate as either a Marriott or
an American Retirement Corporation 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
these lessees or the Marriott or American Retirement Corp. brand chains would
significantly impact the results of operations of the Company. However,
management believes that the risk of such a default is reduced by the Company's
initial and continuing due diligence procedures.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement"), 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, lines 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 is also responsible for providing information to the
Company about the status of the leases, Properties, Mortgage Loans, Secured
Equipment Leases, any lines of credit and any 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
receives 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 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 receives
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 16, 2002, 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
The Company has a line of credit (the "Line of Credit") which allows the
Company 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, in connection with the purchase of the Orland Park Property. As of
December 31, 2001, the Company had repaid this advance and had no amounts
outstanding on the Line of Credit.
The Company currently plans to obtain one or more additional revolving
lines of credit in an aggregate amount of up to $45,000,000 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, proceeds from the sale of assets, 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). The Company assumed Permanent Financing of approximately
$13,000,000 in connection with the purchase of a Property on February 11, 2002.
However, there is no assurance that the Company will obtain additional 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 Retirement 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, Retirement Facilities
owned by non-profit entities are exempt from taxes on real property. As
profitability increases for investors in retirement 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, 2001, the Company owned three private-pay, assisted
living Properties located in Orland Park, Illinois, Boca Raton, Florida and
Arlington, Texas. As of February 11, 2002, the Company had acquired two
additional Properties located in Oak Park, Illinois, and Coconut Creek, Florida.
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. 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 resident's 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 Retirement 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 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.
Leases with Major Tenants. The terms of the leases with the Company's major
tenants as of December 31, 2001 are described as follows:
BG Orland Park, LLC leases the Orland Park Property located in Orland Park,
Illinois. The initial term of the lease is 15 years (expiring in 2015) and
minimum annual rent is approximately $1,350,000.
ARC Pecan Park, LP leases the Arlington Property located in Arlington,
Texas. The lease has an initial term of 15 years (expiring in 2016), provides
for two consecutive renewal options of five years each and requires payment of
minimum annual rent of approximately $1,084,000.
ARC Boca Raton, Inc. leases the Boca Raton Property located in Boca Raton,
Florida. The lease has an initial term 15 years (expiring in 2016), provides for
two consecutive renewal options of five years each and requires the payment of
minimum annual rent of approximately $991,000.
Item 3. Legal Proceedings
Neither the Company, nor any of its subsidiaries, nor their respective
Properties, is a party to, or subject to, any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of February 11, 2002, there were 3,204 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 seven years, there is no assurance that 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 equal to
the then current offering price, which the Company anticipates will continue to
be $10.00 per Share, until Listing occurs, less a discount of 8.0 percent, for a
net redemption price of $9.20 per Share. Redemption are limited to the extent
sufficient funds are 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 redemptions and, accordingly, a stockholder's
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. During the year ended December 31, 2001 and 2000, 3,415
and 3,316 Shares, respectively, were redeemed at $9.20 per Share (for a total of
$31,420 and $30,508, respectively) and retired from Shares outstanding of common
stock. No Shares were redeemed prior to 2000.
As of December 31, 2001, the offering price per Share of common stock was
$10. Based on the continued sale of Shares through February 11, 2002, for $10
per Share, the Company estimates that the value of its Shares is $10 per Share.
The Company's Shares are not publicly traded. Investors are cautioned that
common stock not publicly traded is generally considered illiquid and the
estimated value per Share may not be realized when an investor seeks to
liquidate his or her common stock.
The Company expects to make distributions to the stockholders pursuant to
the provisions of the Articles of Incorporation. For the years ended December
31, 2001 and 2000, the Company declared cash distributions of $1,507,322 and
$502,078, respectively, to stockholders. For the years ended December 31, 2001
and 2000, approximately 65 percent and 54 percent, respectively, of
distributions paid to stockholders were considered ordinary income and
approximately 35 percent and 46 percent, respectively, were considered a return
of capital for federal income tax purposes. No amounts distributed to
stockholders for the years ended December 31, 2001 and 2000, were required to be
or have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital. The following
table presents total distribution and distributions per Share:
2001 Quarter First Second Third Fourth Year
------------------------------- ------------ ----------- ----------- ----------- --------------
Total distributions declared $219,887 $247,922 $312,583 $726,930 $1,507,322
Distributions per Share 0.1749 0.1749 0.1749 0.1749 0.6996
2000 Quarter First Second Third Fourth Year
------------------------------- ------------ ----------- ----------- ----------- --------------
Total distributions declared $ 43,593 $108,932 $160,911 $188,642 $502,078
Distributions per Share 0.0750 0.1537 0.1749 0.1749 0.5785
On January 1, 2002 and February 1, 2002, the Company declared distributions
to stockholders totalling $415,936 and $513,585, respectively, ($0.0583 per
Share) payable in March 2002, to stockholders of record on January 1, 2002 and
February 1, 2002, respectively.
The Company intends to continue to declare distributions of cash to
stockholders on a monthly basis during the offering period, and quarterly
thereafter.
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.
2001 2000 1999 (1) 1998 (2) 1997 (2)(3)
----------- ----------- ----------- ----------- ------------
Year Ended December 31:
Revenues $ 1,899,619 $ 1,084,730 $ 86,231 $ -- $ --
General operating and
administrative expenses (4) 395,268 340,086 79,261 -- --
Organizational costs -- -- 35,000 -- --
Net earnings (loss) 915,965 224,778 (28,390) -- --
Cash distributions declared 1,507,322 502,078 50,404 -- --
Cash from operations 2,173,379 1,096,019 12,851 -- --
Cash used in investing
activities (22,931,469) (14,428,703) -- -- --
Cash from (used in) financing
activities 47,301,313 8,766,346 4,731,279 (199,908) 200,000
Funds from operations (5) 1,439,908 527,962 (28,390) -- --
Earnings (loss) per Share 0.38 0.27 (0.07) -- --
Cash distributions declared
per Share 0.70 0.58 0.13 -- --
Weighted average number
of Shares outstanding (6) 2,391,072 845,833 412,713 -- --
At December 31:
Total assets $ 64,446,889 $14,688,560 $5,088,560 $ 976,579 $ 280,330
Total stockholders' equity (7) 60,910,042 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 "Expense Cap"),
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 Expense Cap. During the years ended
December 31, 2001 and 2000, the Advisor reimbursed the Company $145,015
and $213,886, respectively, in operating expenses.
(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 years ended December 31, 2001 and 2000, net
earnings included $76,665 and $21,128, respectively, of these amounts. 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. FFO as presented may not be comparable to amounts
calculated by other companies. 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 for the year ended
December 31, 1999, is based upon the period the Company was operational.
(7) As required by the Securities and Exchange Commission, stockholders'
equity includes the amount of accumulated distributions in excess of net
earnings. This represents the amount of distributions that the Company has
paid in excess of the net earnings. Net earnings, as determined in
accordance with GAAP, includes noncash items including accrued rent,
depreciation and amortization and, therefore, is not considered to be
indicative of the amount of cash available for distribution. In addition,
FF&E reserve income is not included in cash available for distribution.
During the years ended December 31, 2001 and 2000, net earnings included
$419,262 and $270,182, respectively, of such noncash items. For the year
ending December 31, 1999, net earnings did not include any noncash items.
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
additional Permanent Financing on satisfactory terms, the ability of the Company
to continue to identify suitable investments, the ability of the Company to
continue 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 seniors' housing
and Retirement facilities located across the United States. The Retirement
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 Retirement 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 Retirement 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. 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 the 2000 Offering. Of the 15,500,000 Shares ($155,000,000) of common
stock offered in the 2000 Offering, up to 500,000 are available to stockholders
purchasing Shares through the reinvestment plan. The managing dealer of the
offerings of Shares of the Company is CNL Securities Corp., an affiliate of the
Advisor.
As of December 31, 2001, the Company had received aggregate proceeds from
its Initial Offering, the 2000 Offering and contributions from the Advisor of
$71,411,344 (7,141,131 Shares), including $381,407 (38,141 Shares) through its
reinvestment plan. As of December 31, 2001, the Company had received net
offering proceeds of approximately $63,100,000 following the deduction of
selling commissions, marketing support and due diligence expense reimbursement
fees and offering expenses. The Company has used approximately $34,100,000 of
the net proceeds to invest in three Retirement Facilities (see "Property
Acquisitions" below.)
On January 10, 2002, the Company filed a registration statement on Form
S-11 with the Securities and Exchange commission in connection with the proposed
sale by the Company of up to an additional 45,000,000 Shares of common stock
($450,000,000) in an offering expected to commence immediately following the
completion of the 2000 Offering. Of the 45,000,000 Share of common stock to be
offered in the 2002 Offering, up to 5,000,000 will be available to stockholders
purchasing Shares through the Reinvestment Plan.
During the period January 1, 2002 to February 11, 2002, the Company
received additional net offering proceeds of $22,124,327. The Company expects to
use any uninvested net proceeds, plus any additional net proceeds from the 2000
Offering and the 2002 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 has also obtained 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.
Apart from the effects of reduced economic activity in general following
the events of September 11, 2001, management does not anticipate that the events
of September 11 will have a direct effect on the health care and seniors'
housing industries. However, Marriott International, Inc., which has extensive
investments in the hospitality industry, guarantees, within certain limitations,
the obligations of the tenant of the Company's Orland Park Property to pay
minimum rent under the lease for the property. To the extent that business or
leisure travel is substantially reduced for a lengthy period of time, the
business of Marriott International, Inc. may be affected. Management does not
anticipate that the events of September 11 will have a significant effect on the
Company's ability to raise capital in equity offerings. Gross offering proceeds
during the year ended December 31, 2001 exceeded levels of previous years. In
addition, the Company has received gross offering proceeds of $22,124,327 during
the period of January 1, 2002 through February 11, 2002. Management expects that
future offering proceeds and amounts available under the Company's Line of
Credit will be sufficient to meet the Company's capital requirements.
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 years ended December 31, 2001
and 2000, 3,415 and 3,316 Shares, respectively, were redeemed at $9.20 per Share
(for a total of $31,420 and $30,508, respectively) and retired from Shares
outstanding of common stock. No Shares were redeemed prior to 2000.
Line of Credit and Security Agreement
The Company has a Line of Credit which allows the Company 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, 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 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, 2001, the Company had repaid this advance and
had no amounts outstanding on its Line of Credit.
Market Risk
There were no amounts outstanding on the Company's Line of Credit at
December 31, 2001. The interest rate on the first $9,700,000 drawn (the "Initial
Draw") on the Company's Line of Credit will be 8.75% through April 1, 2002. The
Company is subject to interest rate risk through advances greater than the
Initial Draw and/or amounts outstanding on the Initial Draw as of April 1, 2002,
on its variable rate Line of Credit.
Property Acquisitions
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 its first Property, a
private-pay, assisted living community in Orland Park, Illinois. The Orland Park
Property is a Brighton Gardens by Marriott in Orland Park, Illinois. In
connection with the purchase of the Orland Park Property, the Company, as
lessor, entered into a long-term, triple-net lease agreement.
On November 9, 2001, the Company used net offering proceeds of $10,578,750
to acquire the Broadway Plaza at Pecan Park, an American Retirement Corporation
assisted living property located in Arlington, Texas, a suburb of the
Dallas/Fort Worth area. The Arlington Property, which opened in August 2000,
includes 80 assisted living units and 15 units for residents with Alzheimer's
and related memory disorders. In connection with the purchase of the Arlington
Property, the Company, as lessor, entered into a long-term, triple-net lease
agreement. The Company and the tenant of the Arlington Property have also
entered into an agreement, whereby, the Arlington Property may be divided into
two parcels of land, the developed land that includes the building and
surrounding grounds (approximately 4.4 acres) and an adjacent parcel of
undeveloped land (approximately 2.8 acres.) The tenant of the Arlington Property
has the option to purchase the undeveloped parcel of land for $1. The purchase
option expires in 2011 and the Company may buy out the purchase option at any
time prior to its expiration for $600,000, the fair market value of the
undeveloped land at acquisition. Development of the land is subject to certain
limitations imposed by the Company. At December 31, 2001, the Company has
assigned no value to the undeveloped parcel of land. In the event that the
Company buys out the tenant's option, the costs of the land will be capitalized
at that time.
In addition, on November 9, 2001, the Company used net offering proceeds of
$9,672,000 to acquire the Homewood Residence at Boca Raton, an American
Retirement Corporation assisted living Property located in Boca Raton, Florida,
approximately 20 miles north of Fort Lauderdale, Florida. The Boca Raton
Property, which opened in October 2000, includes 60 assisted living units and 14
units for residents with Alzheimer's and related memory disorders. In connection
with the purchase of the Boca Raton Property, the Company, as lessor, entered
into a long-term, triple-net lease agreement.
On February 11, 2002, the Company used net offering proceeds of
approximately $9,700,000 to acquire the Homewood Residence at Coconut Creek, an
American Retirement Corporation assisted living property located in Coconut
Creek, Florida (the "Coconut Creek Property"). In connection with the purchase
of the Coconut Creek Property, the Company, as lessor, entered into a long-term,
triple-net lease agreement.
In addition, on February 11, 2002, the Company used net offering proceeds
of approximately $5,500,000 and assumed permanent financing of approximately
$13,000,000 to acquire Holley Court Terrace, an American Retirement Corporation
assisted living property located in Oak Park, Illinois (the "Oak Park
Property"). In connection with the purchase of the Oak Park Property, the
Company, as lessor, entered into a long-term, triple-net lease agreement.
The Company has also made initial commitments to acquire the Heritage Club
located in Greenwood Village, Colorado (the "Greenwood Village Property"). The
Company's estimated purchase price for the Greenwood Village Property will be
approximately $17,900,000 and may be partially funded through Permanent
Financing.
In addition, the Company has made initial commitments to acquire the five
additional properties in California, Maryland, Ohio and Massachusetts. The
Company's estimated purchase price for these Properties will be approximately
$58,800,000 and may be partially funded through Permanent Financing and minority
interest.
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, 2001, the Company had $26,721,107 invested
in such short-term investments as compared to $177,884 at December 31, 2000. The
increase in the amount invested in short-term investments was primarily
attributable to subscription proceeds received from the sale of Shares during
the year ended December 31, 2001, partially offset by the purchase of the
Arlington Property and the Boca Raton Property and repayments on the Line of
Credit. The funds remaining at December 31, 2001, along with additional funds
expected to be received from the sale of Shares, will be used primarily 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, 2001 and 2000, the Company generated
cash from operations (which includes cash received from its tenants and
interest, less cash paid for operating expenses) of $2,173,379 and $1,096,019,
respectively. For the years ended December 31, 2001 and 2000, cash from
operations includes security deposits of $810,030 and $553,956, respectively,
which were received from its tenants. Management expects the Company 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. Management 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 tenants defaulting under the terms of their lease
agreements, the Company will use borrowings under its Line of Credit. Management
expects the Company to meet its other short-term liquidity requirements,
including payment of offering expenses, the acquisition and development of
Properties, and the investment in Mortgage Loans and Secured Equipment Leases,
with additional advances under its Line of Credit and proceeds from its
offerings. Management expects the Company to meet its long-term liquidity
requirements through short- or long-term, unsecured or secured debt financing or
equity financing.
An FF&E Reserve fund has been established in accordance with the Orland
Park Property lease agreement with BG Orland Park, LLC. In accordance with such
agreement, the tenant deposits funds into the restricted FF&E Reserve account
and periodically uses these funds to cover the cost of the replacement, renewal
and additions to furniture, fixtures and equipment. All funds in the FF&E
Reserve, all interest earned on the funds and all property purchased with funds
from the FF&E Reserve are and will remain the property of the Company. In the
event that the FF&E Reserve is not sufficient to maintain the Property in good
working condition and repair, the Company may make fixed asset expenditures, in
which case annual rent will be increased. The Arlington Property and Boca Raton
Property, include FF&E Reserve accounts which will be held by each tenant until
the end of the lease term at which time all property purchased with funds from
the FF&E Reserve accounts will become the property of the Company. For the years
ended December 31, 2001 and 2000, revenue relating to the FF&E Reserve totaled
$39,199 and $19,672, respectively. Due to the fact that the Properties are
leased on a long-term, triple-net basis, meaning the tenants are 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.
However, management may maintain additional cash required to meet the Company's
working capital needs.
Management believes that its Properties are 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 Property.
Distributions
The Company declared and paid distributions to its stockholders totaling
$1,507,322 and $502,078 during the years ended December 31, 2001 and 2000,
respectively. In addition, on January 1, 2002 and February 1, 2002, the Company
declared distributions of $0.0583 per Share of common stock. These distributions
are payable in March 2002.
For the years ended December 31, 2001 and 2000, approximately 65 percent
and 54 percent, respectively, of the distributions received by stockholders were
considered to be ordinary income and approximately 35 percent and 46 percent,
respectively, were considered a return of capital for federal income tax
purposes. No amounts distributed to stockholders for the years ended December
31, 2001 and 2000, 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.
Related Party Transactions
During the years ended December 31, 2001, 2000 and 1999, affiliates
incurred on behalf of the Company $1,626,405, $387,704, and $421,878,
respectively, for certain organizational and offering expenses. In addition,
during the years ended December 31, 2001 and 2000, affiliates incurred on behalf
of the Company $353,852 and $112,961, respectively, for certain acquisition
expenses and $206,211 and $157,878, respectively, for certain operating
expenses. As of December 31, 2001 and 2000, the Company owed affiliates
$1,772,807 and $1,117,799, respectively, for such amounts and unpaid fees and
administrative expenses. The Advisor has agreed to pay all offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed 3 percent of the gross proceeds received from
the sale of Shares of the Company in connection with the 2000 Offering prior to
July 1, 2001. Offering expenses paid by the Company together with selling
commissions, the marketing support and due diligence expense reimbursement fee
and the soliciting dealer servicing fee incurred by the Company will not exceed
13 percent of the proceeds raised in connection with the 2000 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 the Expense Cap. During the four quarters ended June 30, 2001
and 2000, the Company's operating expenses exceeded the Expense Cap by $145,015
and $213,886, respectively; therefore, the Advisor reimbursed the Company such
amounts in accordance with the Advisory Agreement. Operating expenses did not
exceed the Expense Cap in any other Expense Years during the years ended
December 31, 2001 and 2000.
The board of directors of the Company has authorized the Company to pursue
the opportunity to acquire a ten percent interest in a limited partnership that
owns a building in which the Advisor leases office space. If consummated, the
Company's investment in the partnership is expected to be approximately
$300,000. The remaining interest in the limited partnership is expected to be
owned by several affiliates of the Advisor.
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.
Critical Accounting Policies
The Company's leases are accounted for under the provisions of Statement of
Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and have been
accounted for as operating leases. FAS 13 requires management to estimate the
economic life of the leased property, the residual value of the leased property
and the present value of minimum lease payments to be received from the tenant.
In addition, management assumes that all payments to be received under its
leases are collectible. Changes in management's estimates or assumption
regarding collectibility of lease payments could result in a change in
accounting for the lease at the inception of the lease.
Acquisition fees and miscellaneous acquisition costs that are directly
identifiable with Properties that are probable of being acquired are capitalized
and included in other assets. Upon purchase of a Property, the fees and costs
that are directly identifiable with that Property are reclassified to land,
building and equipment. In the event a Property is not acquired or becomes
probable of not being acquired, any costs directly related to the Property will
be charged to expense.
Results of Operations
Comparison of the year ended December 31, 2001 to the year ended
December 31, 2000
As of December 31, 2001, the Company owned three Properties, consisting of
land, buildings and equipment and had entered into long-term, "triple-net" lease
agreements relating to these Properties. The Property leases provide for minimum
annual base rent ranging from approximately $991,000 to $1,350,000, which are
generally payable in monthly installments. In addition, the leases also provide
that the annual base rent required under the terms of the leases will increase
at predetermined intervals. In addition to annual base rent, tenants pay
contingent rent computed as a percentage of gross sales of the Property. The
Company's lease for the Orland Park Property also requires the establishment of
an FF&E Reserve. The FF&E Reserve established for the Orland Park Property has
been reported as additional rent for the years ended December 31, 2001 and 2000.
During the years ended December 31, 2001 and 2000, the Company earned
rental income from operating leases and FF&E Reserve revenue of $1,764,217 and
$981,672, respectively. The increase in rental income and FF&E Reserve income is
due to the Company owning three Properties during the year ended December 31,
2001, as compared to one Property during the year ended December 31, 2000. In
addition, the Orland Park Property was owned for only a portion of 2000, and a
full year in 2001. Because additional Property acquisitions are expected to
occur, revenues for the year ended December 31, 2001, represent only a portion
of revenues which the Company is expected to earn in future periods.
During the years ended December 31, 2001 and 2000, the Company earned
$135,402 and $103,058, respectively, in interest income from investments in
money market accounts and other short-term highly liquid investments and other
income. The increase in interest income was primarily attributable to an
increase in the dollar amount invested in short-term liquid investments and the
period of time the funds were invested as compared to 2000. As net offering
proceeds from the Company's offering are invested in additional 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 remain constant or decrease.
Operating expenses, including interest expense and depreciation and
amortization expense, were $983,654 and $859,952 for the years ended December
31, 2001 and 2000, respectively. The increase in operating expenses during the
year ended December 31, 2001, as compared to 2000, was partially the result of
the Company owning three Properties during 2001 compared to one Property in
2000. Additionally, general operating and administrative expenses increased as a
result of Company growth. Interest expense decreased from $367,374 for the year
ended December 31, 2000 to $105,056 for the year ended December 31, 2001. The
decrease in interest expense was a result of the Company repaying the amounts
outstanding under its Line of Credit during the year ended December 31, 2001.
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 the Expense Cap. During the Expense Years ended June 30, 2001
and 2000, the Company's operating expenses totaled $439,456 and $287,084,
respectively, exceeding the Expense Cap by $145,015 and $213,886, respectively;
therefore, the Advisor has reimbursed the Company such amounts in accordance
with the Advisory Agreement. The Company's operating expenses did not exceed the
Expense Cap in any other Expense Years during the years ended December 31, 2001
and 2000.
The dollar amount of operating expenses is expected to increase as the
Company acquires additional Properties and invests in Mortgage Loans. However,
general operating and administrative expenses as a percentage of total revenues
is expected to decrease as the Company acquires additional Properties and
invests in Mortgage Loans.
Comparison of the year ended December 31, 2000 to the year ended
December 31, 1999
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, the Orland Park Property, 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. All of the Company's rental income for the year ended
December 31, 2000, was earned from one lessee, BG Orland Park, LLC. No rental
income was earned for the year ended December 31, 1999.
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.
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 first Property and received an advance on its Line of
Credit in 2000. As discussed above, during the Expense Year ended June 30, 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.
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, 2001, 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's current leases are, and it is anticipated that future leases
will be, triple-net leases and 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.
New Accounting Standards - In July 2001, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("FAS 141"), Statement of Financial Accounting Standards
No. 142, "Goodwill and Intangible Assets" ("FAS 142"), and Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("FAS 143"). FAS 141 requires business combinations initiated after
June 30, 2001, to be accounted for using the purchase method of accounting and
broadens the criteria for recording intangible assets separate from goodwill.
FAS 142 requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach, goodwill and
certain intangibles must be reviewed for impairment and written down and charged
to results of operations only in the periods in which the recorded value of
goodwill and certain intangibles is more than its estimated fair value. FAS 143
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
the fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. In October
2001, the FASB issued Statement of Financial Accounting Standards 144,
"Accounting for the Impairment or Disposal of Long Lived Assets" ("FAS 144"),
which requires long lived assets to be disposed of to be valued at the lower of
the carrying amount or estimated fair value, less the cost to sell the assets.
The Company expects that the implementation of these pronouncements will have no
material impact on the Company's 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
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Consolidated Balance Sheets 19
Consolidated Statements of Operations 20
Consolidated Statements of Stockholders' Equity 21
Consolidated Statements of Cash Flows 22-23
Notes to Consolidated Financial Statements 24-32
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders
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, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, 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 23, 2002, except as to Note 12 for which the date is February 11, 2002
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2001 2000
------------ ------------
ASSETS
Land, buildings and equipment on operating leases, net $ 35,232,568 $ 14,417,908
Cash and cash equivalents 26,721,107 177,884
Restricted cash 35,109 17,312
Receivables 180,163 2,472
Loan costs, less accumulated amortization of $18,981 and $7,798 36,936 48,119
Accrued rental income 97,793 21,128
Other assets 2,143,213 3,737
------------ ------------
$ 64,446,889 $ 14,688,560
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ -- $ 3,795,000
Due to related parties 1,772,807 1,117,799
Accounts payable and accrued expenses 294,839 5,864
Interest payable -- 11,045
Security deposits 1,363,986 553,956
Rent paid in advance 105,215 1,348
------------ ------------
Total liabilities 3,536,847 5,485,012
------------ ------------
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 7,141,131 and 1,189,156
shares, respectively, outstanding 7,134,400 and 1,185,840 shares,
respectively 71,344 11,858
Capital in excess of par value 61,786,149 9,547,784
Accumulated distributions in excess of net earnings (947,451) (356,094)
------------ ------------
Total stockholders' equity 60,910,042 9,203,548
------------ ------------
$ 64,446,889 $ 14,688,560
============ ============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2001 2000 1999
----------- ----------- -----------
Revenues:
Rental income from operating leases $ 1,725,018 $ 962,000 $ --
FF&E reserve income 39,199 19,672 --
Interest and other income 135,402 103,058 86,231
----------- ----------- -----------
1,899,619 1,084,730 86,231
----------- ----------- -----------
Expenses:
Interest 105,056 367,374 --
General operating and administrative 395,268 340,086 79,621
Asset management fees to related party 93,219 55,396 --
Organizational costs -- -- 35,000
Reimbursement of operating expenses
from related party (145,015) 213,886) --
Depreciation and amortization 535,126 310,982 --
----------- ----------- -----------
983,654 859,952 114,621
----------- ----------- -----------
Net Earnings (Loss) $ 915,965 $ 224,778 $ (28,390)
=========== =========== ===========
Net Earnings (Loss) Per Share of Common
Stock (Basic and Diluted) $ 0.38 $ 0.27 $ (0.07)
============ =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding (Basic
and Diluted) 2,391,072 845,833 412,713
============ =========== ===========
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
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, 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 offerings 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
Subscriptions received for common stock
through public offering and distribution
reinvestment plan 5,951,975 59,520 59,460,231 -- 59,519,751
Retirement of common stock (3,415) (34) (31,386) -- (31,420)
Stock issuance costs -- -- (7,190,480) -- (7,190,480)
Net earnings -- -- -- 915,965 915,965
Distributions declared and paid ($0.6996 per share) -- -- -- (1,507,322) (1,507,322)
---------- -------- ----------- ---------------- ------------
Balance at December 31, 2001 7,134,400 $ 71,344 $ 61,786,149 $ (947,451) $ 60,910,042
========== ======== ============ ================ ============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
------------ ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents:
Operating Activities:
Net earnings (loss) $ 915,965 $ 224,778 $ (28,390)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 523,943 303,184 --
Amortization 11,183 7,798 --
Organizational costs -- -- 20,000
Changes in operating assets and liabilities:
Receivables (177,691) (2,472) --
Accrued rental income (76,665) (21,12) --
Other assets (5,737) 1,798 (5,535)
Interest payable (11,045) 11,045 --
Accounts payable and other accrued
expenses 45,469 (14,173) 20,037
Due to related parties 34,060 29,885 6,739
Security deposits 810,030 553,956 --
Rent paid in advance 103,867 1,348 --
------------ ------------ ------------
Net cash provided by operating
activities 2,173,379 1,096,019 12,851
------------ ------------ ------------
Investing Activities:
Additions to land, buildings and equipment on
operating leases (20,269,138) (13,848,900) --
Payment of acquisition costs (2,644,534) (562,491) --
Increase in restricted cash (17,797) (17,312) --
------------ ------------- ------------
Net cash used in investing activities (22,931,469) (14,428,703) --
------------ ------------ ------------
Financing Activities:
Reimbursement of organizational, offering
and acquisition costs paid by related party
on behalf of the Company (1,735,996) (411,875) (2,447)
Proceeds from line of credit -- 8,100,000 --
Payment of loan costs -- (55,917) --
Repayment of borrowings on line of credit (3,795,000) (4,305,000) --
Subscriptions received from stockholders 59,519,751 6,491,310 5,200,283
Distributions to stockholders (1,507,322) (502,078) (50,404)
Retirement of common stock (13,020) (30,508) --
Payment of stock issuance costs (5,167,100) (519,586) (416,153)
------------ ------------ ------------
Net cash provided by financing activities 47,301,313 8,766,346 4,731,279
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 26,543,223 (4,566,338) 4,744,130
Cash and Cash Equivalents at Beginning of Year 177,884 4,744,222 92
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 26,721,107 $ 177,884 $ 4,744,222
============ ============ ============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
------------ ------------ ------------
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 $ 353,852 $ 112,961 $ 98,206
Stock issuance costs 1,626,405 387,704 421,878
------------ ------------ ------------
$ 1,980,257 $ 500,665 $ 520,084
============ ============ ============
Adjustment to previously accrued stock
issuance costs $ -- $ 755,125 $ --
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 116,101 $ 356,329 $ --
============ ============ ============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000 and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Retirement Properties, Inc.
was organized pursuant to the laws of the state of Maryland on December
22, 1997. The Company was a development stage enterprise from December
22, 1997 through July 13, 1999. CNL Retirement GP Corp. and CNL
Retirement LP Corp. are wholly owned subsidiaries of CNL Retirement
Properties, Inc. organized in 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. CNL
Retirement - GP/Holding Corp. was formed in June 2001, to serve as the
general partner of various other wholly owned subsidiaries which have
been or will be formed for the purpose of acquiring future properties.
The term "Company" includes, unless the context otherwise requires, CNL
Retirement Properties, Inc., CNL Retirement Partners, LP, CNL
Retirement GP Corp., CNL Retirement LP Corp., CNL Retirement -
GP/Holding Corp. and each of their subsidiaries.
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 ("Retirement Facilities") located
across the United States. The Retirement 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 Retirement
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 Retirement 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.
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., CNL Retirement
LP Corp., CNL Retirement - GP/Holding Corp. and each of their
subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Revenue Recognition - The Company follows Staff Accounting Bulletin No.
101 ("SAB 101") which provides the Securities and Exchange Commission
staff's views in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Company to
defer recognition of percentage rental income until the thresholds
requiring such payments in accordance with the lease terms are met.
Real Estate and Lease Accounting - Land, buildings and equipment are
leased to unrelated third parties on a triple-net basis, whereby the
tenants are generally responsible for all operating expenses relating
to the Property, including property taxes, insurance, maintenance and
repairs.
The Property leases are accounted for using the operating method. Under
the operating method, land, buildings and equipment are recorded at
cost including acquisition and closing costs, revenue is recognized as
rentals are earned and depreciation is charged to operations as
incurred. Buildings and equipment are depreciated on the straight-line
method over their estimated useful lives of 40 and 3 to 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
When a 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. Management believes the Company 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 90 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, 2001, 2000 and 1999 were
2,391,072, 845,833 and 412,713, respectively. As of December 31, 2001,
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 2001 presentation
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on stockholders' equity or net earnings.
Use of Estimates - Management of the Company has made certain 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000 and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
New Accounting Standards - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("FAS 141"), Statement of
Financial Accounting Standards No. 142, "Goodwill and Intangible
Assets" ("FAS 142"), and Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("FAS 143"). FAS
141 requires business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting and broadens the
criteria for recording intangible assets separate from goodwill. FAS
142 requires the use of a nonamortization approach to account for
purchased goodwill and certain intangibles. Under a nonamortization
approach, goodwill and certain intangibles must be reviewed for
impairment and written down and charged to results of operations only
in the periods in which the recorded value of goodwill and certain
intangibles is more than its estimated fair value. FAS 143 requires
that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable
estimate of the fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived
asset. In October 2001, the FASB issued Statement of Financial
Accounting Standards 144, "Accounting for the Impairment or Disposal of
Long Lived Assets" ("FAS 144"), which requires long lived assets to be
disposed of to be valued at the lower of the carrying amount or
estimated fair value, less the cost to sell the assets. The Company
expects that the implementation of these pronouncements will have no
material impact on the Company's results of operations.
2. Public Offerings:
----------------
On September 18, 2000, the Company completed its initial offering and
commenced a subsequent 2000 offering. As of December 31, 2001, the
Company had received total proceeds from the Initial Offering and the
2000 Offering of $71,211,344 (7,121,131 shares), including $381,407
(38,141 shares) through the distribution reinvestment plan.
On January 10, 2002, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the
proposed sale by the Company of up to 45,000,000 additional shares of
common stock ($450,000,000) in an offering expected to commence
immediately following the completion of the Company's 2000 Offering. Of
the 45,000,000 shares of common stock to be offered, up to 5,000,000
will be available to stockholders purchasing shares through the
reinvestment plan.
3. Land, Buildings and Equipment on Operating Leases:
-------------------------------------------------
As of December 31, 2001, the Company owned three Properties consisting
of land, buildings and equipment, each of which was leased on a
long-term, triple-net basis to a Retirement Facility operator. The
leases are for 15 years, provide for minimum and contingent rent and
require the tenants to pay executory costs. In addition, the tenants
pay all property taxes and assessments and carry insurance coverage for
public liability, property damage, fire and extended coverage. The
lease options allow the tenants to renew the leases for two or four
successive five-year periods subject to the same terms and conditions
of the initial leases. The lease for the Property in Orland Park,
Illinois 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 years ended
December 31, 2001 and 2000, revenues from the FF&E Reserve totaled
$39,199 and $19,672, respectively.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000 and 1999
3. Land, Buildings and Equipment on Operating Leases - Continued:
-------------------------------------------------------------
Land, buildings and equipment on operating leases consisted of the
following at December 31:
2001 2000
------------ ------------
Land $ 4,649,497 $ 2,162,388
Buildings 29,209,418 11,533,074
Equipment 2,200,780 1,025,630
------------ ------------
36,059,695 14,721,092
Less accumulated depreciation (827,127) (303,184)
------------ ------------
$ 35,232,568 $ 14,417,908
============ ============
The leases provide for increases in the minimum annual rents commencing
at predetermined intervals during the leases. Such amounts are
recognized on a straight-line basis over the terms of the leases
commencing on the date the Properties were placed in service. For the
years ended December 31, 2001 and 2000, the Company recognized $76,665
and $21,128, respectively, of such rental income. This amount is
included in rental income from operating leases in the accompanying
consolidated statements of operations.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 2001:
2002 $ 3,453,472
2003 3,505,635
2004 3,548,049
2005 3,591,313
2006 3,635,441
Thereafter 36,243,659
-----------
$53,977,569
===========
Since the leases are renewable at the option of the tenants, the above
table only presents future minimum lease payments due during the
initial lease terms. In addition, this table does not include any
amounts for future contingent rents, which may be received on the
leases based on a percentage of the tenants' gross sales.
4. Other Assets:
------------
Other assets as of December 31, 2001 and 2000, were $2,143,213 and
$3,737, respectively, and consisted of miscellaneous prepaid expenses
and miscellaneous acquisition costs that will be capitalized to land,
buildings and equipment upon the purchase of Properties.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000 and 1999
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 of the
Company's common stock on a national securities exchange or
over-the-counter market 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 years ended
December 31, 2001 and 2000, 3,415 and 3,316 shares, respectively, of
common stock were redeemed and retired. No shares were redeemed in
1999.
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"). 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 Properties 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, in connection with the purchase of
the Property in Orland Park, Illinois. As of December 31, 2001, the
Company had repaid this advance and had no amounts outstanding on its
Line of Credit. In connection with the Line of Credit, the Company
incurred $55,917 in closing costs.
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. CNL Retirement Corp. (the "Advisor")
advanced preliminary costs incurred prior to raising capital. The
Advisor has agreed to pay all offering expenses (excluding commissions
and marketing support and due diligence expense reimbursement fees)
which exceed 3 percent of the gross proceeds received from the sale of
shares of the Company in connection with the 2000 Offering prior to
July 1, 2001. Offering expenses paid by the Company together with
selling commissions, the marketing support and due diligence expense
reimbursement fee and the soliciting dealer servicing fee incurred by
the Company will not exceed 13 percent of the proceeds raised in
connection with the 2000 Offering.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Stock Issuance Costs - Continued:
--------------------------------
During the years ended December 31, 2001, 2000 and 1999, the Company
incurred $7,190,480, $1,027,216 and $1,089,013, respectively, in
organizational and offering costs, including $4,761,580, $519,302 and
$413,983, respectively, in commissions and marketing support and due
diligence expense reimbursement fees (see Note 9). All amounts incurred
for the years ended December 31, 2001 and 2000, have been treated as
stock issuance costs. For the year ended December 31, 1999, $1,074,013
were treated as stock issuance costs, $15,000 were treated as
organization costs and expensed. The stock issuance costs have been
charged to stockholders' equity subject to the cap described above.
8. Distributions:
-------------
For the years ended December 31, 2001, 2000 and 1999, approximately 65
percent, 54 percent and 100 percent, respectively, of the distributions
paid to stockholders were considered ordinary income and for the years
ended December 31, 2001 and 2000, approximately 35 percent and 46
percent, respectively, were considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to
the stockholders for the years ended December 31, 2001, 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:
--------------------------
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, 2001, 2000 and 1999, the Company
incurred $4,463,981, $486,846 and $388,109, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
the offerings. A substantial portion of these amounts ($4,175,827,
$437,940 and $370,690, 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, all or a
portion of which may be reallowed to other broker-dealers. During the
years ended December 31, 2001, 2000 and 1999, the Company incurred
$297,599, $32,456 and $25,874, respectively, of such fees, the majority
of which was or will be reallowed to other broker-dealers and from
which all bona fide due diligence expenses were paid.
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 equal to 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 client's holds shares
on such date. As of December 31, 2001, no such fees had been incurred.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000 and 1999
9. Related Party Arrangements - Continued:
--------------------------------------
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 permanent
financing used to finance Secured Equipment Leases. During the years
ended December 31, 2001, 2000 and 1999, the Company incurred
$2,676,430, $292,108 and $232,865, respectively, of such fees. Such
fees are included in other assets prior to being allocated to
individual Properties.
The Company incurs operating expenses relating to its administration.
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 Expense Years ended June 30, 2001 and June 30, 2000, operating
expenses exceeded the Expense Cap by $145,015 and $213,886,
respectively; therefore, the Advisor reimbursed the Company such
amounts in accordance with the advisory agreement. The Company's
operating expenses did not exceed the Expense Cap in any other Expense
Years during the years ended December 31, 2001 and 2000. For the year
ended December 31, 1999, 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 years ended December 31, 2001
and 2000, the Company incurred $93,219 and $55,396, respectively, of
such fees. No such fees were incurred by the Company for 1999.
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,
2001 2000 1999
----------- ----------- ----------
Stock issuance costs $ 769,853 $ 117,679 $ 328,229
Land, buildings and equipment on
operating leases and other
assets 37,053 31,370 6,455
General operating and
administrative expenses 199,726 197,869 38,796
----------- ----------- ----------
$ 1,006,632 $ 346,918 $ 373,480
=========== =========== ==========
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000 and 1999
9. Related Party Arrangements - Continued:
--------------------------------------
Amounts due to related parties consisted of the following at December31:
2001 2000
------------ ------------
Due to the Advisor and its affiliates:
Expenditures incurred for offering expenses
on behalf of the Company $ 1,328,123 $ 982,100
Accounting and administrative
services 62,313 32,964
Acquisition fees and miscellaneous
acquisition expenses 226,986 96,526
------------ ------------
1,617,422 1,111,590
------------ ------------
Due to CNL Securities Corp.:
Commissions 145,670 5,819
Marketing support and due diligence
expense reimbursement fee 9,715 390
------------ ------------
155,385 6,209
------------ ------------
$ 1,772,807 $ 1,117,799
============ ============
The Company maintains a bank account in a bank in which certain
officers and directors of the Company serve as directors, and in which
an affiliate of the Advisor is a stockholder. The amount deposited with
this bank was $3,000,000 at December 31, 2001.
In conjunction with a potential commercial paper borrowing transaction,
the Company has engaged an affiliate of the Advisor to act as its
structuring agent (the "Structuring Agent".) The Structuring Agent will
receive an origination fee equal to 2 percent of the amount of the loan
with $100,000 payable upon engagement. During the year ended December
31, 2001, the Structuring Agent was paid the initial engagement fee of
$100,000. This amount is included in other assets at December 31, 2001,
and will be capitalized as loan costs upon completion of the borrowing
transaction.
10. Concentration of Credit Risk:
The Company's rental income for the year ended December 31, 2001, was
earned from three lessees; ARC Boca Raton, Inc. and ARC Pecan Park,
LLC, which operate the Properties under American Retirement Corporation
("ARC"), and BG Orland Park, LLC, which operates the Property as a
Brighton Gardens by Marriott. 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 lessees, the Marriott brand chain or ARC would
significantly impact the results of operations of the Company. However,
management believes that the risk of such a default is reduced by the
Company's initial and continuing due diligence procedures.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000 and 1999
11. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000:
2001 Quarter First Second Third Fourth Year
------------ ----- ------ ----- ------ ----
Revenues $ 356,362 $ 356,336 $382,764 $804,157 $ 1,899,619
Net income 67,348 211,945 171,842 464,830 915,965
Earnings per share:
Basic and Diluted 0.05 0.15 0.09 0.09 0.38
2000 Quarter First Second Third Fourth Year
------------ ----- ------ ----- ------ ----
Revenues $ 72,962 $ 295,622 $356,774 $359,372 $ 1,084,730
Net income (loss) (25,178) 182,463 14,672 52,821 224,778
Earnings (loss) per share:
Basic and Diluted (0.04) 0.25 0.02 0.04 0.27
12. Subsequent Events:
-----------------
On February 11, 2002, the Company used net offering proceeds of
approximately $9,700,000 to acquire the Homewood Residence at Coconut
Creek, an American Retirement Corporation assisted living property
located in Coconut Creek, Florida (the "Coconut Creek Property"). In
connection with the purchase of the Coconut Creek Property, the
Company, as lessor, entered into a long-term, triple-net lease
agreement.
In addition, on February 11, 2002, the Company used net offering
proceeds of approximately $5,500,000 and assumed permanent financing of
approximately $13,000,000 to acquire Holley Court Terrace, an American
Retirement Corporation assisted living property located in Oak Park,
Illinois (the "Oak Park Property"). In connection with the purchase of
the Oak Park Property, the Company, as lessor, entered into a
long-term, triple-net lease agreement.
During the period January 1, 2002, through February 11, 2002, the
Company received subscription proceeds for an additional 2,212,433
shares ($22,124,327) of common stock.
In addition, on January 1, 2002 and February 1, 2002, the Company
declared distributions totalling $415,936 and $513,585, respectively,
or $.0583 per share of common stock, payable in March 2002, to
stockholders of record on January 1, 2002 and February 1, 2002,
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 information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission no later
than April 30, 2002.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission no later
than April 30, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission no later
than April 30, 2002.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission no later
than April 30, 2002.
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, 2001 and 2000
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and
1999
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2001
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2001
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 17, 2001,
between CNL Retirement Properties, Inc. and CNL
Retirement Corp. (Included as Exhibit 10.1 to the
September 30, 2001, Report on Form 10-Q filed with
the Securities and Exchange Commission on November 9,
2001, and incorporated herein by reference).
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, and Lynn E. Rose dated September 15, 1998, and
Phillip M. Anderson, Jr. dated February 19, 1999.
(Included as Exhibit 10.2 to the 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 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
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 March 31, 2000, Report on Form
10-Q filed with the Securities and Exchange
Commission on May 3, 2000, and incorporated herein by
reference.)
10.7 Real Estate Purchase and Sale Contract between CNL
Retirement Corp. and American Retirement Corporation,
relating to the Broadway Plaza at Pecan Park -
Arlington, Texas. (Included as Exhibit 10.14 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.8 Lease Agreement between CNL Retirement - AM/Texas, LP
and ARC Pecan Park, L.P. dated November 9, 2001,
relating to the Broadway Plaza at Pecan Park -
Arlington, Texas. (Included as Exhibit 10.15 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.9 Real Estate Purchase and Sale Contract between CNL
Retirement Corp. and American Retirement Corporation,
relating to the Homewood Residence of Boca Raton -
Boca Raton, Florida. (Included as Exhibit 10.16 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.10 Lease Agreement between CNL Retirement - AM/Florida,
LP and ARC Boca Raton, Inc. dated November 9, 2001,
relating to the Homewood Residence of Boca Raton -
Boca Raton, Florida. (Included as Exhibit 10.17
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
21 Subsidiaries of the Registrant (Filed herewith.)
(b) The Registrant filed a report on Form 8-K on November 20,
2001, relating to the acquisition of two properties.
(b) Other Financial Information
The Company is required to file audited financial information of
guarantors, Marriott International, Inc. ("Marriott") and American
Retirement Corporation ("ARC"), of its tenants as a result of Marriott
and ARC guaranteeing lease payments for the Company's tenants which
lease more than 20 percent of the Company's total assets at December 31,
2001. Marriott and ARC are public companies and as the date hereof, had
not filed their 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 13th day of
February 2002.
CNL RETIREMENT PROPERTIES, INC.
By: ROBERT A. BOURNE
Vice Chairman, President and Treasurer
(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 13, 2002
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
/s/ Robert A. Bourne Vice Chairman of the Board, President and Treasurer February 13, 2002
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting Officer)
/s/ David W. Dunbar Independent Director February 13, 2002
- ---------------------------
David W. Dunbar
/s/ James W. Duncan, Jr. Independent Director February 13, 2002
- ---------------------------
James W. Duncan, Jr.
/s/ Edward A. Moses Independent Director February 13, 2002
- ---------------------------
Edward A. Moses
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent To
Initial Cost Acquisition
--------------------------------------------- ----------------------
Encum- Improve Carrying
brances Land Building Equipment -ments Costs
---------- ----------- ------------ ------------ --------- ---------
Properties the Company has Invested
in Under Operating Leases:
Brighton Gardens by Marriott:
Orland Park, Illinois $ -- $ 2,162,388 $ 11,533,074 $ 1,044,018 $ -- $ --
Broadway Plaza:
Arlington, Texas -- 1,343,538 9,174,538 602,226 -- --
Homewood Residence:
Boca Raton, Florida -- 1,143,571 8,501,806 554,536 -- --
---------- ----------- ------------ ------------ --------- ---------
$ -- $ 4,649,497 $ 29,209,418 $ 2,200,780 $ -- $ --
========== =========== ============ ============ ========= =========
Gross Amount at Which Carried
At Close of Period (d) Life on Which
- --------------------------------------------------- Depreciation
in Latest
Accumulated Date of Date Income Statement
Land Building Equipment Total Depreciation Construction Acquired is Computed
- ----------- ------------ ------------ ------------ ------------ ------------ -------- ----------------
$ 2,162,388 $ 11,533,074 $ 1,044,018 $ 14,739,480 $ 739,426 1999 4/00 (c)
1,343,538 9,174,538 602,226 11,120,302 45,557 2000 11/01 (c)
1,143,571 8,501,806 554,536 10,199,913 42,144 2000 11/01 (c)
- ----------- ------------ ------------ ------------ ------------
$ 4,649,497 $ 29,209,418 $ 2,200,780 $ 36,059,695 $ 827,127
=========== ============ ============ ============ ============
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2000 and 2001 are summarized as follows:
Accumulated
Cost (b) (d) Depreciation
------------- --------------
Properties the Company has Invested
in Under Operating Leases:
Balance, December 31, 1999 $ -- $ --
Acquisitions 14,721,092 --
Depreciation Expense (c) -- 303,184
------------- --------------
Balance, December 31, 2000 14,721,092 303,184
Acquisitions 21,338,603 --
Depreciation expense (c) -- 523,943
------------- --------------
Balance, December 31, 2001 $ 36,059,695 $ 827,127
============= ==============
(b) As of December 31, 2001 and 2000, the aggregate cost of the Properties
owned by the Company and its subsidiaries for federal income tax
purposes was $36,059,695 and $14,721,092, respectively. The leases are
treated as operating leases for federal income tax purposes.
(c) Depreciation expense is computed for buildings and equipment based upon
estimated lives of 40 and 3 to 7 years, respectively.
(d) Acquisition fees and miscellaneous expenses of $1,941,656 and $872,192
are included in land, buildings and equipment on operating leases at
December 31, 2001 and 2000, respectively.
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 17, 2001,
between CNL Retirement Properties, Inc. and CNL
Retirement Corp. (Included as Exhibit 10.1 to the
September 30, 2001, Report on Form 10-Q filed with
the Securities and Exchange Commission on November 9,
2001, and incorporated herein by reference).
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, and Lynn E. Rose dated September 15, 1998, and
Phillip M. Anderson, Jr. dated February 19, 1999.
(Included as Exhibit 10.2 to the 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 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
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 March 31, 2000, Report on Form
10-Q filed with the Securities and Exchange
Commission on May 3, 2000, and incorporated herein by
reference.)
10.7 Real Estate Purchase and Sale Contract between CNL
Retirement Corp. and American Retirement Corporation,
relating to the Broadway Plaza at Pecan Park -
Arlington, Texas. (Included as Exhibit 10.14 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.8 Lease Agreement between CNL Retirement - AM/Texas, LP
and ARC Pecan Park, L.P. dated November 9, 2001,
relating to the Broadway Plaza at Pecan Park -
Arlington, Texas. (Included as Exhibit 10.15 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.9 Real Estate Purchase and Sale Contract between CNL
Retirement Corp. and American Retirement Corporation,
relating to the Homewood Residence of Boca Raton -
Boca Raton, Florida. (Included as Exhibit 10.16 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.10 Lease Agreement between CNL Retirement - AM/Florida,
LP and ARC Boca Raton, Inc. dated November 9, 2001,
relating to the Homewood Residence of Boca Raton -
Boca Raton, Florida. (Included as Exhibit 10.17
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
21 Subsidiaries of the Registrant (Filed herewith.)
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of the registrant and the state of
incorporation for each:
Name of Subsidiary State of Incorporation
- ----------------------------------------- -------------------------------
CNL Retirement Properties, Inc. Maryland
CNL Retirement GP Corp. Delaware
CNL Retirement GP / Holding Corp. Delaware
CNL Retirement GP / Florida Corp. Delaware
CNL Retirement GP / Texas Corp. Delaware
CNL Retirement GP / Colorado Corp. Delaware
CNL Retirement GP / Illinois Corp. Delaware
CNL Retirement LP Corp. Delaware
CNL Retirement Partners, LP Delaware
CNL Retirement - AM Texas LP Delaware
CNL Retirement - AM Florida LP Delaware
CNL Retirement - AM Illinois LP Delaware
CNL Retirement - AM Colorado LP Delaware