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, 2002
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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
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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 _____
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
Aggregate market value of the common stock held by nonaffiliates of the
registrant: No established market exists for the Registrant's shares of common
stock, so 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,
$198,089,362 of our common stock was held by non-affiliates as of June 28, 2002.
The number of shares of common stock outstanding as of February 19, 2003 was
52,036,790.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant incorporates by reference portions of the CNL Retirement
Properties, Inc. Definitive Proxy Statement for the 2003 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than
April 30, 2003.
Contents
Page
Part I
Item 1. Business 1-6
Item 2. Properties 7-8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10
Item 6. Selected Financial Data 11-12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13-23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 24-42
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 43
Part III
Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
Item 14. Controls and Procedures 43
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44-49
Signatures 50-51
Certifications 52-53
Schedule III - Real Estate and Accumulated Depreciation 54-56
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. Various
other wholly owned subsidiaries of CNL Retirement Properties, Inc. have been and
will be formed in the future for the purpose of acquiring and owning properties.
The terms "Company" or "Registrant" include CNL Retirement Properties, Inc. and
its subsidiaries. The Company operates for federal income tax purposes as a real
estate investment trust (a "REIT").
The Company acquires 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 are leased on a long-term, "triple-net"
basis to operators of Retirement Facilities or to other tenants that engage
third party managers. Under the Company's triple-net leases, the lessees
generally are responsible for repairs, maintenance, property taxes, utilities
and insurance as well as the payment of rent. The lessees' ability to satisfy
the lease obligations depends primarily on the Properties operating results. In
addition, with respect to certain Properties, various forms of credit
enhancements, such as corporate guarantees, secure the lessees' obligations. The
Company selects its Properties for investment based on a credit underwriting
process designed to identify those Properties that management believes will be
able to fund such lease obligations.
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. The Company also may
provide furniture, fixtures and equipment ("FF&E") 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. The Company has
retained CNL Retirement Corp. (the "Advisor") as its advisor to provide
management, acquisition, advisory and administrative services.
Upon formation in December 1997, the Company received an initial capital
contribution of $200,000 for 20,000 shares of common stock from the Advisor. On
September 18, 1998, the Company commenced an offering to the public of up to
15,500,000 shares of common stock ($155,000,000) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended (the
"Initial Offering"). Upon termination of the Initial Offering on September 18,
2000, the Company had received aggregate subscription proceeds of $9,718,974
(971,898 shares). 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"), which was completed on May 24, 2002. In connection with
the 2000 Offering, the Company received subscription proceeds of $155,000,000
(15,500,000 shares). Upon completion of the 2000 Offering, the Company commenced
an offering of up to 45,000,000 shares ($450,000,000) (the "2002 Offering"). Of
the 45,000,000 shares offered, up to 5,000,000 ($50,000,000) are available to
stockholders purchasing shares through the Company's reinvestment plan.
On October 4, 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 175,000,000 additional shares ($1,750,000,000) in an
offering expected to commence immediately following the completion of the
Company's 2002 Offering (the "2003 Offering"). Of the 175,000,000 shares
expected to be offered, up to 25,000,000 are expected to be made available to
stockholders purchasing shares through the reinvestment plan. The Board of
Directors expects to submit, for a vote of the stockholders at the 2003 annual
meeting, a proposal to increase the number of authorized shares of common stock
of the Company from 100,000,000 to 450,000,000. Until such time, if any, as the
stockholders approve an increase in the number of authorized shares of common
stock of the Company, the 2003 Offering will be limited to 38,000,000 shares.
As of December 31, 2002, the Company had received total subscription
proceeds from its Initial Offering, the 2000 Offering and the 2002 Offering of
$442,346,060 (44,234,603 shares), including $1,208,302 (120,830 shares) through
the reinvestment plan.
As of December 31, 2002, net proceeds to the Company from its offerings of
shares and capital contributions from the Advisor, after deduction of selling
commissions, marketing support fees, due diligence expense reimbursements and
organizational and offering expenses, totaled approximately $392,300,000. The
Company had used approximately $310,900,000 of net offering proceeds, $8,100,000
in advances on a line of credit and borrowings of $45,600,000 in permanent
financing to invest approximately $364,600,000 in 37 Properties. As of December
31, 2002, the Company had repaid the advance on its line of credit, had paid
approximately $32,500,000 in acquisition fees and acquisition expenses and
approximately $400,000 to redeem 44,037 shares of common stock, leaving
approximately $40,400,000 available for investment in Properties, Mortgage Loans
and Secured Equipment Leases.
During the period January 1, 2003, through February 19, 2003, the Company
received additional net offering proceeds of approximately $69,500,000. The
Company also paid acquisition fees and costs of approximately $3,100,000,
leaving approximately $66,400,000 for investment in Properties, Mortgage Loans
and Secured Equipment Leases as of February 19, 2003. The Company expects to use
the uninvested net offering proceeds, plus any additional net offering proceeds
from the sale of shares from the 2002 Offering and the 2003 Offering to purchase
additional Properties and, to a lesser extent, invest in Mortgage Loans and
Secured Equipment Leases. 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 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 2002 Offering and the 2003 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 increases in consumer price indices over the
term of the leases 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 six 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 six-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. In addition, the Company will not sell any assets if
such sale would not be consistent with the Company's objective of qualifying as
a REIT.
In deciding the precise timing and terms of Property sales, the Advisor will
consider factors such as national and local market conditions, potential capital
appreciation, cash flows and federal income tax considerations. The terms of
certain leases, however, may require the Company to sell a Property at an
earlier time if the tenant exercises its option to purchase a Property after a
specified portion of the lease term has elapsed. The Company will have no
obligation to sell all or any portion of a Property at any particular time,
except as may be required under Property or joint venture purchase options
granted to certain tenants. In connection with sales of Properties, purchase
money obligations may be taken by the Company as 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
may also have the right to purchase the Property a specified number of 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. A third party's willingness to pursue the
purchase of a Property may be affected by the existence of such tenant's rights.
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
At December 31, 2002, the Company owned 37 Properties located in 16 states.
Twenty-five of the Properties are subject to operating leases and generally
provide for an initial term of 15 years (expiring between 2015 and 2017). The
operating leases generally provide options that allow the tenants to renew the
leases from 5 to 20 successive years subject to the same terms and conditions as
the initial leases. Eleven of the Properties are subject to direct financing
leases and each has a term of 35 years (expiring in 2037). The direct financing
leases contain provisions that allow each lessee to elect to purchase the
Property at the end of the lease term for the Company's initial investment
amount and also permit the Company to require each lessee to purchase the
Property at the end of the lease term for the same amount. The remaining
Property is a parcel of land currently in a pre-construction phase with planned
development for a seniors' housing complex. Upon completion of the development,
the Company expects to enter into a long-term lease agreement with an operator
of the Retirement Facility to operate and manage the Property.
The Company's 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.
The leases provide that the minimum base rent required under the terms of the
leases will increase at predetermined intervals (typically on an annual basis)
during the terms of the leases. In addition to annual base rent, substantially
all tenants are subject to contingent rent computed as a percentage of gross
sales of the Properties. The majority of the leases also provide 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.
To mitigate credit risk, certain leases are combined into portfolios that
contain cross-default terms, meaning that if a tenant of any of the Properties
in a portfolio defaults on its obligations under its lease, the Company may
pursue its remedies under the lease with respect to any of the Properties in the
portfolio ("Cross-Default"). In addition, certain portfolios contain terms
whereby the net operating profits of the Properties are combined for the purpose
of funding rental payments due under each lease ("Pooling"). For certain
Properties, the Company has also required security deposits, guarantees from the
tenant's parent company or additional cash reserve accounts to be held at the
tenant level. A guarantee from a parent company may be necessary if a Property
was recently opened and is still in the process of achieving a stable occupancy
rate, in which case the Property would not be able to generate minimum rent
until reaching occupancy stabilization. In order to determine the amount of the
guarantee that would be needed to fund minimum rent, the Company develops
estimates of future cash flow available to the tenant to pay minimum rent based
on rent rolls and an analysis of the surrounding real estate market, including
demographic information and industry standards, to predict operating expenses.
The Company's estimates are based on assumptions and there can be no assurances
as to what actual amounts will need to be paid under the guarantees.
Major Tenants and Operators
As of December 31, 2002, the Company owned 36 Properties in 16 states that
are subject to long-term, triple-net leases. The lessees of 35 of these
Properties are affiliates or wholly owned subsidiaries of American Retirement
Corporation ("ARC"), HRA Management Corporation ("HRA") or Prime Care
Properties, LLC ("Prime Care") and contributed 95.6 percent of the Company's
total rental income during the year ended December 31, 2002. Six of these
Properties are operated under the ARC brand and 29 Properties are operated by
Marriott Senior Living Services, Inc., a subsidiary of Marriott International,
Inc. To mitigate credit risk, substantially all of the lease agreements contain
Cross-Default and Pooling terms. In addition, as of December 31, 2002, the
Company had $4,866,973 in security deposits related to certain Properties as
well as the guarantees described below.
In connection with five Properties leased to HRA, Marriott International,
Inc. and Marriott Senior Living Services, Inc. have, with certain limitations,
guaranteed the tenant's obligation to pay minimum rent due under the leases up
to a maximum of $5,880,000. As of February 19, 2003, $1,086,078 of the guarantee
had been used to pay rent leaving a remaining guarantee balance of $4,793,922.
Marriott International, Inc. and Marriott Senior Living Services, Inc. have
also guaranteed the tenant's obligation to pay minimum rent due under a lease
for a Property located in Orland Park, Illinois purchased in April 2000. The
maximum amount of the guarantee was $2,769,780, and the remaining balance as of
February 19, 2003 was $996,181.
An affiliate of Prime Care has guaranteed the tenants' obligations to pay
minimum rent due under 11 leases up to a maximum of $2,000,000. As of February
19, 2003, $308,341 of the guarantee had been used to pay rent leaving a
remaining guarantee balance of $1,691,659.
In connection with six Properties leased to wholly owned subsidiaries of
ARC, ARC has unconditionally guaranteed all of the tenants' obligations under
the terms of the leases, including the payment of minimum rent.
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, their guarantors or the
Marriott or ARC brand chains would significantly impact the results of
operations of the Company. It is expected that the percentage of total rental
income contributed by the Company's current lessees will decrease as additional
Properties are acquired and leased to diversified tenants during subsequent
periods.
In a press release dated December 30, 2002, Sunrise Assisted Living, Inc.
announced it had entered into a definitive agreement with Marriott
International, Inc. to acquire all of the outstanding stock of Marriott Senior
Living Services, Inc. When the sale of Marriott Senior Living Services, Inc.'s
stock to Sunrise Assisted Living, Inc. is completed, it is expected that the
long-term management agreements in which the Company's tenants have entered into
with Marriott Senior Living Services, Inc. will be assumed by Sunrise Assisted
Living, Inc. to operate all of the Company's Properties that are currently
operated by Marriott Senior Living Services, Inc. In regards to nine of the 12
proposed Properties for which the Company has entered into initial commitments
to acquire as of February 19, 2003, it is expected that until the sale of the
Marriott Senior Living Services, Inc.'s stock to Sunrise Assisted Living, Inc.
is completed, Marriott Senior Living Services, Inc. will operate these
Properties. Sunrise Assisted Living, Inc. has agreed to assume the obligations
to the Company under the guarantees from Marriott International, Inc. and
Marriott Senior Living Services, Inc. upon its purchase of Marriott Senior
Living Services, Inc.'s stock. There can be no assurance that these transactions
will be consummated.
Maturity of Debt Obligations of American Retirement Corporation
As of December 31, 2002, ARC was the parent company of the lessees to six of
the Company's 37 Properties. ARC also operates the Properties and is obligated
to fund shortfall reserves relating to the Properties. According to its December
31, 2001 audited financial statements, ARC had significant debt obligations that
matured in 2002, as well as a net working capital deficit as a result of such
maturities and significant lease obligations. At December 31, 2001, ARC's
current cash balances and internally developed cash were not sufficient to
satisfy its scheduled debt maturities in 2002. Since the latter part of 2001,
ARC had been executing a refinancing plan that included the consummation of
sale-leaseback transactions and various other refinancing and capital-raising
transactions to repay debt and fund related reserve and escrow requirements. On
September 30, 2002, ARC announced that it had successfully completed the
refinancing of all debt that was due in 2002 and 2003. According to ARC's Form
10-Q for the third quarter period ended September 30, 2002, ARC reported that
although they had successfully completed their refinancing plan, they remain
highly leveraged with a substantial amount of debt and lease obligations, and
they have increased interest and lease costs. As part of the refinancings, ARC
has replaced a significant amount of mortgage debt with debt having higher
interest rates or higher lease costs, increasing ARC's estimated annual debt and
lease payments from prior periods. As of February 19, 2003, ARC had met all of
its obligations relating to the six Properties.
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, Secured Equipment Leases, lines of credit and permanent
financing; 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 and loan proceeds from permanent financing, excluding that portion
of the permanent financing used to finance Secured Equipment Leases. In
addition, if there is a Listing, the Company will receive an acquisition fee of
4.5 percent of amounts outstanding on the line of credit, if any, at the time of
Listing.
The Advisory Agreement continues until May 14, 2003, 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.
Borrowings
As of December 31, 2002, the Company had three permanent loans totaling
$45.3 million secured by mortgages on seven Properties with an aggregate cost of
$103.4 million. Two of the loans require monthly principal and interest
payments. These loans bear interest at a variable rate based on LIBOR plus a
premium and mature in October 2003 and August 2007. The third loan is in the
form of a five-year commercial paper backed loan secured by five Properties. The
loan is funded from proceeds received from the sale of 30-day commercial paper.
The commercial paper is re-marketed every 30 days upon maturity. The Company has
a liquidity facility in place in the event that the marketing effort is
unsuccessful. The commercial paper loan bears interest at the commercial paper
rate as determined by market demand plus a margin that is inclusive of liquidity
fees and administrative costs. Interest is payable monthly with principal due
when the commercial paper loan matures in June 2007.
As of February 19, 2003, the Company plans to replace its existing $25
million line of credit with a new line of credit. The Company has a commitment
to obtain a two-year, $75 million revolving line of credit that may be amended
to allow the line of credit to be increased by $50 million. Eleven Properties
with an aggregate cost of $115.2 million are expected to be mortgaged to secure
the $75 million revolving line of credit. This facility will require payment of
interest only at LIBOR plus a premium until maturity and has several covenants
typically found in revolving loan facilities, including covenants to maintain a
minimum net worth and minimum collateral value. The Company may use the
revolving line of credit to fund acquisitions, pay fees and fund working capital
for general business purposes. Periodically, the Company expects to repay
amounts drawn under the revolving line of credit with proceeds received from
equity offerings, permanent financing, the sale of assets or working capital.
The line of credit may be increased at the discretion of the Board of Directors.
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 Board of Directors may elect to encumber assets in
connection with any borrowing.
Available Information
The Company makes available free of charge on or through its Internet
website (http://www.cnlonline.com) the Company's Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable,
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after the Company electronically files such material with, or
furnishes it to the Securities and Exchange Commission.
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. The Company has retained the Advisor to provide management,
acquisition, advisory and certain administrative services and has retained
certain other affiliates of the Advisor to provide additional administrative
services.
Item 2. Properties
As of December 31, 2002, the Company had invested approximately $392.4
million in 37 retirement Properties located in 16 states. Seven of those
Properties with an aggregate cost of $103.4 million are mortgaged for $45.3
million. As of February 19, 2003, the Company had initial commitments to
purchase 12 additional Properties for an aggregate purchase price of $298.7
million. 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, or commonly
referred to as independent 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. Assisted living
facilities may include units for residents with Alzheimer's and related memory
disorders. 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 acquired
by the Company are one of a Retirement Facility operator's approved designs.
Generally, Properties acquired by the Company 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 are 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.
The Properties are leased on a long-term, triple-net basis to unrelated
third parties, whereby the tenants are generally responsible for all operating
expenses relating to the Property, including property taxes, insurance,
maintenance and repairs. 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.
The following table summarizes the location, property type, year opened,
number of units or beds in each Retirement Facility and the Company's investment
amount as of December 31, 2002. Dollar amounts are in thousands.
Year Investment
Property Concept and Location Property Type (1) Opened Units/Beds (in 000's)
- ---------------------------------------------- --------------------- ---------- ------------ --------------
Marriott
Brighton Gardens:
Orland Park, Illinois ALF 1999 102 $ 14,740
Camarillo, California ALF & SNF 1999 161 19,880
Towson, Maryland ALF 1999 89 15,722
Hoffman Estates, Illinois ALF 1999 120 8,081
Tulsa, Oklahoma ALF 1999 120 5,039
Atlanta, Georgia ALF 1999 116 7,871
Oklahoma City, Oklahoma ALF 1999 120 3,930
Santa Rosa, California ALF & SNF 2000 162 17,773
Bellevue, Washington ALF 1999 117 11,028
Brentwood, Tennessee ALF 1997 115 7,027
Buckhead, Georgia ALF 1998 115 8,446
Charlotte, North Carolina ALF 1997 115 3,613
Chevy Chase, Maryland ALF 1997 132 21,430
Middletown, New Jersey ALF 1997 115 12,541
Mountainside, New Jersey ALF 1997 123 13,575
Naples, Florida ALF & SNF 1998 133 8,805
Raleigh, North Carolina ALF 1997 115 10,581
Stamford, Connecticut ALF 1997 115 14,798
Venice, Florida ALF & SNF 1996 147 7,211
Winston-Salem, North Carolina ALF 1997 115 7,756
MapleRidge:
Laguna Creek, California ALF 1999 84 8,601
Clayton, Ohio ALF 1999 84 8,680
Dartmouth, Massachusetts ALF 1999 86 10,155
Plymouth, Massachusetts ALF 2000 84 4,944
Cleveland, Ohio ALF 1999 84 5,323
Hemet, California ALF 1999 84 4,433
Pleasant Hills:
Little Rock, Arkansas ALF & ILF 1984 163 11,351
Hearthside:
Lynnwood, Washington ALF 1989 72 6,829
Snohomish,Washington ALF 1993 84 9,315
American Retirement Corporation
Broadway Plaza:
Arlington, Texas ALF 2000 95 11,120
Homewood Residence:
Boca Raton, Florida ALF 2000 72 10,200
Coconut Creek, Florida ALF 2000 94 10,223
Brookmont, Tennessee ALF 2000 98 9,446
Holley Court Terrace:
Oak Park, Illinois ILF 1992 178 19,510
Heritage Club:
Greenwood Village, Colorado ALF & SNF 1999 178 20,850
Erickson Retirement Communities
Peabody, Massachusetts Land N/A -- 18,345
Other
Vero Beach, Florida Land N/A -- 3,244
------------ --------------
3,987 $ 392,416
============ ==============
(1) Assisted Living Facility ("ALF"); Skilled Nursing Facility ("SNF");
Independent Living Facility ("ILF")
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
As of February 19, 2003, there were 22,311 stockholders of record of common
stock. There is no public trading market for the shares of common stock, and
even though the Company intends to list the shares on a national securities
exchange or over-the-counter market within six 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 less a discount of 8.0 percent. The current
offering price is $10.00 per share; thereby the current net redemption price is
$9.20 per share. Redemptions 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 years ended December 31, 2002 and 2001, 37,306 and 3,415
shares, respectively, were redeemed at $9.20 per share (for a total of $343,212
and $31,420, respectively) and retired from shares outstanding of common stock.
Although the Company is not aware of any transfers or resale of stock in 2002 or
2001, the price to be paid for any share transferred other than pursuant to the
redemption plan is subject to negotiation by the purchaser and the selling
stockholder.
As of December 31, 2002, the offering price per share of common stock was
$10. Based on the continued sale of shares through February 19, 2003, 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, 2002 and 2001, the Company declared cash distributions of $14,379,477 and
$1,507,322, respectively, to stockholders. For each of the years ended December
31, 2002 and 2001, approximately 65 percent of distributions paid to
stockholders were considered ordinary income and approximately 35 percent were
considered a return of capital for federal income tax purposes. No amounts
distributed to stockholders for the years ended December 31, 2002 and 2001, 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 distributions and distributions per share:
2002 Quarter First Second Third Fourth Year
------------------------------- ------------ ----------- ----------- ----------- ------------
Total distributions declared $1,552,344 $2,586,745 $4,097,267 $6,143,121 $14,379,477
Distributions per share 0.1749 0.1749 0.1749 0.1755 0.7002
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
On January 1, 2003 and February 1, 2003, the Company declared distributions
to stockholders totaling $2,604,002 and $2,878,892, respectively ($0.0589 per
share), payable by March 31, 2003, to stockholders of record as of each
respective date.
The Company intends to continue to declare distributions of cash to
stockholders on a monthly basis during the offering period, and quarterly
thereafter. The Company is required to distribute annually at least 90% of its
real estate investment trust taxable income to maintain its objective of
qualifying as a REIT. Distributions will be made at the discretion of the Board
of Directors, depending primarily on net cash from operating activities and the
general financial condition of the Company, subject to the obligation of the
Board of Directors to cause the Company to remain qualified as a REIT for
federal income tax purposes.
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.
2002 2001 2000 1999 (1) 1998 (2)
------------- ------------ ----------- ------------- ------------
Year Ended December 31:
Revenues $ 18,852,028 $ 1,899,619 $ 1,084,730 $ 86,231 $ --
General operating and
administrative expenses (3) 1,388,706 395,268 340,086 79,261 --
Organizational costs -- -- -- 35,000 --
Net earnings (loss) 11,371,856 915,965 224,778 (28,390) --
Cash distributions declared 14,379,477 1,507,322 502,078 50,404 --
Cash from operating activities 16,784,763 2,173,379 1,096,019 12,851 --
Cash used in investing
activities (358,090,103) (22,931,469) (14,428,703) -- --
Cash from (used in) financing
activities 355,384,104 47,301,313 8,766,346 4,731,279 (199,908)
Funds from operations (4) 14,609,538 1,439,908 527,962 (28,390) --
Earnings (loss) per share 0.52 0.38 0.27 (0.07) --
Cash distributions declared
per share 0.70 0.70 0.58 0.13 --
Weighted average number
of shares outstanding 22,034,955 2,391,072 845,833 412,713(5) --
At December 31:
Total assets $ 441,765,453 $ 64,446,889 $ 14,688,560 $ 5,088,560 $ 976,579
Total mortgages payable 45,326,677 -- -- -- --
Total stockholders' equity 389,795,024 60,910,042 9,203,548 3,292,137 200,000
(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) 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.
(4) Management considers funds from operations ("FFO") to be an indicative
measure of operating performance due to the significant effect of
depreciation of real estate assets on net earnings. 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, 2002, 2001 and 2000,
net earnings included $1,374,665, $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.
The following is a reconciliation of net earnings to FFO for the years ended
December 31, 2002, 2001 and 2000:
Year Ended
December 31,
2002 2001 2000 1999
------------ ----------- ------------ ------------
Net earnings $ 11,371,856 $ 915,965 $ 224,778 $ (28,390)
Adjustments:
Effect of unconsolidated
subsidiaries 149,801 -- -- --
Effect of minority interest (233,691) -- -- --
Depreciation of real estate
assets 3,321,572 523,943 303,184 --
------------- ------------ ------------- -------------
FFO $ 14,609,538 $ 1,439,908 $ 527,962 $ (28,390)
============= ============ ============= =============
Weighted average shares: 22,034,955 2,391,072 845,833 412,713
============= ============ ============= =============
(5) The weighted average number of shares outstanding for the year ended
December 31, 1999, is based upon the period the Company was
operational.
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, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 health care and
seniors' housing facilities located across the United States. The Properties 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 are leased on a long-term,
"triple-net" basis. The Company may provide Mortgage Loans in the aggregate
principal amount of approximately 5 percent to 10 percent of the Company's total
assets and may offer Secured Equipment Leases to operators of retirement and
medical Properties. 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
In 1998, the Company registered its Initial Offering of common stock and in
connection with the Initial Offering, the Company received subscription proceeds
of $9,718,974 (971,898 shares). Following termination of the Initial Offering on
September 18, 2000, the Company commenced its 2000 Offering. On May 24, 2002,
the Company completed its 2000 Offering from which it received subscription
proceeds of $155,000,000 (15,500,000 shares). Immediately following the
completion of the 2000 Offering, the Company commenced its 2002 Offering of up
to an additional 45,000,000 shares of common stock ($450,000,000). Of the
45,000,000 shares of common stock offered in the 2002 Offering, up to 5,000,000
are available to stockholders purchasing shares through the Company's
reinvestment plan.
On October 4, 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 175,000,000 additional shares of common stock
($1,750,000,000) in an offering expected to commence immediately following the
completion of the Company's 2002 Offering. Of the 175,000,000 shares of common
stock expected to be offered, up to 25,000,000 are expected to be available to
stockholders purchasing shares through the reinvestment plan. The Board of
Directors expects to submit, for a vote of the stockholders at the 2003 annual
meeting, a proposal to increase the number of authorized shares of common stock
of the Company from 100,000,000 to 450,000,000. Until such time, if any, as the
stockholders approve an increase in the number of authorized shares of common
stock of the Company, the 2003 Offering will be limited to 38,000,000 shares.
From its formation in December 1997 through December 31, 2002, the Company
has received an initial $200,000 contribution from the Advisor and subscription
proceeds of $442,346,060 (44,234,603 shares), including $1,208,302 (120,830
shares) through the reinvestment plan. The Company believes that the net
proceeds received from the 2002 Offering, the 2003 Offering and any additional
offerings will enable the Company to continue to grow and take advantage of
acquisition opportunities until such time, if any, that the Company's shares are
listed on a national securities exchange or over-the-counter market. Under the
Company's Articles of Incorporation, if the Company does not list by December
31, 2008, it will commence an orderly liquidation of its assets and the
distribution of net proceeds to its stockholders. As of December 31, 2002, the
Company had used approximately $319,000,000 of net offering proceeds and
approximately $45,600,000 of loan proceeds to invest in 37 Properties located in
16 states (see "Property Acquisitions and Investments" below), approximately
$32,500,000 to pay acquisition fees and expenses and approximately $400,000 to
redeem 44,037 shares of common stock, leaving approximately $40,400,000
available for investment in Properties and Mortgage Loans.
During the period January 1 through February 19, 2003, the Company received
additional offering proceeds of approximately $78,300,000. The Company expects
to use any uninvested net offering proceeds, plus any additional net offering
proceeds from the 2002 Offering and the 2003 Offering to purchase additional
Properties and to a lesser extent, to invest in Mortgage Loans and Secured
Equipment Leases. 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 permanent financing
in connection with certain Properties and has an initial commitment to obtain a
two-year, $75 million revolving line of credit that may be amended to allow the
line of credit to increase by $50 million. The aggregate amount of any permanent
financing is not expected to exceed 30 percent of the Company's total assets and
the maximum amount the Company may borrow is 300 percent of the Company's net
assets.
Redemptions
In October 1998, the Board of Directors elected to implement the Company's
redemption plan. Under the redemption plan, prior to such time, if any, as
Listing occurs, any stockholder who has held shares for at least one year may
present all or any portion equal to at least 25 percent of their shares to the
Company for redemption in accordance with the procedures outlined in the
redemption plan. Upon presentation, the Company may, at its option, redeem the
shares, subject to certain conditions and limitations. However, at no time
during a 12-month period may the number of shares redeemed by the Company exceed
5 percent of the number of shares of the Company's outstanding common stock at
the beginning of the 12-month period. During the years ended December 31, 2002,
2001 and 2000, 37,306, 3,415 and 3,316 shares, respectively, were redeemed at
$9.20 per share (for a total of $343,212, $31,420 and $30,508, respectively) and
retired. No shares were redeemed prior to 2000.
Property Acquisitions and Investments
At December 31, 2002, the Company owned 37 Properties located in 16 states,
including one Property in a pre-construction phase with planned development for
a seniors' housing complex. Upon completion of the development, the Company
expects to enter into a long-term lease agreement with an operator of the
Retirement Facility to operate and manage the Property. The Company, as lessor,
has entered into long-term lease agreements relating to the other Properties.
The leases are on a triple-net lease basis, meaning the tenants are required to
pay all repairs, maintenance, property taxes, utilities and insurance.
Generally, the tenants are also required 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.
During the year ended December 31, 2002, the Company acquired 22 Properties
for an aggregate purchase price of $222.3 million that are subject to operating
leases and generally provide for an initial term of 15 years. Substantially all
of the operating leases provide options that allow the tenants to renew the
leases from 5 to 20 successive years subject to the same terms and conditions as
the initial leases. The leases provide for minimum annual base rent, generally
payable in monthly installments. The leases provide that the minimum base rent
required under the terms of the leases will increase at predetermined intervals
(typically on an annual basis) during the terms of the leases. In addition to
minimum annual base rent, substantially all tenants are subject to contingent
rent computed as a percentage of gross sales of the Properties. The majority of
the leases also provide 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. Substantially all of
the operating leases contain Cross-Default and Pooling terms. The Properties are
operated and managed by ARC, Marriott Senior Living Services, Inc. or Erickson
Retirement Communities, LLC. As discussed in the "Major Tenants and Operators"
section above, it is expected that when the sale of Marriott Senior Living
Services, Inc.'s stock to Sunrise Assisted Living, Inc. is completed, the
long-term management agreements in which the Company's tenants have entered into
with Marriott Senior Living Services, Inc. will be assumed by Sunrise Assisted
Living, Inc. to operate all of the Company's Properties that are currently
operated by Marriott Senior Living Services, Inc. There can be no assurance that
these transactions will be consummated.
In conjunction with the purchase of five of the Properties subject to
operating leases, Marriott International, Inc. has, with certain limitations,
guaranteed the tenant's obligation to pay minimum rent due under the leases up
to a maximum of $5,880,000. As of February 19, 2003, the remaining amount
available under the limited guarantee was $4,793,922.
On September 30, 2002, the Company acquired 11 Properties located in seven
states through a direct financing transaction with two subsidiaries of Prime
Care for $105,250,000 plus closing costs and a working capital advance. The
Company, as lessor, entered into 35-year lease agreements that require minimum
annual rent of $11,520,600 through December 31, 2003, and 2.5 percent annual
increases thereafter. In addition to minimum rent, the leases require additional
rent, which is based on a percentage of the tenants' gross revenues. The leases
also provide for the tenant to fund, in addition to its lease payments, an FF&E
reserve fund. All property purchased with the funds from the FF&E reserve will
remain the property of the tenants. The leases contain provisions that allow the
lessees to purchase the Properties at the end of the lease terms for the
Company's investment amount. The leases also permit the Company to require the
lessees to purchase the Properties at the end of the lease terms for the same
amount. The leases of the 11 Properties contain Cross-Default and Pooling terms.
In addition, an affiliate of the tenants has guaranteed the tenants' obligations
to pay minimum rent due under the leases up to a maximum of $2,000,000. As of
February 19, 2003, the remaining amount available under the guarantee was
$1,691,659. The 11 Properties are operated and managed by Marriott Senior Living
Services, Inc.
In connection with the acquisition of seven Properties, the Company
obtained three permanent loans totaling $45.3 million secured by mortgages on
the Properties. See "Borrowings" below.
On May 30, 2002, the Company acquired a 10 percent interest in a limited
partnership, CNL Plaza, Ltd., that owns an office building located in Orlando,
Florida, in which the Advisor and its affiliates lease office space. The
Company's original equity investment in the partnership was $300,000. The
Company's share in the limited partnership's distributions will be equivalent to
its equity interest in the limited partnership. During the year ended December
31, 2002, the Company received $190,922 in distributions from the partnership.
The remaining interest in the limited partnership is owned by several affiliates
of the Advisor. In connection with this investment, the Company has severally
guaranteed 16.67 percent or $2,583,333, of a $15,500,000 unsecured promissory
note of the limited partnership.
On August 12, 2002, the Company originated a Mortgage Loan in the principal
amount of $1,870,000 secured by a parcel of land owned by a joint venture in
which the Company acquired a 99% interest on December 20, 2002. The loan bears
interest at 9.35 percent per annum and requires monthly payments of interest
only. The loan matures on December 31, 2006. The land, which contains
approximately 39.8 acres, is planned to be developed into a seniors' housing
complex. The Company had incurred approximately $1,400,000 in pre-development
costs as of December 31, 2002.
Borrowings
In February 2002, the Company assumed a mortgage of $12,974,397 that matures
on October 2, 2003, in conjunction with the purchase of a Property located in
Oak Park, Illinois. The mortgage bears interest at a floating rate of (i) 350
basis points over the 30-day LIBOR if LIBOR is over 2.6 percent or (ii) 440
basis points over the 30-day LIBOR if LIBOR is under 2.6 percent not to exceed 8
percent. As of December 31, 2002, the interest rate was 5.84 percent. In
accordance with the provisions of the mortgage, the Company has placed $277,821
in escrow, which represents three months of debt service related to the
mortgage. In connection with the loan, the Company incurred assumption fees of
$16,156 that are being amortized over the remaining term of the loan. The
Company anticipates refinancing the loan prior to its maturity date. However, if
such financing is not available, the Company expects to have adequate offering
proceeds available to repay this debt.
In connection with the purchase of five Properties, the Company borrowed
$23,520,000 in June 2002 in the form of a commercial paper backed loan secured
by these five Properties. The loan is funded from proceeds received from the
sale of 30-day commercial paper. The commercial paper is re-marketed every 30
days upon maturity. The Company has a liquidity facility in place in the event
that the re-marketing effort is unsuccessful. The liquidity agent has provided a
liquidity facility for up to 102 percent of the outstanding loan balance.
Interest is payable monthly with principal due when the commercial paper loan
matures on June 6, 2007. The commercial paper loan bears interest at the
commercial paper rate as determined by market demand (1.51 percent as of
December 31, 2002) plus a margin of 1.23 percent, which is inclusive of
liquidity fees and administrative costs. As of December 31, 2002, the commercial
paper loan interest rate was 2.74 percent. In connection with the loan, the
Company incurred loan fees and closing costs of $539,215 that are being
amortized over the term of the loan.
On August 8, 2002, the Company entered into a commitment for $11,000,000 of
permanent financing secured by a mortgage on the Property located in Greenwood
Village, Colorado. On August 29, 2002, the Company obtained an advance totaling
$9,100,000 with a possible future advance in the amount of $1,900,000 subject to
certain operating performance thresholds being achieved by this Property prior
to February 27, 2004. The loan bears interest at a variable rate based on 90-day
LIBOR plus 3.90 percent per annum, but in no event shall the interest rate be
less than 6.50 percent. As of December 31, 2002, the interest rate was 6.50
percent. The loan requires monthly principal and interest payments through
August 31, 2007, with all unpaid principal and interest due at that time. In
connection with the loan, the Company incurred loan fees and closing costs of
$329,933 that are being amortized over the term of the loan.
As of February 19, 2003, the Company plans to replace its existing $25
million line of credit with a new line of credit. The Company has a commitment
to obtain a two-year, $75 million revolving line of credit that may be amended
to allow the line of credit to be increased by $50 million. Eleven Properties
with an aggregate cost of $115.2 million are expected to be mortgaged to secure
the $75 million revolving line of credit. This credit facility will require
payment of interest only at LIBOR plus a premium until maturity and has several
covenants typically found in revolving loan facilities, including covenants to
maintain a minimum net worth and minimum collateral value. The Company may use
the revolving line of credit to fund acquisitions, pay fees and fund working
capital for general business purposes. Periodically, the Company expects to
repay amounts drawn under the revolving line of credit with proceeds received
from equity offerings, permanent financing, the sale of assets or working
capital. In connection with the new revolving line of credit, the Company has
incurred $211,640 in loan fees and costs as of December 31, 2002.
Contractual Obligations and Commitments
The following table presents the Company's contractual cash obligations
and related payment periods as of December 31, 2002:
Less than
Contractual Cash Obligations 1 Year 2-3 Years 4-5 Years Thereafter Total
- ------------------------------------ ----------- ----------- ------------ ------------ ------------
Mortgages payable $12,896,864 $ 338,599 $ 32,091,214 $ -- $ 45,326,677
Refundable tenant security
deposits -- -- -- 4,866,973 4,866,973
----------- ----------- ------------ ------------ ------------
Total Contractual Cash
Obligations $12,896,864 $ 338,599 $ 32,091,214 $ 4,866,973 $ 50,193,650
=========== =========== ============ ============ ============
The following table presents the Company's commitments, contingencies
and guarantees and related expiration periods as of December 31, 2002:
Commitments, Contingencies and Less than
Guarantees 1 Year 2-3 Years 4-5 Years Thereafter Total
- ----------------------------------- ------------- ----------- ------------ ------------ -------------
Guarantee of unsecured
promissory note of
unconsolidated subsidiary $ -- $ 2,583,333 $ -- $ -- $ 2,583,333
Earnout provisions (1) -- 11,834,233 -- -- 11,834,233
Pending investments (2) 298,700,000 -- -- -- 298,700,000
------------- ----------- ------------ ------------ -------------
Total Commitments, Contingencies
and Guarantees $ 298,700,000 $14,417,566 $ -- $ -- $ 313,117,566
============= =========== ============ ============ =============
(1) In connection with the acquisition of five Properties, the Company may
be required to make additional payments (the "Earnout Amount") if
certain earnout provisions are achieved by the earnout date for each
Property. The calculation of the Earnout Amount generally considers the
net operating income for the Property, the Company's initial investment
in the Property and the fair value of the Property. In the event an
Earnout Amount is due, the lease will be amended and annual minimum
rent will increase accordingly.
(2) See "Pending Investments" section below for a description of Properties
for which the Company had commitments to acquire as of December 31,
2002.
Market Risk
All of the Company's mortgage loans payable at December 31, 2002, were
subject to variable interest rates, adjusted monthly or quarterly, as described
in the "Borrowings" section above. Therefore, the Company is exposed to market
changes in interest rates. To mitigate interest rate risk, the Company can pay
down the mortgages with offering proceeds should interest rates rise
substantially.
The Company has mitigated its exposure to variable interest rates on its
commercial paper loan by providing fluctuating lease payments under the leases
for the Properties securing the loan as a result of changes in periodic interest
rates due under the commercial paper loan. The loan is funded from proceeds
received from the sale of 30-day commercial paper. The commercial paper is
re-marketed every 30 days upon maturity. The Company has mitigated its exposure
to liquidity risk by obtaining a liquidity facility that guarantees proceeds in
the event that the marketing effort is unsuccessful.
The Company may also be subjected to interest rate risk through outstanding
balances on its variable rate line of credit. The Company may mitigate this risk
by paying down its line of credit from offering proceeds should interest rates
rise substantially. There were no amounts outstanding on the variable rate line
of credit at December 31, 2002.
Management estimates that a one-percentage point increase in interest rates
for the year ended December 31, 2002, would have resulted in additional interest
costs of approximately $263,612. This sensitivity analysis contains certain
simplifying assumptions (for example, it does not consider the impact of changes
in prepayment risk or credit spread risk). Therefore, although it gives an
indication of the Company's exposure to interest rate change, it is not intended
to predict future results and the Company's actual results will likely vary.
Pending Investments
As of February 19, 2003, the Company had commitments to acquire 12
additional Properties located in eight states. The anticipated aggregate
purchase price is approximately $298.7 million, and the acquisition of each
Property is subject to the fulfillment of certain conditions. The Company plans
to assume permanent financing of approximately $20.6 million in connection with
the acquisition of two Properties and to secure up to $75 million in a revolving
line of credit for the acquisition of nine of these Properties. In addition, the
Company anticipates that it will assume obligations of approximately $88.8
million in non-interest bearing bonds payable to certain residents of two of the
Properties. In regards to nine of the 12 proposed Properties for which the
Company has entered into initial commitments to acquire as of February 19, 2003,
it is expected that until the sale of the Marriott Senior Living Services,
Inc.'s stock to Sunrise Assisted Living, Inc. is completed, Marriott Senior
Living Services, Inc will operate these Properties. It is expected that Sunrise
Assisted Living, Inc. or Erickson Retirement Communities, LLC will operate the
remaining three proposed Properties. There can be no assurance that these
transactions will be consummated.
Cash and Cash Equivalents
Until Properties are acquired or Mortgage Loans or Secured Equipment Leases
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 or Secured Equipment Leases.
At December 31, 2002, the Company had $40,799,871 invested in such short-term
investments as compared to $26,721,107 at December 31, 2001. 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, 2002, partially offset by the purchase of 33 Properties. The funds
remaining at December 31, 2002, 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 or Secured Equipment Leases, 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.
Notes and Other Receivables
The Company's notes and other receivables balance increased from $180,163 at
December 31, 2001 to $3,192,203 as of December 31, 2002. The increase was
primarily due to a $2,000,000 loan to an affiliate of one of the Company's
lessees related to the anticipated acquisition of two additional Properties. As
of December 31, 2002, the Company had an initial commitment to purchase two
additional Properties located in Maryland for approximately $22,600,000. In
connection with this anticipated purchase, the Company loaned the seller
$2,000,000 to pay off debt at a discounted amount, making the purchase of the
Properties economically viable. The note bears interest at 15% per annum and
matures March 31, 2003. As security for this note, the seller has pledged a
membership interest in its company. Additionally, certain members of the
seller's company guaranteed the note.
Other amounts included in the Company's accounts receivable balance as of
December 31, 2002 and 2001, include normal operating receivables such as rent
payments due under the Company's long-term lease agreements and other
receivables. As of February 19, 2003, management believes the receivable balance
as of December 31, 2002 is fully collectible.
Liquidity Requirements
During the years ended December 31, 2002, 2001 and 2000, the Company
generated cash from operating activities (which includes cash received from its
tenants and interest, less cash paid for operating expenses) of $16,784,763,
$2,173,379 and $1,096,019, respectively. For the years ended December 31, 2002,
2001 and 2000, cash from operating activities includes security deposits of
$3,502,987, $810,030 and $553,956, respectively, which were received from the
Company's 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 proposed revolving 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 proceeds from its offerings, advances under its proposed revolving line of
credit and permanent financing. 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 substantially
all of the lease agreements. In accordance with such agreements, the tenants
deposit funds into restricted FF&E reserve accounts and periodically use these
funds to cover the cost of the replacement, renewal and additions to FF&E. With
respect to the Properties subject to operating leases, generally 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. However, six Properties subject to operating leases 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. The Properties subject to
direct financing leases include FF&E reserve accounts that are held by each
tenant. All property purchased with funds from the FF&E accounts will remain the
property of the tenants. 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. For the
years ended December 31, 2002, 2001 and 2000, revenue relating to the FF&E
reserve totaled $153,454, $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 event a tenant's insurance policy lapses or is insufficient to
cover a claim relating to the Property.
Distributions
The Company declared and paid distributions to its stockholders totaling
$14,379,477, $1,507,322 and $502,078 during the years ended December 31, 2002,
2001 and 2000, respectively. In addition, on January 1, 2003 and February 1,
2003, the Company declared distributions of $0.0589 per share of common stock to
stockholders of record as of each respective date. These distributions are
payable by March 31, 2003.
For the years ended December 31, 2002, 2001 and 2000, approximately 65
percent, 65 percent and 54 percent, respectively, of the distributions received
by stockholders were considered to be ordinary income and approximately 35
percent, 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, 2002, 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 monthly or quarterly.
Related Party Transactions
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 receive fees and compensation in connection
with the offerings, and the acquisition, management and sale of the assets of
the Company.
CNL Securities Corp. receives commissions amounting to 7.5 percent of the
total amount raised from the sale of shares for services in connection with the
offerings, a substantial portion of which has been or will be paid as
commissions to other broker-dealers. During the years ended December 31, 2002,
2001 and 2000, the Company incurred $27,835,104, $4,463,981 and $486,846,
respectively, of which $26,341,693, $4,175,827 and $437,940, respectively, was
or will be paid by CNL Securities Corp. as commissions to other broker-dealers.
In addition, CNL Securities Corp. receives a marketing support 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, 2002, 2001 and 2000, the Company incurred $1,855,674, $297,599 and
$32,456, respectively, the majority of which was or will be reallowed to other
broker-dealers.
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, 2003, in the amount equal to 0.20 percent of the
aggregate investment of stockholders who purchased shares in the 2000 Offering.
CNL Securities Corp. in turn may reallow all or a portion of such fees to
soliciting dealers whose clients hold shares on such date. As of December 31,
2002, no such fees had been incurred.
The Advisor receives acquisition fees for services in identifying Properties
and structuring the terms of the Company's leases and Mortgage Loans equal to
4.5 percent of the gross proceeds of the offering and loan proceeds from
permanent financing, excluding that portion of the permanent financing used to
finance Secured Equipment Leases. In addition, if there is a Listing, the
Company will receive an acquisition fee of 4.5 percent of amounts outstanding on
a line of credit, if any, at the time of Listing. During the years ended
December 31, 2002, 2001 and 2000, the Company incurred $18,736,538, $2,676,430
and $292,108, respectively, of such fees. These fees are included in other
assets prior to being allocated to individual Properties.
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, 2002, 2001 and 2000, the Company incurred
$770,756, $93,219 and $55,396, respectively, of such fees.
During the years ended December 31, 2002, 2001 and 2000, affiliates incurred
on behalf of the Company $5,613,049, $1,626,405, and $387,704, respectively, for
certain offering expenses and due diligence expense reimbursements. In addition,
during the years ended December 31, 2002 and 2001, affiliates incurred on behalf
of the Company $451,238 and $353,852, respectively, for certain acquisition
expenses and $565,013 and $206,211, respectively, for certain operating
expenses. As of December 31, 2002 and 2001, the Company owed affiliates $347,786
and $1,772,807, respectively, for such amounts and unpaid fees and
administrative expenses. Offering expenses paid by the Company together with
selling commissions, the marketing support fee and due diligence expense
reimbursements incurred by the Company will not exceed 13 percent of the
proceeds raised in connection with the 2002 Offering.
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 in any Expense Year exceeds 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, 2002, 2001 and 2000.
CNL Capital Corp., an affiliate of the Advisor, is a non-voting Class C
member of Century Capital Markets, LLC ("CCM"). CCM made the arrangements for
the $23,520,000 commercial paper loan described in Note 7 to the Notes to
Consolidated Financial Statements of the Company in Item 8. CCM was paid a 2
percent structuring fee ($470,400), which was recorded as deferred loan costs
and is being amortized over the term of the loan. In addition, the monthly
interest payment due under the commercial paper loan includes a margin of 30
basis points payable to CCM for the monthly services it provides related to the
administration of the commercial paper loan.
The Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors, and in which an affiliate of the
Advisor and certain executive officers of the Company are stockholders. The
amounts deposited with this bank were $5,740,852 and $3,000,000 at December 31,
2002 and 2001, respectively.
On May 30, 2002, the Company acquired a 10 percent interest in a limited
partnership, CNL Plaza, Ltd., that owns an office building located in Orlando,
Florida, in which the Advisor and its affiliates lease office space. The
remaining interest in the limited partnership is owned by several affiliates of
the Advisor. During the year ended December 31, 2002, the Company received
$190,922 in distributions from the partnership.
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 either operating leases or direct financing 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
directly identifiable with that Property are reclassified to land, building and
equipment. In the event a Property is not acquired or no longer is expected to
be acquired, costs directly related to the Property will be charged to expense.
Results of Operations
Comparison of the year ended December 31, 2002 to the year ended December 31,
2001
Net earnings for the year ended December 31, 2002 totaled $11,371,856 or
$0.52 per share of common stock. This compares to net earnings of $915,965 or
$0.38 per share of common stock for the corresponding period in 2001. This
increase in net earnings and net earnings per share is the result of the various
factors described below.
As of December 31, 2002 and 2001, the Company owned 37 Properties, including
one Property currently under development, and 3 Properties, respectively. The
Company has entered into long-term, triple-net lease agreements relating to 36
and 3 of these Properties in 2002 and 2001, respectively. The leases provide for
minimum annual base rent generally payable in monthly installments. The leases
also require minimum annual base rents to increase at predetermined intervals
during the lease term. In addition to annual base rent, substantially all of the
leases require the payment of contingent rent computed as a percentage of gross
revenues of the Property above specified thresholds.
For the years ended December 31, 2002 and 2001, the Company earned
$16,777,611 and $1,725,018, respectively, in rental income from its Properties
under operating leases and earned income from its Properties subject to direct
financing leases. The Company also earned $153,454 and $39,199 in FF&E reserve
income during the years ended December 31, 2002 and 2001, respectively. The
increase in rental and FF&E reserve income was due to the Company owning 36
Properties subject to lease agreements during the year ended December 31, 2002,
as compared to three Properties during the year ended December 31, 2001. Because
the majority of the Properties were owned for only a portion of 2002 and
additional Property acquisitions are expected to occur, results of operations
are not expected to be indicative of future periods and rental income from
operating leases, earned income from direct financing leases and FF&E reserve
income are expected to increase in subsequent periods.
Of the 36 Properties subject to lease agreements, 35 of these Properties are
leased to affiliates or wholly owned subsidiaries of ARC, HRA or Prime Care and
contributed 95.6 percent of Company's total rental income during the year ended
December 31, 2002. Six of these Properties are operated under the ARC brand and
29 Properties are operated by Marriott Senior Living Services, Inc., a
subsidiary of Marriott International, Inc. To mitigate credit risk, certain
leases are combined into portfolios that contain Cross-Default and Pooling
terms. For certain Properties, the Company has also required security deposits,
guarantees from the tenant's parent company or additional cash reserve accounts
to be held at the tenant level. Although the Company acquires Properties located
in various states and regions and carefully screens its tenants in order to
reduce risks of default, failure of these lessees, their guarantors or the ARC
or Marriott brand chains would significantly impact the results of operations of
the Company. It is expected that the percentage of total rental income
contributed by these lessees will decrease as additional Properties are acquired
and leased to diversified tenants during subsequent periods.
During the years ended December 31, 2002 and 2001, the Company also earned
$1,913,205 and $135,402, respectively, in interest income from investments in
money market accounts and other short-term, highly liquid investments. Interest
income increased during the year ended December 31, 2002, as compared to the
year ended December 31, 2001, due to the Company having a larger amount of
offering proceeds temporarily invested pending the acquisition of Properties. As
net offering proceeds are used to invest in Properties and make Mortgage Loans,
the percentage of the Company's total revenues earned from interest income from
investments in money market accounts or other short-term, highly liquid
investments is expected to decrease. Included in interest income for the year
ended December 31, 2002 was approximately $191,200 in interest income related to
notes receivable.
Operating expenses, including interest expense and depreciation and
amortization expense, were $7,052,564 and $983,654 for the years ended December
31, 2002 and 2001, respectively (37.4 percent and 51.8 percent, respectively, of
total revenues). The increase in operating expenses during the year ended
December 31, 2002, as compared to 2001, was the result of the Company owning and
overseeing 37 Properties during 2002 compared to the three Properties in 2001.
Additionally, interest expense increased from $105,056 for the year ended
December 31, 2001 to $1,408,611 for the year ended December 31, 2002, as a
result of the Company entering into additional borrowing in 2002.
Pursuant to the Advisory Agreement, the Advisor is required to reimburse the
Company the amount by which total operating expenses paid or incurred by the
Company exceed in any four consecutive quarters the Expense Cap. During the four
quarters ended June 30, 2001, the Company's operating expenses totaled $439,456,
exceeding the Expense Cap by $145,015; therefore the Advisor has reimbursed the
Company such amount in accordance with the Advisory Agreement. The Company's
operating expenses did not exceed the Expense Cap for any other Expense Years
during the years ended December 31, 2002 and 2001.
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.
In May 2002, a joint venture in which the Company owned a 76.75 percent
equity interest, purchased five Properties. The 23.25 percent minority interest
in this joint venture was held by Marriott Senior Living Services, Inc. until
December 20, 2002, when the Company purchased the 23.25 percent minority
interest. Prior to December 20, 2002, each joint venture partner shared in the
costs and benefits of the joint venture in proportion to its percentage equity
interest. The minority interest in earnings of the consolidated joint venture
was $433,012 for the year ended December 31, 2002.
Comparison of the year ended December 31, 2001 to the year ended December 31,
2000
As of December 31, 2001 and 2000, the Company owned three and one
Properties, respectively, 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 is generally payable in monthly
installments. In addition, the leases 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 Property
located in Orlando Park, Illinois (the "Orland Park Property") also required 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
was 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.
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.
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.
New Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." This statement rescinds
FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." This statement also rescinds
FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers."
This statement amends FASB Statement No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of this statement related to the
rescission of FASB Statement No. 4 are applicable in fiscal years beginning
after May 15, 2002. The provisions of this statement related to FASB Statement
No. 13 are effective for transactions occurring after May 15, 2002. All other
provisions of this statement are effective for financial statements issued on or
after May 15, 2002. The provisions of this statement are not expected to have a
significant impact on the financial position or results of operations of the
Company.
In July 2002, the FASB issued FASB Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment for an exit or disposal plan.
Examples of costs covered by the statement include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing, or other exit or disposal activity. The
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is not
expected to have a significant impact on the financial position or results of
operations of the Company.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 clarifies the
requirements relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45's provisions for initial
recognition and measurement are to be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company's previous
accounting for guarantees issued prior to January 1, 2003 are not required to be
revised or restated to reflect the effect of the recognition and measurement
provisions of FIN 45.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interest entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. As of December 31,
2002, the Company did not have any entities that would be characterized as
variable interest entities under FIN 46.
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, 2002, 2001 and 2000. 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 estate sales growth should result in an increase in rental
income over time. Continued inflation also may cause capital appreciation of the
Company's Properties. Inflation and changing prices, however, also may have an
adverse impact on the sales of the Properties and on potential capital
appreciation of the Properties.
Management of the Company currently knows of no trends that will have a
material adverse effect on liquidity, capital resources or results of
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk for information related to quantitative and
qualitative disclosures about market risk.
Item 8. Financial Statements and Supplementary Data
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONTENTS
Page
Report of Independent Certified Public Accountants 25
Financial Statements:
Consolidated Balance Sheets 26
Consolidated Statements of Earnings 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29-30
Notes to Consolidated Financial Statements 31-42
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders
CNL Retirement Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of earnings, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of CNL
Retirement Properties, Inc. and its subsidiaries at December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2002, 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 15(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
February 19, 2003
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2002 2001
--------------- --------------
ASSETS
Investment Properties:
Accounted for using the operating method, net $ 272,483,664 $ 35,232,568
Accounted for using the direct financing method 115,783,256 --
Cash and cash equivalents 40,799,871 26,721,107
Restricted cash 1,684,684 35,109
Notes and other receivables 3,192,203 180,163
Investment in unconsolidated subsidiary 154,148 --
Loan costs, less accumulated amortization of $88,650 and $18,981 1,220,108 36,936
Accrued rental income 1,472,458 97,793
Other assets 4,975,061 2,143,213
--------------- ---------------
$ 441,765,453 $ 64,446,889
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 45,326,677 $ --
Due to related parties 347,786 1,772,807
Accounts payable and accrued expenses 1,337,296 294,839
Security deposits 4,866,973 1,363,986
Rent paid in advance 91,432 105,215
--------------- ---------------
Total liabilities 51,970,164 3,536,847
--------------- ---------------
Minority interest 265 --
--------------- ---------------
Commitments and Contingencies (Note 13)
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 44,254,603 and 7,141,131
shares, respectively, outstanding 44,210,556 and 7,134,400
shares, respectively 442,106 71,344
Capital in excess of par value 393,307,990 61,786,149
Accumulated distributions in excess of net earnings (3,955,072) (947,451)
--------------- ----------------
Total stockholders' equity 389,795,024 60,910,042
--------------- ----------------
$ 441,765,453 $ 64,446,889
=============== ================
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
2002 2001 2000
------------ ------------ ------------
Revenues:
Rental income from operating leases $ 13,257,739 $ 1,725,018 $ 962,000
Earned income from direct financing leases 3,519,872 -- --
Contingent rent 7,758 -- --
FF&E reserve income 153,454 39,199 19,672
Interest and other income 1,913,205 135,402 103,058
------------- ------------- --------------
18,852,028 1,899,619 1,084,730
------------- ------------- --------------
Expenses:
Interest 1,408,611 105,056 367,374
General operating and administrative 1,388,706 395,268 340,086
Property expenses 23,212 -- --
Asset management fees to related party 770,756 93,219 55,396
Reimbursement of operating expenses
from related party -- (145,015) (213,886)
Depreciation and amortization 3,461,279 535,126 310,982
------------- ------------- --------------
7,052,564 983,654 859,952
------------- ------------- --------------
Earnings Before Equity in Earnings of
Unconsolidated Subsidiary and Minority
Interest in Earnings of Consolidated
Joint Ventures 11,799,464 915,965 224,778
Equity in Earnings of Unconsolidated
Subsidiary 5,404 -- --
Minority Interest in Earnings of
Consolidated Joint Ventures (433,012) -- --
------------- ------------- --------------
Net Earnings $ 11,371,856 $ 915,965 $ 224,778
============= ============= ==============
Net Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.52 $ 0.38 $ 0.27
============= ============= ==============
Weighted Average Number of Shares of
Common Stock Outstanding (Basic
and Diluted) 22,034,955 2,391,072 845,833
============= ============= ==============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2002, 2001 and 2000
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, 1999 540,028 $ 5,400 $ 3,365,531 $ (78,794) $ 3,292,137
Subscriptions received for common stock
through public offerings and 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 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
Subscriptions received for common stock
through public offering and reinvestment
plan 37,113,472 371,135 370,763,581 -- 371,134,716
Retirement of common stock (37,306) (373) (342,839) -- (343,212)
Stock issuance costs -- -- (38,898,901) -- (38,898,901)
Net earnings -- -- -- 11,371,856 11,371,856
Distributions declared and paid ($0.7002 per
share) -- -- -- (14,379,477) (14,379,477)
----------- ---------- ------------- --------------- -------------
Balance at December 31, 2002 44,210,566 $ 442,106 $ 393,307,990 $ (3,955,072) $ 389,795,024
=========== ========== ============= =============== =============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
----------- ------------- --------------
Increase (decrease) in cash and cash equivalents:
Operating activities:
Net earnings $11,371,856 $ 915,965 $ 224,778
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 3,321,572 523,943 303,184
Amortization 139,707 11,183 7,798
Changes in operating assets and liabilities:
Receivables (827,287) (177,691) (2,472)
Accrued rental income (1,374,665) (76,665) (21,128)
Other assets (36,107) (5,737) 1,798
Interest payable 114,801 (11,045) 11,045
Accounts payable and other accrued expenses 484,199 45,469 (14,173)
Due to related parties (331,794) 34,060 29,885
Security deposits 3,502,987 810,030 553,956
Rent paid in advance (13,783) 103,867 1,348
Minority interest in income 433,277 -- --
------------- -------------- ---------------
Net cash provided by operating activities 16,784,763 2,173,379 1,096,019
------------- -------------- ---------------
Investing activities:
Additions to land, buildings and equipment on
operating leases (219,929,327) (20,269,138) (13,848,900)
Investment in direct financing leases (109,720,000) -- --
Purchase of minority interest (8,500,000) -- --
Investment in notes receivable (2,000,000) -- --
Investment in unconsolidated subsidiary (350,364) -- --
Distributions received from unconsolidated -- --
subsidiaries 190,922
Payment of acquisition costs (16,131,759) (2,644,534) (562,491)
Increase in restricted cash (1,649,575) (17,797) (17,312)
------------- -------------- ---------------
Net cash used in investing activities (358,090,103) (22,931,469) (14,428,703)
------------- -------------- ---------------
Financing activities:
Proceeds from borrowings on mortgages payable 32,620,000 -- --
Principal payments on mortgages payable (267,720) -- --
Payment of loan costs (1,308,758) -- (55,917)
Proceeds from line of credit -- -- 8,100,000
Repayment of borrowings on line of credit -- (3,795,000) (4,305,000)
Subscriptions received from stockholders 371,134,716 59,519,751 6,491,310
Distributions to stockholders (14,379,477) (1,507,322) (502,078)
Retirement of common stock (173,839) (13,020) (30,508)
Payment of stock issuance costs (40,231,933) (6,903,096) (931,461)
Contributions by minority interest 8,500,000 -- --
Distributions to minority interest (508,885) -- --
------------- -------------- ---------------
Net cash provided by financing activities 355,384,104 47,301,313 8,766,346
------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents 14,078,764 26,543,223 (4,566,338)
Cash and cash equivalents at beginning of year 26,721,107 177,884 4,744,222
------------- -------------- ---------------
Cash and cash equivalents at end of year $40,799,871 $ 26,721,107 $ 177,884
============= ============== ===============
See accompanying notes to consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2002 2001 2000
------------- ------------- ------------
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 $ 451,238 $ 353,852 $ 112,961
Stock issuance costs 5,613,049 1,626,405 387,704
-------------- -------------- --------------
$ 6,064,287 $ 1,980,257 $ 500,665
============== ============== ==============
Adjustment to previously accrued stock
issuance costs $ -- $ -- $ 755,125
============== ============== ==============
Mortgage assumed on property purchase $ 12,974,397 $ -- $ --
============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,293,810 $ 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, 2002, 2001 and 2000
1. Significant Accounting Policies:
Organization and Nature of 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
partners, respectively, of CNL Retirement Partners, LP. CNL Retirement Partners,
LP is a Delaware limited partnership formed in December 1999. Properties
acquired are generally expected to be held by CNL Retirement Partners, LP or its
wholly owned subsidiaries and, as a result, owned by CNL Retirement Properties,
Inc. through such entities. Four corporations, which are wholly owned
subsidiaries of CNL Retirement Properties, Inc., have been formed to serve as
the general partners of various other wholly owned subsidiaries which have been
or will be formed for the purpose of acquiring future properties. The term
"Company" includes CNL Retirement Properties, Inc. and its subsidiaries, CNL
Retirement GP Corp., CNL Retirement LP 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 acquires investment properties (the "Property or Properties")
related to health care and seniors' housing facilities located across the United
States. The Properties 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") in the aggregate principal amount
of approximately 5 to 10 percent of the Company's total assets and may offer
furniture, fixture and equipment financing ("Secured Equipment Leases") to
operators of retirement and medical Properties. The Company has retained CNL
Retirement Corp. (the "Advisor") as its advisor to provide management,
acquisition, advisory and administrative services.
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of CNL Retirement Properties, Inc., each of its wholly
owned subsidiaries and an entity in which the Company owns a 99% controlling
interest. All significant intercompany balances and transactions have been
eliminated in consolidation. Interests of unaffiliated third parties are
reflected as minority interest for less than 100 percent owned and majority
controlled entities.
Investment in Unconsolidated Subsidiary - The Company owns a 10 percent interest
in a limited partnership that owns an office building located in Orlando,
Florida, in which Advisor and its affiliates lease office space. The Company's
investment in the partnership is accounted for using the equity method as the
Company has significant influence.
Investment Properties and Lease Accounting - Properties are leased on a
long-term, triple-net basis to unrelated third parties, whereby the tenants are
generally responsible for all operating expenses relating to the Property,
including property taxes, insurance, maintenance and repairs. For the years
ended December 31, 2002 and 2001, the Company's tenants paid $1,124,997 and
$138,159, respectively, in property taxes on behalf of the Company. The leases
are accounted for using either the operating or direct financing method.
Operating method - Under the operating method, Properties are recorded
at cost. Revenue is recognized as rents 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 years and three years to seven 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 is the aggregate difference
between scheduled rental payments that vary during the lease term and
minimum rental revenue recognized on a straight-line basis.
Direct financing method - For leases accounted for as direct financing
leases, future minimum lease payments are recorded as a receivable. The
difference between the receivable and the estimated residual values
less the cost of the Properties has been recorded as unearned income.
Unearned income is deferred and amortized to income over the lease
terms to provide a constant rate of return. Investments in direct
financing leases are presented net of unamortized unearned income.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
1. Significant Accounting Policies - Continued:
When a Property is sold, the related costs and accumulated depreciation, plus
any accrued rental income, are removed from the accounts and any gain or loss
from sale is reflected in income. Management reviews its Properties 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. If an impairment is indicated, an impairment
charge is recorded, reducing the Property to fair value.
FF&E Reserve Income - A furniture, fixtures and equipment ("FF&E") reserve has
been established in accordance with substantially all of the lease agreements.
In accordance with such agreements, the tenants deposit funds into restricted
FF&E reserve accounts and periodically use these funds to cover the cost of the
replacement, renewal and additions to FF&E. With respect to the Properties
subject to operating leases, generally 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; therefore, the Company
recognizes the FF&E reserve payments as income upon receipt. FF&E purchased with
FF&E reserve funds that improve or extend the useful lives of the respective
Properties are capitalized. All other FF&E costs are reflected in property
expenses. Six Properties subject to operating leases include FF&E reserve
accounts that 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. The Company has not recognized FF&E reserve
income related to these six Properties. The Properties subject to direct
financing leases include FF&E reserve accounts that are held by each tenant and
all property purchased with funds from the FF&E accounts will remain the
property of the tenants. Accordingly, the Company does not recognize FF&E
reserve income relating to the direct financing leases. 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.
Cash and Cash Equivalents - All highly liquid investments with a maturity of
three months or less when purchased are considered 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 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 are capitalized and are being amortized over the terms
of the loans using the straight-line method, which approximates the effective
interest method.
Income Taxes - The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and
related regulations. The Company generally will not be subject to federal
corporate income taxes on amounts distributed to stockholders, providing it
distributes at least 90 percent of its REIT taxable income and meets certain
other requirements for qualifying as a REIT. Accordingly, a provision for
federal income taxes is not reported 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. As of
December 31, 2002, 2001 and 2000, the Company did not have any potentially
dilutive common shares.
Reclassifications - Certain items in the prior years' financial statements have
been reclassified to conform with the 2002 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 reported equity or net
earnings.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
1. Significant Accounting Policies - Continued:
Use of Estimates - Management has made 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.
New Accounting Standards - In April 2002, the Financial Accounting Standards
Board ("FASB") issued FASB Statement No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers." This statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
statement related to the rescission of FASB Statement No. 4 are applicable in
fiscal years beginning after May 15, 2002. The provisions of this statement
related to FASB Statement No. 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this statement are effective for financial
statements issued on or after May 15, 2002. The provisions of this statement are
not expected to have a significant impact on the financial position or results
of operations of the Company.
In July 2002, the FASB issued FASB Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment for an exit or disposal plan.
Examples of costs covered by the statement include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing, or other exit or disposal activity. The
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is not
expected to have a significant impact on the financial position or results of
operations of the Company.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 clarifies the
requirements relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45's provisions for initial
recognition and measurement are to be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company's previous
accounting for guarantees issued prior to January 1, 2003 are not required to be
revised or restated to reflect the effect of the recognition and measurement
provisions of FIN 45.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be consolidated by a company if that company is subject to a majority risk of
loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. Prior to FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of variable
interest entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. As of December 31,
2002, the Company did not have any entities that would be characterized as
variable interest entities under FIN 46.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
2. Public Offerings:
On September 18, 2000, the Company completed its initial offering and commenced
a subsequent offering of up to 15,500,000 shares of common stock ($155,000,000)
(the "2000 Offering"), which included up to 500,000 shares ($5,000,000)
available to stockholders who elected to participate in the Company's
reinvestment plan. On May 24, 2002, the Company completed its 2000 Offering
pursuant to which it received subscription proceeds of $155,000,000 (15,500,000
shares), including $418,670 (41,867 shares) through the reinvestment plan.
Upon the completion of the 2000 Offering, the Company commenced an offering of
up to 45,000,000 shares of common stock ($450,000,000) (the "2002 Offering"). Of
the 45,000,000 shares of common stock offered, up to 5,000,000 are available to
stockholders purchasing shares through the Company's reinvestment plan. The
price per share and other terms of the 2002 Offering, including the percentage
of gross proceeds payable (i) to the managing dealer for selling commissions and
expenses in connection with the offering and (ii) to the Advisor for acquisition
fees, are substantially the same as for the Company's 2000 Offering. As of
December 31, 2002, the Company had received total subscription proceeds from its
initial public offering, the 2000 Offering and the 2002 Offering of $442,346,060
(44,234,603 shares), including $1,208,302 (120,830 shares) through the
reinvestment plan.
On October 4, 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 175,000,000 additional shares of common stock
($1,750,000,000) in an offering expected to commence immediately following the
completion of the Company's 2002 Offering (the "2003 Offering"). Of the
175,000,000 shares of common stock expected to be offered, up to 25,000,000 are
expected to be available to stockholders purchasing shares through the
reinvestment plan. The Board of Directors expects to submit, for a vote of the
stockholders at the 2003 annual meeting, a proposal to increase the number of
authorized shares of common stock of the Company from 100,000,000 to
450,000,000. Until such time, if any, as the stockholders approve an increase in
the number of authorized shares of common stock of the Company, the 2003
Offering will be limited to 38,000,000 shares.
3. Investment Properties:
Accounted for Using the Operating Method - As of December 31, 2002, the Company
owned 25 Properties that are subject to operating leases and a parcel of land in
which a seniors' housing facility is being constructed. Properties under
operating leases consisted of the following at December 31:
2002 2001
---------------- ---------------
Land $ 53,311,856 $ 4,649,497
Buildings 210,891,405 29,209,418
Equipment 11,023,962 2,200,780
---------------- ---------------
275,227,225 36,059,695
Less accumulated depreciation (4,148,699) (827,127)
---------------- ---------------
271,078,526 35,232,568
Construction in progress 1,405,138 --
---------------- ---------------
$ 272,483,664 $ 35,232,568
================ ===============
Operating leases generally have initial terms of 15 years and provide for
minimum and contingent rent. The operating leases generally provide options that
allow the lessees to renew the leases from 5 to 20 successive years subject to
the same terms and conditions as the initial leases.
The leases also require minimum annual rents to increase at predetermined
intervals during the lease terms. Increases in lease revenue are recognized on a
straight-line basis over the terms of the lease commencing on the date the
Property was placed in service. For the years ended December 31, 2002, 2001 and
2000, the Company recognized $1,374,665, $76,665 and $21,128, respectively, of
the straight-lining of lease revenues over current contractually due amounts.
This amount is included in rental income from operating leases in the
accompanying consolidated statements of earnings.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
3. Investment Properties - Continued:
Future minimum lease payments due under the noncancellable operating leases at
December 31, 2002 are as follows:
2003 $ 24,801,231
2004 25,216,537
2005 25,642,909
2006 26,080,656
2007 27,012,268
Thereafter 362,025,974
---------------
$490,779,575
===============
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. The Company defers recognition of percentage rental income until
the thresholds requiring such payments in accordance with the lease terms are
met.
Accounted for Using the Direct Financing Method - Eleven Properties located in
seven states were purchased in 2002 and are subject to long-term leases that
have been classified as direct financing leases. The components of net
investment in direct financing leases consisted of the following at December 31,
2002:
Minimum lease payments receivable $ 626,137,430
Estimated residual values 109,720,000
Less unearned income (620,074,174)
---------------
Net investment in direct financing leases $ 115,783,256
===============
The direct financing leases have initial terms of 35 years and provide for
minimum and contingent rent. The leases contain provisions that allow the
lessees to elect to purchase the Properties at the end of the lease terms for
the Company's aggregate initial investment amount of $109,720,000 plus
adjustments, if any, as defined in the lease agreements. The leases also permit
the Company to require the lessees to purchase the Properties at the end of the
lease terms for the same amount.
Future minimum lease payments to be received on direct financing leases at
December 31, 2002 are as follows:
2003 $ 11,520,600
2004 11,808,615
2005 12,103,830
2006 12,406,426
2007 12,716,587
Thereafter 565,581,372
--------------
$ 626,137,430
==============
The above table does not include any amounts for future rents that may be
received on the leases based on a percentage of the tenants' gross sales.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
4. Purchase of Minority Interest:
On December 20, 2002, the Company purchased the 23.25% minority interest held by
Marriott Senior Living Services, Inc. in a joint venture in which the Company
owned the remaining 76.75% equity interest for $8,500,000. In May 2002, the
joint venture purchased five Properties that are operated by Marriott Senior
Living Services, Inc. Prior to December 20, 2002, each joint venture partner
shared in the costs and benefits of the joint venture in proportion to its
percentage equity interest. In conjunction with the purchase of the Properties,
Marriott International, Inc. and Marriott Senior Living Services, Inc., with
certain limitations, jointly and severally guaranteed the tenant's obligation to
pay minimum rent to the joint venture under the leases, as described in Note 12.
Subsequent to the Company's purchase of the minority interest, Marriott
International, Inc. and Marriott Senior Living Services, Inc. remain liable for
the remaining guarantee available to pay the tenant's minimum rent obligation
under the leases. The remaining guarantee at December 31, 2002 was $5,039,125.
If the purchase of the minority interest had occurred at the inception of the
joint venture, net income would have been $11,804,868 or $0.54 per share of
common stock. There would have been no effect on revenues as reported.
5. Notes and Other Receivables:
Notes and other receivables include the following at December 31:
2002 2001
------------- ------------
Rental revenues receivable $ 809,279 $ 180,163
Notes receivable 2,000,000 --
Other receivables 345,424 --
Accrued interest receivable 37,500 --
------------- ------------
$ 3,192,203 $ 180,163
============= ============
Notes receivable is comprised of a loan to an affiliate of one of the Company's
lessees related to the anticipated acquisition of additional Properties. As of
December 31, 2002, the Company had an initial commitment to purchase two
additional Properties for approximately $22,600,000 as described in Note 13. In
connection with this anticipated purchase, the Company loaned the seller
$2,000,000 to pay off debt at a discounted amount making the purchase of the
Properties economically viable. The note bears interest at 15 percent per annum
and matures March 31, 2003. As security for this note, the seller has pledged a
membership interest in its company. Additionally, certain members of the
seller's company guarantee the note.
As of February 19, 2003, the rental revenues and other receivables as of
December 31, 2002, had been fully collected.
6. Other Assets:
Other assets as of December 31, 2002 and 2001, were $4,975,061 and $2,143,213,
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.
7. Indebtedness:
In February 2002, the Company assumed a mortgage of $12,974,397 that matures on
October 2, 2003, in connection with the purchase of a Property. The mortgage
bears interest at a floating rate of (i) 350 basis points over the 30-day LIBOR
if LIBOR is over 2.6 percent or (ii) 440 basis points over the 30-day LIBOR if
LIBOR is under 2.6 percent not to exceed 8 percent. As of December 31, 2002, the
interest rate was 5.84 percent. In accordance with the provisions of the
mortgage, the Company has placed $277,821 in escrow, which represents three
months of debt service related to the mortgage. This escrow reserve was included
in restricted cash at December 31, 2002.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
7. Indebtedness - Continued:
In connection with the purchase of five Properties, the Company borrowed
$23,520,000 in June 2002 in the form of a commercial paper backed loan secured
by the five Properties. The loan is funded from proceeds received from the sale
of 30-day commercial paper. The commercial paper is re-marketed every 30 days
upon maturity. The Company has a liquidity facility in place in the event that
the re-marketing effort is unsuccessful. The liquidity agent provides a
liquidity facility for up to 102 percent of the outstanding loan balance.
Interest is payable monthly with principal due when the commercial paper loan
matures on June 6, 2007. The commercial paper loan bears interest at the
commercial paper rate as determined by market demand (1.51 percent as of
December 31, 2002) plus a margin of 1.23 percent, which is inclusive of
liquidity fees and administrative costs. As of December 31, 2002, the commercial
paper loan interest rate was 2.74 percent.
On August 8, 2002, the Company entered into a commitment for $11,000,000 of
permanent financing secured by a mortgage on a Property. On August 29, 2002, the
Company obtained an advance totaling $9,100,000 with a possible future advance
in the amount of $1,900,000 subject to certain operating performance thresholds
being achieved by this Property prior to February 27, 2004. The loan bears
interest at a variable rate based on 90-day LIBOR plus 3.90 percent per annum,
but in no event shall the interest rate be less than 6.50 percent. As of
December 31, 2002, the interest rate was 6.50 percent. The loan requires monthly
principal and interest payments through August 31, 2007, with all unpaid
principal and interest due at that time.
The following is a schedule of maturities for all long-term borrowings at
December 31, 2002:
2003 $12,896,864
2004 163,814
2005 174,785
2006 186,491
2007 31,904,723
Thereafter --
--------------
Total $45,326,677
==============
8. 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 the
12-month period. During the years ended December 31, 2002, 2001 and 2000,
37,306, 3,415 and 3,316 shares, respectively, of common stock were redeemed for
$343,212, $31,420 and $30,508, respectively, and retired.
9. Stock Issuance Costs:
The Company has incurred offering expenses, including commissions, marketing
support fees, due diligence expense reimbursements, filing fees, and legal,
accounting, printing and escrow fees, which have been deducted from the gross
proceeds of the offerings. Offering expenses together with selling commissions,
marketing support fees and due diligence expense reimbursements will not exceed
13 percent of the proceeds raised in connection with the 2002 Offering.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
9. Stock Issuance Costs - Continued:
During the years ended December 31, 2002, 2001 and 2000, the Company incurred
$39,050,685, $7,190,480 and $1,027,216, respectively, in offering costs and due
diligence expense reimbursements, including $29,690,777, $4,761,580 and
$519,302, respectively, in commissions and marketing support fees. All amounts
incurred for the years ended December 31, 2002, 2001 and 2000, have been treated
as stock issuance costs and charged to stockholders' equity.
10. Distributions:
For the years ended December 31, 2002, 2001 and 2000, approximately 65 percent,
65 percent and 54 percent, respectively, of the distributions paid to
stockholders were ordinary income and approximately 35 percent, 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, 2002, 2001 and 2000, 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.
11. 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 receive fees and compensation in connection
with the offerings, and the acquisition, management and sale of the assets of
the Company.
CNL Securities Corp. receives commissions amounting to 7.5 percent of the total
amount raised from the sale of shares for services in connection with the
offerings, a substantial portion of which has been or will be paid as
commissions to other broker-dealers. During the years ended December 31, 2002,
2001 and 2000, the Company incurred $27,835,104, $4,463,981 and $486,846,
respectively, of which $26,341,693, $4,175,827 and $437,940, respectively, was
or will be paid by CNL Securities Corp. as commissions to other broker-dealers.
In addition, CNL Securities Corp. receives a marketing support 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, 2002, 2001 and 2000, the Company incurred $1,855,674, $297,599 and $32,456,
respectively, the majority of which was or will be reallowed to other
broker-dealers.
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, 2003, in the amount equal to 0.20 percent of the aggregate
investment of stockholders who purchased shares in the 2000 Offering. CNL
Securities Corp. in turn may reallow all or a portion of such fees to soliciting
dealers whose clients hold shares on such date. As of December 31, 2002, no such
fees had been incurred.
The Advisor receives acquisition fees for services in identifying Properties and
structuring the terms of their leases and Mortgage Loans equal to 4.5 percent of
the gross proceeds of the offering and loan proceeds from permanent financing,
excluding that portion of the permanent financing used to finance Secured
Equipment Leases. In addition, if there is a listing, the Company will receive
an acquisition fee of 4.5 percent of amounts outstanding on a 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. During the years ended December 31, 2002,
2001 and 2000, the Company incurred $18,736,538, $2,676,430 and $292,108,
respectively, of such fees. These fees are included in other assets prior to
being allocated to individual Properties.
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, 2002, 2001 and 2000, the Company incurred $770,756,
$93,219 and $55,396, respectively, of such fees.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
11. Related Party Arrangements - Continued:
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, 2002, 2001 and 2000.
CNL Capital Corp., an affiliate of the Advisor, is a non-voting Class C member
of Century Capital Markets, LLC ("CCM"). CCM made the arrangements for the
$23,520,000 commercial paper loan described in Note 7. CCM was paid a 2 percent
structuring fee ($470,400), which was recorded as deferred loan costs and is
being amortized over the term of the loan. In addition, the monthly interest
payment due under the commercial paper loan includes a margin of 30 basis points
payable to CCM for the monthly services it provides related to the
administration of the commercial paper loan.
The Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors, and in which an affiliate of the
Advisor and certain executive officers of the Company are stockholders. The
amounts deposited with this bank were $5,740,852 and $3,000,000 at December 31,
2002 and 2001, respectively.
On May 30, 2002, the Company acquired a 10 percent interest in a limited
partnership, CNL Plaza, Ltd., that owns an office building located in Orlando,
Florida, in which the Advisor and its affiliates lease office space. The
remaining interest in the limited partnership is owned by several affiliates of
the Advisor. During the year ended December 31, 2002, the Company received
$190,922 in distributions from the partnership.
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). The expenses incurred for these services are
classified as follows:
Years Ended December 31,
2002 2001 2000
------------ ------------ ------------
Stock issuance costs $ 2,941,152 $ 769,853 $ 117,679
Land, buildings and equipment on
operating leases and other
assets 25,320 37,053 31,370
General operating and
administrative expenses 565,013 199,726 197,869
------------ ------------ ------------
$ 3,531,485 $ 1,006,632 $ 346,918
============ ============ ============
During the years ended December 31, 2002, 2001 and 2000, affiliates incurred on
behalf of the Company $5,613,049, $1,626,405 and $387,704, respectively, for
certain offering expenses. In addition, during the years ended December 31, 2002
and 2001, affiliates incurred on behalf of the Company $451,238 and $353,852,
respectively, for certain acquisition expenses and $565,013 and $206,211,
respectively, for certain operating expenses.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
11. Related Party Arrangements - Continued:
Amounts due to related parties at December 31 are as follows:
2002 2001
------------ -------------
Due to the Advisor and its affiliates:
Expenditures incurred for offering expenses
on behalf of the Company $ 1,366 $ 1,328,123
Accounting and administrative
Services 75,944 62,313
Acquisition fees and miscellaneous
acquisition expenses 125,366 226,986
------------- --------------
202,676 1,617,422
------------- --------------
Due to CNL Securities Corp.:
Commissions 145,110 145,670
Marketing support fee and due diligence
expense reimbursements -- 9,715
------------- --------------
$ 347,786 $ 1,772,807
============= ==============
12. Concentration of Credit Risk:
As of December 31, 2002, the Company owned 25 Properties in various states that
are subject to operating leases. The lessees of 24 of these Properties are
affiliates or wholly owned subsidiaries of American Retirement Corporation
("ARC") or HRA Management Corporation ("HRA") and contributed 74.8 percent of
the Company's total rental income during the year ended December 31, 2002. Six
of these Properties are operated under the ARC brand and 18 Properties are
operated by Marriott Senior Living Services, Inc., a subsidiary of Marriott
International, Inc.
To mitigate credit risk, certain leases are combined into portfolios that
contain cross-default terms, meaning that if a tenant of any of the Properties
in a portfolio defaults on its obligations under its lease, the Company may
pursue its remedies under the lease with respect to any of the Properties in the
portfolio. In addition, certain portfolios contain terms whereby the net
operating profits of the Properties are combined for the purpose of funding
rental payments due under each lease. For certain Properties, the Company has
also required security deposits, guarantees from the tenant's parent company or
additional cash reserve accounts to be held at the tenant level.
In connection with purchase of five Properties leased to HRA, Marriott
International, Inc. and Marriott Senior Living Services, Inc. have, with certain
limitations, guaranteed the tenant's obligation to pay minimum rent due under
the leases up to a maximum of $5,880,000. As of December 31, 2002, $840,875 of
the guarantee had been used to pay rent leaving a remaining guarantee balance of
$5,039,125.
As of December 31, 2002, the Company had invested in 11 Properties located in
seven states through a direct financing transaction with two affiliates of Prime
Care Properties, LLC. The direct financing leases contributed 20.8 percent of
the Company's total rental income during the year ended December 31, 2002. The
Properties are operated by Marriott Senior Living Services, Inc. An affiliate of
the tenants has guaranteed the tenants' obligations to pay minimum rent due
under the lease up to a maximum of $2,000,000. As of December 31, 2002, $308,341
of the guarantee had been used to pay rent leaving a remaining guarantee balance
of $1,691,659.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
12. Concentration of Credit Risk - Continued:
Although the Company acquires Properties located in various states and regions
and carefully screens its tenants in order to reduce risks of default, failure
of these lessees, their guarantors or the ARC or Marriott brand chains would
significantly impact the results of operations of the Company. It is expected
that the percentage of total rental income contributed by these lessees will
decrease as additional Properties are acquired and leased to diversified tenants
during subsequent periods.
In a press release dated December 30, 2002, Sunrise Assisted Living, Inc.
announced it had entered into a definitive agreement with Marriott
International, Inc. to acquire all of the outstanding stock of Marriott Senior
Living Services, Inc. When the sale of Marriott Senior Living Services, Inc.'s
stock to Sunrise Assisted Living, Inc. is completed, it is expected that the
long-term management agreements in which the Company's tenants have entered into
with Marriott Senior Living Services, Inc. will be assumed by Sunrise Assisted
Living, Inc. to operate all of the Company's Properties that are currently
operated by Marriott Senior Living Services, Inc. In regards to nine of the 12
proposed Properties for which the Company has entered into initial commitments
to acquire as of February 19, 2003, it is expected that until the sale of the
Marriott Senior Living Services, Inc.'s stock to Sunrise Assisted Living, Inc.
is completed, Marriott Senior Living Services, Inc will operate these
Properties. There can be no assurance that these transactions will be
consummated.
13. Commitments and Contingencies:
In connection with the acquisition of five Properties, the Company may be
required to make additional payments (the "Earnout Amount") if certain earnout
provisions are achieved by the earnout date (the "Earnout Date") for each
Property. The calculation of the Earnout Amount generally considers the net
operating income for the Property, the Company's initial investment in the
Property and the fair value of the Property. In the event an Earnout Amount is
due, the lease will be amended and annual minimum rent will increase
accordingly. During the year ended December 31, 2002, one Property was
performing at a level sufficient to satisfy the requirements under the earnout
provisions, and the Company funded an additional payment of $1,775,000. The
lease was amended to increase the annual minimum rent by $177,500. The remaining
Earnout Dates expire over the period August 2004 through April 2005 and the
Company has a maximum obligation of $11,834,233 relating to the aggregate
Earnout Amounts.
In connection with the acquisition of a 10 percent limited partnership interest
in CNL Plaza, Ltd., the Company has severally guaranteed 16.67 percent, or
$2,583,333, of a $15,500,000 unsecured promissory note of the limited
partnership that matures November 30, 2004. The Company has not been required to
fund any amounts under this guarantee. In the event the Company is required to
fund amounts under the guarantee, management believes that such amounts would be
recoverable either from operations of the related asset or proceeds upon
liquidation.
As of December 31, 2002, the Company had a commitment to obtain a two-year $75
million revolving line of credit. The $75 million line of credit may be amended
to allow the line of credit to be increased by $50 million. Eleven Properties
with an aggregate cost of $115.2 million will be mortgaged to secure the
revolving line of credit. This facility will require payment of interest only at
LIBOR plus a premium until maturity and has several covenants typically found in
revolving loan facilities, including covenants to maintain a minimum net worth
and minimum collateral value.
As of December 31, 2002, the Company had commitments to acquire 12 additional
Properties located in eight states. The anticipated aggregate purchase price is
approximately $298.7 million, and the acquisition of each Property is subject to
the fulfillment of certain conditions. The Company plans to assume permanent
financing of approximately $20.6 million in connection with the acquisition of
two Properties and to draw up to $75 million on a revolving line of credit for
the acquisition of nine of these Properties. In addition, the Company
anticipates that it will assume obligations of approximately $88.8 million in
non-interest bearing bonds payable to certain residents of two of the
Properties. Marriott Senior Living Services, Inc. has committed to operate 9 of
the these Properties, if acquired.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001 and 2000
14. Selected Quarterly Financial Data:
The following table presents selected unaudited quarterly financial data for
each full quarter during the years ended December 31, 2002 and 2001:
2002 Quarter First Second Third Fourth Year
------------ ----- ------ ----- ------ ----
Revenues $1,667,761 $3,305,669 $4,726,716 $9,151,882 $18,852,028
Net income 828,604 1,702,338 2,508,526 6,332,388 11,371,856
Earnings per share:
Basic and Diluted 0.09 0.11 0.10 0.22 0.52
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
15. Subsequent Events:
During the period January 1, 2003, through February 19, 2003, the Company
received subscription proceeds for an additional 7,826,224 shares ($78,262,237)
of common stock.
On January 1, 2003 and February 1, 2003, the Company declared distributions
totaling $2,604,002 and $2,878,892, respectively, or $.0589 per share of common
stock, payable by March 31, 2003, to stockholders of record on January 1, 2003
and February 1, 2003, 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
Stuart J. Beebe became an executive officer of the Company on July 15, 2002.
Although an Initial Statement of Beneficial Ownership of Securities on Form 3
was not filed on behalf of Mr. Beebe on July 25, 2002, as required by Section 16
(a) of the Exchange Act and the rules regulations adopted thereunder, a Form 3
concerning his appointment as an executive officer of the Company was filed
shortly thereafter on August 12, 2002.
Other 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, 2003.
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, 2003.
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, 2003.
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, 2003.
Item 14. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), within the 90 days prior to the filing date of
this report, the Company carried out an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer along
with the Company's Chief Financial Officer. Based upon that evaluation, the
Company's Chief Executive Officer along with the Company's Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
PART IV
Item 15. 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, 2002 and 2001
Consolidated Statements of Earnings for the years ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2002 Notes to Schedule III - Real Estate and
Accumulated Depreciation at December 31, 2002
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 CNL Health Care Properties, Inc. Amended and Restated
Articles of Incorporation. (Included as Exhibit 3.1
to the Registrant's 1998 Report on Form 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 May 14, 2002, between
CNL Retirement Properties, Inc. and CNL Retirement
Corp. (Included as Exhibit 10.1 to the Registrant's
September 30, 2002, Report on Form 10-Q filed with
the Securities and Exchange Commission on November
12, 2002, 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, Jeanne A. Wall, and Lynn E. Rose dated
September 15, 1998, Phillip M. Anderson, Jr. dated
February 19, 1999, James W. Duncan dated February 22,
2002, and Stuart J. Beebe dated July 15, 2002.
(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 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.11 Lease Agreement between CNL Retirement - AM/Illinois
LP and ARC Holley Court, LLC dated February 11, 2002,
relating to the Holley Court Terrace - Oak Park,
Illinois. (Included as Exhibit 10.18 to Registration
Statement No. 333-37480 on Form S-11 and incorporated
herein by reference.)
10.12 Real Estate Purchase and Sale Contract between CNL
Retirement Corp., as Buyer, and ARC Holley Court,
LLC, as Seller, relating to the Holley Court Terrace
- Oak Park, Illinois. (Included as Exhibit 10.19 to
Registration Statement No. 333-37480 on Form S-11 and
incorporated herein by reference.)
10.13 Lease Agreement between CNL Retirement - AM/Florida,
LP and ARC Coconut Creek, LLC dated February 11,
2002, relating to the Homewood Residence of Coconut
Creek - Coconut Creek, Florida. (Included as Exhibit
10.20 to Registration Statement No. 333-37480 on Form
S-11 and incorporated herein by reference.)
10.14 Real Estate Purchase and Sale Contract between CNL
Retirement Corp., as Buyer, and American Retirement
Corporation, as Seller, relating to the Homewood
Residence of Coconut Creek - Coconut Creek, Florida.
(Included as Exhibit 10.21 to Registration Statement
No. 333-37480 on Form S-11 and incorporated herein by
reference.)
10.15 Lease Agreement between CNL Retirement - AM/Colorado
LP and ARC Greenwood Village, Inc. dated March 21,
2002, relating to the Heritage Club at Greenwood
Village - Greenwood Village, Colorado. (Included as
Exhibit 10.22 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.16 Real Estate Purchase and Sale Contract between CNL
Retirement Corp., as Buyer, and American Retirement
Corporation, as Seller, relating to the Heritage Club
at Greenwood Village - Greenwood Village, Colorado.
(Included as Exhibit 10.23 to Registration Statement
No. 333-76538 on Form S-11 and incorporated herein by
reference.)
10.17 Loan Agreement between ARC Holley Court, LLC, as
Borrower, and GMAC Commercial Mortgage Corporation,
as Lender, relating to the Holley Court Terrace - Oak
Park, Illinois. (Included as Exhibit 10.24 to
Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.18 Lease Agreement between CNL Retirement Camarillo CA,
LP and HRA Management Corporation dated May 16, 2002,
relating to the Brighton Gardens Senior Living
Community at Camarillo, California. (Included as
Exhibit 10.25 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.19 Lease Agreement between CNL Retirement Towson MD, LP
and HRA Management Corporation dated May 16, 2002,
relating to the Brighton Gardens Senior Living
Community at Towson, Maryland. (Included as Exhibit
10.26 to Registration Statement No. 333-76538 on Form
S-11 and incorporated herein by reference.)
10.20 Lease Agreement between CNL Retirement Clayton OH, LP
and HRA Management Corporation dated May 17, 2002,
relating to the MapleRidge Senior Living Community at
Clayton, Ohio. (Included as Exhibit 10.27 to
Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.21 Lease Agreement between CNL Retirement Dartmouth MA,
LP and HRA Management Corporation dated May 16, 2002,
relating to the MapleRidge Senior Living Community at
Dartmouth, Massachusetts. (Included as Exhibit 10.28
to Registration Statement No. 333-76538 on Form S-11
and incorporated herein by reference.)
10.22 Lease Agreement between CNL Retirement Laguna Creek
CA, LP and HRA Management Corporation dated May 16,
2002, relating to the MapleRidge Senior Living
Community at Laguna Creek, Elk Grove, California.
(Included as Exhibit 10.29 to Registration Statement
No. 333-76538 on Form S-11 and incorporated herein by
reference.)
10.23 Purchase and Sale Agreement between Marriott Senior
Living Services, Inc., VCS, Inc. and MSLS -
MapleRidge, Inc., as Sellers, Marriott International,
Inc. and CNL Retirement MA1, LP, as Purchaser, and
HRA Management Corporation, as Tenant, relating to
the Brighton Gardens of Camarillo - Camarillo,
California; Brighton Gardens of Towson - Towson,
Maryland; Marriott MapleRidge of Clayton - Clayton,
Ohio; Marriott MapleRidge of Dartmouth - Dartmouth,
Massachusetts; and Marriott MapleRidge of Laguna
Creek - Elk Grove, California. (Included as Exhibit
10.30 to Registration Statement No. 333-76538 on Form
S-11 and incorporated herein by reference.)
10.24 Loan Agreement between Five Pack Retirement 2002,
LLC, Lender, and CNL Retirement Clayton OH, LP, CNL
Retirement Laguna Creek CA, LP, CNL Retirement
Camarillo CA, LP, CNL Retirement Dartmouth MA, LP,
CNL Retirement Towson MD, LP, Borrowers, and U.S.
Bank, National Association, Collateral Agent,
relating to the Brighton Gardens of Camarillo -
Camarillo, California; Brighton Gardens of Towson -
Towson, Maryland; Marriott MapleRidge of Clayton -
Clayton, Ohio; Marriott MapleRidge of Dartmouth -
Dartmouth, Massachusetts; and Marriott MapleRidge of
Laguna Creek - Elk Grove, California. (Included as
Exhibit 10.31 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.25 Loan Agreement between General Electric Capital
Corporation, as Lender, and CNL Retirement -
AM/Colorado, LP, as Borrower, dated August 8, 2002,
related to the Heritage Club at Greenwood Village -
Greenwood Village, Colorado. (Included as Exhibit
10.25 to the Registrant's September 30, 2002, Report
on Form 10-Q filed with the Securities and Exchange
Commission on November 12, 2002, and incorporated
herein by reference.)
10.26 Mortgage Loan Agreement between CNL Retirement
Properties, Inc., as Lender, and DSTS, LLC, as
Borrower, dated August 12, 2002, related to the Vero
Beach, Florida land. (Included as Exhibit 10.26 to
the Registrant's September 30, 2002, Report on Form
10-Q filed with the Securities and Exchange
Commission on November 12, 2002, and incorporated
herein by reference.)
10.27 Refinancing and Acquisition Agreement dated September
30, 2002, between CNL Retirement Partners, LP, and
Prime Care Properties, LLC, PC1, LLC, PC2, LLC, Prime
Care One, LLC, Prime Care Two, LLC and Thomas E.
Phillippe, Jr., relating to the Brighton Gardens of
Venice - Venice, Florida; Brighton Gardens of
Mountainside - Mountainside, New Jersey; Brighton
Gardens of Friendship Heights - Chevy Chase,
Maryland; Brighton Gardens of Charlotte - Charlotte,
North Carolina; Brighton Gardens of Winston-Salem -
Winston Salem, North Carolina; Brighton Gardens of
Raleigh - Raleigh, North Carolina; Brighton Gardens
of Brentwood - Brentwood, Tennessee; Brighton Gardens
of Stamford - Stamford, Connecticut; Brighton Gardens
of Middleton - Middleton, New Jersey; Brighton
Gardens of Buckhead - Atlanta, Georgia; Brighton
Gardens of Naples - Naples, Florida. (Included as
Exhibit 10.27 to the Registrant's September 30, 2002,
Report on Form 10-Q filed with the Securities and
Exchange Commission on November 12, 2002, and
incorporated herein by reference.)
10.28 Lease Agreement dated September 30, 2002, between CNL
Retirement PC1 Naples FL, LP, CNL Retirement PC1
Venice FL, LP, CNL Retirement PC1 New Jersey, LP, CNL
Retirement PC1 Friendship Heights MD, LP, CNL
Retirement PC1 North Carolina, LP, CNL Retirement PC1
Stamford CT, LP, CNL Retirement PC1 Buckhead GA, LP
and CNL Retirement PC1 Brentwood TN, LP, as Lessors,
Prime Care One, LLC and Prime Care Two, LLC, as
Lessees, relating to the Brighton Gardens of Venice -
Venice, Florida; Brighton Gardens of Mountainside -
Mountainside, New Jersey; Brighton Gardens of
Friendship Heights - Chevy Chase, Maryland; Brighton
Gardens of Charlotte - Charlotte, North Carolina;
Brighton Gardens of Winston-Salem - Winston Salem,
North Carolina; Brighton Gardens of Raleigh -
Raleigh, North Carolina; Brighton Gardens of
Brentwood - Brentwood, Tennessee; Brighton Gardens of
Stamford - Stamford, Connecticut; Brighton Gardens of
Middleton - Middleton, New Jersey; Brighton Gardens
of Buckhead - Atlanta, Georgia; Brighton Gardens of
Naples - Naples, Florida. (Included as Exhibit 10.28
to the Registrant's September 30, 2002, Report on
Form 10-Q filed with the Securities and Exchange
Commission on November 12, 2002, and incorporated
herein by reference.)
10.29 Ground Lease Agreement between CNL Retirement ER1, LP
and Peabody Campus, LLC dated October 10, 2002,
relating to the Brooksby Village Continuing Care
Retirement Community - Peabody, Massachusetts.
(Included as Exhibit 10.36 to Registration Statement
No. 333-76538 on Form S-11 and incorporated herein by
reference.)
10.30 Purchase and Sale Agreement between CNL Retirement
ER1, LP, as Buyer, and Peabody Campus, LLC, as
Seller, relating to the Brooksby Village Continuing
Care Retirement Community - Peabody, Massachusetts.
(Included as Exhibit 10.37 to Registration Statement
No. 333-76538 on Form S-11 and incorporated herein by
reference.)
10.31 Lease Agreement between CNL Retirement AM/Tennessee
LP and Homewood at Brookmont Terrace, LLC dated
October 31, 2002, relating to the Homewood Residence
at Brookmont Terrace - Nashville, Tennessee.
(Included as Exhibit 10.38 to Registration Statement
No. 333-76538 on Form S-11 and incorporated herein by
reference.)
10.32 Purchase and Sale Agreement between CNL Retirement
Corp., as Buyer, and Homewood at Brookmont Terrace,
LLC, as Seller, relating to the Homewood Residence at
Brookmont Terrace - Nashville, Tennessee. (Included
as Exhibit 10.39 to Registration Statement No.
333-76538 on Form S-11 and incorporated herein by
reference.)
10.33 Lease Agreement between CNL Retirement MA3
Washington, LP and Eleven Pack Management Corp. dated
December 20, 2002, relating to the Brighton Gardens
of Bellevue - Bellevue, Washington. (Included as
Exhibit 10.40 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.34 Lease Agreement between CNL Retirement MA2 Illinois,
LP and Eight Pack Management Corp. dated December 20,
2002, relating to the Brighton Gardens of Hoffman
Estates - Hoffman Estates, Illinois. (Included as
Exhibit 10.41 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.35 Lease Agreement between CNL Retirement MA3 Oklahoma,
LP and Eleven Pack Management Corp. dated December
20, 2002, relating to the Brighton Gardens of
Oklahoma City - Oklahoma City, Oklahoma. (Included as
Exhibit 10.42 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.36 Lease Agreement between CNL Retirement MA3
California, LP and Eleven Pack Management Corp. dated
December 20, 2002, relating to the Brighton Gardens
of Santa Rosa - Santa Rosa, California. (Included as
Exhibit 10.43 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.37 Lease Agreement between CNL Retirement MA2 Oklahoma,
LP and Eight Pack Management Corp. dated December 20,
2002, relating to the Brighton Gardens of Tulsa -
Tulsa, Oklahoma. (Included as Exhibit 10.44 to
Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.38 Lease Agreement between CNL Retirement MA3 Georgia,
LP and Eleven Pack Management Corp. dated December
20, 2002, relating to the Brighton Gardens of Vinings
- Atlanta, Georgia. (Included as Exhibit 10.45 to
Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.39 Lease Agreement between CNL Retirement MA3
Washington, LP and Eleven Pack Management Corp. dated
December 20, 2002, relating to the Hearthside of
Lynnwood - Lynnwood, Washington. (Included as Exhibit
10.46 to Registration Statement No. 333-76538 on Form
S-11 and incorporated herein by reference.)
10.40 Lease Agreement between CNL Retirement MA3
Washington, LP and Eleven Pack Management Corp. dated
December 20, 2002, relating to the Hearthside of
Snohomish - Snohomish, Washington. (Included as
Exhibit 10.47 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.41 Lease Agreement between CNL Retirement MA2
California, LP and Eight Pack Management Corp. dated
December 20, 2002, relating to the MapleRidge of
Hemet - Hemet, California. (Included as Exhibit 10.48
to Registration Statement No. 333-76538 on Form S-11
and incorporated herein by reference.)
10.42 Lease Agreement between CNL Retirement MA2
Massachusetts, LP and Eight Pack Management Corp.
dated December 20, 2002, relating to the MapleRidge
of Plymouth - Plymouth, Massachusetts. (Included as
Exhibit 10.49 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.43 Lease Agreement between CNL Retirement MA2 Ohio, LP
and Eight Pack Management Corp. dated December 20,
2002, relating to the MapleRidge of Willoughby -
Willoughby, Ohio. (Included as Exhibit 10.50 to
Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.44 Lease Agreement between CNL Retirement MA2 Arkansas,
LP and Eight Pack Management Corp. dated December 20,
2002, relating to the Pleasant Hills Retirement
Community - Little Rock, Arkansas. (Included as
Exhibit 10.51 to Registration Statement No. 333-76538
on Form S-11 and incorporated herein by reference.)
10.45 Purchase and Sale Agreement between Marriott Senior
Living Services, Inc., MSLS-MapleRidge, Inc., and
Marriott International, Inc., as Sellers, and CNL
Retirement MA2, LP, as Purchaser, CNL Retirement
Partners, LP as the Orland Park Owner and Eight Pack
Management Corp., as Tenant, relating to the Brighton
Gardens of Hoffman Estates - Hoffman Estates,
Illinois; Brighton Gardens of Tulsa - Tulsa,
Oklahoma; MapleRidge of Hemet - Hemet, California;
MapleRidge of Plymouth - Plymouth, Massachusetts;
MapleRidge of Willoughby - Willoughby, Ohio and
Pleasant Hills Retirement Community - Little Rock,
Arkansas. (Included as Exhibit 10.52 to Registration
Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.46 Purchase and Sale Agreement between Marriott Senior
Living Services, Inc., MSLS-MapleRidge, Inc., and
Marriott International, Inc., as Sellers, and CNL
Retirement MA3, LP, as Purchaser, and Eleven Pack
Management Corp., as Tenant, relating to the Brighton
Gardens of Bellevue - Bellevue, Washington; Brighton
Gardens of Oklahoma City - Oklahoma City, Oklahoma;
Brighton Gardens of Santa Rosa - Santa Rosa,
California; Brighton Gardens of Vinings - Atlanta,
Georgia; Hearthside of Lynnwood - Lynnwood,
Washington and Hearthside of Snohomish - Snohomish,
Washington. (Included as Exhibit 10.53 to
Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
21. Subsidiaries of the Registrant (Filed herewith.)
99.1 Certification of the Chief Executive Officer,
Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
99.2 Certification of the Chief Financial Officer,
Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
(b) The Company filed the following reports during the quarter ended
December 31, 2002, on Form 8-K: Form 8-K filed on October 15, 2002
disclosing the acquisition of 12 Properties; Form 8-K filed on November
18, 2002 disclosing the acquisition of one Property.
(d) Other Financial Information.
The Company is required to file audited financial information of Prime
Care One, LLC and Prime Care Two, LLC (collectively "Prime Care"), as a
result of Prime Care leasing more than 20 percent of the Company's
total assets for the year ended December 31, 2002. Prime Care is not a
public company and its audited 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, but no later than March 31, 2003.
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 24th day of
February 2003.
CNL RETIREMENT PROPERTIES, INC.
By: JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
By: STUART J. BEEBE
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Stuart J. Beebe
----------------------------
STUART J. BEEBE
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 24, 2003
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
/s/ Robert A. Bourne Vice Chairman of the Board and Treasurer February 24, 2003
- ---------------------------
Robert A. Bourne
/s/ Stuart J. Beebe Chief Financial Officer February 24, 2003
- ----------------------------
Stuart J. Beebe (Principal Financial and Accounting Officer)
/s/ David W. Dunbar Independent Director February 24, 2003
- ---------------------------
David W. Dunbar
/s/ James W. Duncan, Jr. Independent Director February 24, 2003
- ---------------------------
James W. Duncan, Jr.
/s/ Edward A. Moses Independent Director February 24, 2003
- ---------------------------
Edward A. Moses
CNL RETIREMENT PROPERTIES, INC.
CERTIFICATIONS
I, James M. Seneff, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of CNL
Retirement Properties, Inc. (the "Registrant");
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of,
and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of the
Registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: February 24, 2003 By: /s/ James M. Seneff, Jr.
--------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
CNL RETIREMENT PROPERTIES, INC.
CERTIFICATIONS
I, Stuart J. Beebe, certify that:
1. I have reviewed this annual report on Form 10-K of CNL
Retirement Properties, Inc. (the "Registrant");
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of,
and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of the
Registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: February 24, 2003 By: /s/ Stuart J. Beebe
----------------------------
STUART J. BEEBE
Chief Financial Officer
(Principal Financial and
Accounting Officer)
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Properties the Company
has Invested in Under
Operating Leases:
Costs Capitalized
Initial Costs Subsequent to Acquisition
---------------------------------------------- ----------------------------
Carrying
Encumbrances Land Buildings Equipment Improvements Costs
--------------- -------------- --------------- --------------- -------------- ------------
Brighton Gardens by Marriott:
Orland Park, Illinois $ -- $ 2,162,388 $ 11,533,074 $ 1,044,018 $ -- $ --
Camarillo, California 7,477,879 2,486,381 16,852,469 541,453 -- --
Towson, Maryland 5,780,928 989,914 14,375,847 355,731 -- --
Hoffman Estates, Illinois -- 1,724,422 5,843,963 512,316 -- --
Tulsa, Oklahoma -- 1,538,284 2,987,889 512,425 -- --
Atlanta, Georgia -- 1,772,658 5,652,512 446,313 -- --
Oklahoma City, Oklahoma -- 784,454 2,701,571 444,105 -- --
Santa Rosa, California -- 2,161,222 15,025,466 586,516 -- --
Bellevue, Washington -- 2,164,828 8,360,448 502,884 -- --
MapleRidge by Marriott:
Laguna Creek, California 3,221,644 811,596 7,571,613 217,689 -- --
Clayton, Ohio 3,244,228 813,317 7,656,922 209,314 -- --
Dartmouth, Massachusetts 3,795,321 920,430 9,028,929 205,663 -- --
Plymouth, Massachusetts -- 1,090,254 3,460,628 393,579 -- --
Cleveland, Ohio -- 1,090,639 3,886,167 345,981 -- --
Hemet, California -- 1,175,581 2,891,964 365,263 -- --
Pleasant Hills by Marriott:
Little Rock, Arkansas -- 523,295 10,457,948 370,052 -- --
Hearthside by Marriott:
Lynnwood, Washington -- 1,529,738 5,175,159 124,291 -- --
Snohomish, Washington -- 645,494 8,559,082 109,911 -- --
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 -- --
Coconut Creek, Florida -- 1,682,701 7,981,073 559,197 -- --
Brookmont, Tennessee -- 463,957 8,350,191 631,429 -- --
Holley Court Terrace:
Oak Park, Illinois 12,743,332 2,144,134 16,918,724 447,007 -- --
Heritage Club:
Greenwood Village, Colorado 9,063,345 1,964,700 17,943,422 942,063 -- --
Erickson Retirement Communities:
Peabody, Massachusetts -- 18,345,033 -- -- -- --
Other:
Vero Beach, Florida -- 1,839,329 -- -- 1,405,138 --
--------------- --------------- --------------- --------------- -------------- ------------
$ 45,326,677 $ 53,311,858 $ 210,891,405 $ 11,023,962 $ 1,405,138 $ --
=============== =============== =============== =============== ============== ============
Gross Amount at Which Carried
at Close of Period
- ---------------------------------------------------------
- ---------------------------------------------------------
Accumulated Date of Date
Land Buildings Equipment Total Depreciation Construction Acquired
- ----------------- ---------------- -------------- --------------- ------------- ------------- -----------
$ 2,162,388 $ 11,533,074 $ 1,044,018 $ 14,739,480 $ 1,177,269 1999 4/00
2,486,381 16,852,469 541,453 19,880,303 312,334 1999 5/02
989,914 14,375,847 355,731 15,721,492 256,936 1999 5/02
1,724,422 5,843,963 512,316 8,080,701 9,137 1999 12/02
1,538,284 2,987,889 512,425 5,038,598 6,163 1999 12/02
1,772,658 5,652,512 446,313 7,871,483 8,545 1996 12/02
784,454 2,701,571 444,105 3,930,130 5,458 1999 12/02
2,161,222 15,025,466 586,516 17,773,204 19,143 2000 12/02
2,164,828 8,360,448 502,884 11,028,160 11,702 1999 12/02
811,596 7,571,613 217,689 8,600,898 138,039 1999 5/02
813,317 7,656,922 209,314 8,679,553 138,031 1999 5/02
920,430 9,028,929 205,663 10,155,022 159,783 1999 5/02
1,090,254 3,460,628 393,579 4,944,461 5,948 2000 12/02
1,090,639 3,886,167 345,981 5,322,787 6,108 1999 12/02
1,175,581 2,891,964 365,263 4,432,808 5,187 1998 12/02
523,295 10,457,948 370,052 11,351,295 13,096 1984 12/02
1,529,738 5,175,159 124,291 6,829,188 6,131 1989 12/02
645,494 8,559,082 109,911 9,314,487 9,570 1993 12/02
1,343,538 9,174,538 602,226 11,120,302 361,454 2000 11/01
1,143,571 8,501,806 554,536 10,199,913 334,064 2000 11/01
1,682,701 7,981,073 559,197 10,222,971 248,075 2000 2/02
463,957 8,350,191 631,429 9,445,577 49,825 2000 11/02
2,144,134 16,918,724 447,007 19,509,865 432,681 1992 2/02
1,964,700 17,943,422 942,063 20,850,185 434,020 1999 3/02
18,345,033 -- -- 18,345,033 -- 10/02
3,244,467 -- -- 3,244,467 -- 8/02
- ---------------- ---------------- -------------- --------------- -------------
$ 54,716,996 $210,891,405 $11,023,962 $ 276,632,363 $ 4,148,699
================ ================ ============== =============== =============
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(a) Transactions in real estate and accumulated depreciation during 2000,
2001 and 2002 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
Acquisitions 14,721,092 303,184
Depreciation Expense (c) 21,338,603 --
-- 523,943
-------------- ---------------
Balance, December 31, 2001 827,127
Acquisitions 36,059,695 --
Depreciation expense (c) 240,572,668 3,330,399
--
-------------- ---------------
Balance, December 31, 2002 $ 276,632,363 $ 4,157,526
============== ===============
(b) As of December 31, 2002, 2001, and 2000, the aggregate cost of the
Properties owned by the Company and its subsidiaries for federal income
tax purposes was $276,489,406, $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 $27,143,799, $1,941,656
and $872,192 are included in land, buildings and equipment on operating
leases at December 31, 2002, 2001 and 2000, respectively.
EXHIBITS
EXHIBIT INDEX
Exhibit Index
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 May 14, 2002, between CNL Retirement
Properties, Inc. and CNL Retirement Corp. (Included as Exhibit 10.1 to
the Registrant's September 30, 2002, Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2002, 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, Jeanne A. Wall, and Lynn E. Rose
dated September 15, 1998, Phillip M. Anderson, Jr. dated February 19,
1999, James W. Duncan dated February 22, 2002, and Stuart J. Beebe
dated July 15, 2002. (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 to
Registration Statement No. 333-37480 on Form S-11 and incorporated
herein by reference.)
10.11 Lease Agreement between CNL Retirement - AM/Illinois LP and ARC Holley
Court, LLC dated 11, 2002, relating to the Holley Court Terrace - Oak
Park, Illinois. (Included as Exhibit 10.18 to Registration Statement
No. 333-37480 on Form S-11 and incorporated herein by reference.)
10.12 Real Estate Purchase and Sale Contract between CNL Retirement Corp., as
Buyer, and ARC Holley Court, LLC, as Seller, relating to the Holley
Court Terrace - Oak Park, Illinois. (Included as Exhibit 10.19 to
Registration Statement No. 333-37480 on Form S-11 and incorporated
herein by reference.)
10.13 Lease Agreement between CNL Retirement - AM/Florida, LP and ARC Coconut
Creek, LLC dated February 11, 2002, relating to the Homewood Residence
of Coconut Creek - Coconut Creek, Florida. (Included as Exhibit 10.20
to Registration Statement No. 333-37480 on Form S-11 and incorporated
herein by reference.)
10.14 Real Estate Purchase and Sale Contract between CNL Retirement Corp., as
Buyer, and American Retirement Corporation, as Seller, relating to the
Homewood Residence of Coconut Creek - Coconut Creek, Florida. (Included
as Exhibit 10.21 to Registration Statement No. 333-37480 on Form S-11
and incorporated herein by reference.)
10.15 Lease Agreement between CNL Retirement - AM/Colorado LP and ARC
Greenwood Village, Inc. dated March 21, 2002, relating to the Heritage
Club at Greenwood Village - Greenwood Village, Colorado. (Included as
Exhibit 10.22 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.16 Real Estate Purchase and Sale Contract between CNL Retirement Corp., as
Buyer, and American Retirement Corporation, as Seller, relating to the
Heritage Club at Greenwood Village - Greenwood Village, Colorado.
(Included as Exhibit 10.23 to Registration Statement No. 333-76538 on
Form S-11 and incorporated herein by reference.)
10.17 Loan Agreement between ARC Holley Court, LLC, as Borrower, and GMAC
Commercial Mortgage Corporation, as Lender, relating to the Holley
Court Terrace - Oak Park, Illinois. (Included as Exhibit 10.24 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.18 Lease Agreement between CNL Retirement Camarillo CA, LP and HRA
Management Corporation dated May 16, 2002, relating to the Brighton
Gardens Senior Living Community at Camarillo, California. (Included as
Exhibit 10.25 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.19 Lease Agreement between CNL Retirement Towson MD, LP and HRA Management
Corporation dated May 16, 2002, relating to the Brighton Gardens Senior
Living Community at Towson, Maryland. (Included as Exhibit 10.26 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.20 Lease Agreement between CNL Retirement Clayton OH, LP and HRA
Management Corporation dated May 17, 2002, relating to the MapleRidge
Senior Living Community at Clayton, Ohio. (Included as Exhibit 10.27 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.21 Lease Agreement between CNL Retirement Dartmouth MA, LP and HRA
Management Corporation dated May 16, 2002, relating to the MapleRidge
Senior Living Community at Dartmouth, Massachusetts. (Included as
Exhibit 10.28 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.22 Lease Agreement between CNL Retirement Laguna Creek CA, LP and HRA
Management Corporation dated May 16, 2002, relating to the MapleRidge
Senior Living Community at Laguna Creek, Elk Grove, California.
(Included as Exhibit 10.29 to Registration Statement No. 333-76538 on
Form S-11 and incorporated herein by reference.)
10.23 Purchase and Sale Agreement between Marriott Senior Living Services,
Inc., VCS, Inc. and MSLS - MapleRidge, Inc., as Sellers, Marriott
International, Inc. and CNL Retirement MA1, LP, as Purchaser, and HRA
Management Corporation, as Tenant, relating to the Brighton Gardens of
Camarillo - Camarillo, California; Brighton Gardens of Towson - Towson,
Maryland; Marriott MapleRidge of Clayton - Clayton, Ohio; Marriott
MapleRidge of Dartmouth - Dartmouth, Massachusetts; and Marriott
MapleRidge of Laguna Creek - Elk Grove, California. (Included as
Exhibit 10.30 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.24 Loan Agreement between Five Pack Retirement 2002, LLC, Lender, and CNL
Retirement Clayton OH, LP, CNL Retirement Laguna Creek CA, LP, CNL
Retirement Camarillo CA, LP, CNL Retirement Dartmouth MA, LP, CNL
Retirement Towson MD, LP, Borrowers, and U.S. Bank, National
Association, Collateral Agent, relating to the Brighton Gardens of
Camarillo - Camarillo, California; Brighton Gardens of Towson - Towson,
Maryland; Marriott MapleRidge of Clayton - Clayton, Ohio; Marriott
MapleRidge of Dartmouth - Dartmouth, Massachusetts; and Marriott
MapleRidge of Laguna Creek - Elk Grove, California. (Included as
Exhibit 10.31 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.25 Loan Agreement between General Electric Capital Corporation, as Lender,
and CNL Retirement - AM/Colorado, LP, as Borrower, dated August 8,
2002, related to the Heritage Club at Greenwood Village - Greenwood
Village, Colorado. (Included as Exhibit 10.25 to the Registrant's
September 30, 2002, Report on Form 10-Q filed with the Securities and
Exchange Commission on November 12, 2002, and incorporated herein by
reference.)
10.26 Mortgage Loan Agreement between CNL Retirement Properties, Inc., as
Lender, and DSTS, LLC, as Borrower, dated August 12, 2002, related to
the Vero Beach, Florida land. (Included as Exhibit 10.26 to the
Registrant's September 30, 2002, Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2002, and
incorporated herein by reference.)
10.27 Refinancing and Acquisition Agreement dated September 30, 2002, between
CNL Retirement Partners, LP, and Prime Care Properties, LLC, PC1, LLC,
PC2, LLC, Prime Care One, LLC, Prime Care Two, LLC and Thomas E.
Phillippe, Jr., relating to the Brighton Gardens of Venice - Venice,
Florida; Brighton Gardens of Mountainside - Mountainside, New Jersey;
Brighton Gardens of Friendship Heights - Chevy Chase, Maryland;
Brighton Gardens of Charlotte - Charlotte, North Carolina; Brighton
Gardens of Winston-Salem - Winston Salem, North Carolina; Brighton
Gardens of Raleigh - Raleigh, North Carolina; Brighton Gardens of
Brentwood - Brentwood, Tennessee; Brighton Gardens of Stamford -
Stamford, Connecticut; Brighton Gardens of Middleton - Middleton, New
Jersey; Brighton Gardens of Buckhead - Atlanta, Georgia; Brighton
Gardens of Naples - Naples, Florida. (Included as Exhibit 10.27 to the
Registrant's September 30, 2002, Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2002, and
incorporated herein by reference.)
10.28 Lease Agreement dated September 30, 2002, between CNL Retirement PC1
Naples FL, LP, CNL Retirement PC1 Venice FL, LP, CNL Retirement PC1 New
Jersey, LP, CNL Retirement PC1 Friendship Heights MD, LP, CNL
Retirement PC1 North Carolina, LP, CNL Retirement PC1 Stamford CT, LP,
CNL Retirement PC1 Buckhead GA, LP and CNL Retirement PC1 Brentwood TN,
LP, as Lessors, Prime Care One, LLC and Prime Care Two, LLC, as
Lessees, relating to the Brighton Gardens of Venice - Venice, Florida;
Brighton Gardens of Mountainside - Mountainside, New Jersey; Brighton
Gardens of Friendship Heights - Chevy Chase, Maryland; Brighton Gardens
of Charlotte - Charlotte, North Carolina; Brighton Gardens of
Winston-Salem - Winston Salem, North Carolina; Brighton Gardens of
Raleigh - Raleigh, North Carolina; Brighton Gardens of Brentwood -
Brentwood, Tennessee; Brighton Gardens of Stamford - Stamford,
Connecticut; Brighton Gardens of Middleton - Middleton, New Jersey;
Brighton Gardens of Buckhead - Atlanta, Georgia; Brighton Gardens of
Naples - Naples, Florida. (Included as Exhibit 10.28 to the
Registrant's September 30, 2002, Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2002, and
incorporated herein by reference.)
10.29 Ground Lease Agreement between CNL Retirement ER1, LP and Peabody
Campus, LLC dated October 10, 2002, relating to the Brooksby Village
Continuing Care Retirement Community - Peabody, Massachusetts.
(Included as Exhibit 10.36 to Registration Statement No. 333-76538 on
Form S-11 and incorporated herein by reference.)
10.30 Purchase and Sale Agreement between CNL Retirement ER1, LP, as Buyer,
and Peabody Campus, LLC, as Seller, relating to the Brooksby Village
Continuing Care Retirement Community - Peabody, Massachusetts.
(Included as Exhibit 10.37 to Registration Statement No. 333-76538 on
Form S-11 and incorporated herein by reference.)
10.31 Lease Agreement between CNL Retirement AM/Tennessee LP and Homewood at
Brookmont Terrace, LLC dated October 31, 2002, relating to the Homewood
Residence at Brookmont Terrace - Nashville, Tennessee. (Included as
Exhibit 10.38 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.32 Purchase and Sale Agreement between CNL Retirement Corp., as Buyer, and
Homewood at Brookmont Terrace, LLC, as Seller, relating to the Homewood
Residence at Brookmont Terrace - Nashville, Tennessee. (Included as
Exhibit 10.39 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.33 Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven
Pack Management Corp. dated December 20, 2002, relating to the Brighton
Gardens of Bellevue - Bellevue, Washington. (Included as Exhibit 10.40
to Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.34 Lease Agreement between CNL Retirement MA2 Illinois, LP and Eight Pack
Management Corp. dated December 20, 2002, relating to the Brighton
Gardens of Hoffman Estates - Hoffman Estates, Illinois. (Included as
Exhibit 10.41 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.35 Lease Agreement between CNL Retirement MA3 Oklahoma, LP and Eleven Pack
Management Corp. dated December 20, 2002, relating to the Brighton
Gardens of Oklahoma City - Oklahoma City, Oklahoma. (Included as
Exhibit 10.42 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.36 Lease Agreement between CNL Retirement MA3 California, LP and Eleven
Pack Management Corp. dated December 20, 2002, relating to the Brighton
Gardens of Santa Rosa - Santa Rosa, California. (Included as Exhibit
10.43 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.37 Lease Agreement between CNL Retirement MA2 Oklahoma, LP and Eight Pack
Management Corp. dated December 20, 2002, relating to the Brighton
Gardens of Tulsa - Tulsa, Oklahoma. (Included as Exhibit 10.44 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.38 Lease Agreement between CNL Retirement MA3 Georgia, LP and Eleven Pack
Management Corp. dated December 20, 2002, relating to the Brighton
Gardens of Vinings - Atlanta, Georgia. (Included as Exhibit 10.45 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.39 Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven
Pack Management Corp. dated December 20, 2002, relating to the
Hearthside of Lynnwood - Lynnwood, Washington. (Included as Exhibit
10.46 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.40 Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven
Pack Management Corp. dated December 20, 2002, relating to the
Hearthside of Snohomish - Snohomish, Washington. (Included as Exhibit
10.47 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.41 Lease Agreement between CNL Retirement MA2 California, LP and Eight
Pack Management Corp. dated December 20, 2002, relating to the
MapleRidge of Hemet - Hemet, California. (Included as Exhibit 10.48 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.42 Lease Agreement between CNL Retirement MA2 Massachusetts, LP and Eight
Pack Management Corp. dated December 20, 2002, relating to the
MapleRidge of Plymouth - Plymouth, Massachusetts. (Included as Exhibit
10.49 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.43 Lease Agreement between CNL Retirement MA2 Ohio, LP and Eight Pack
Management Corp. dated December 20, 2002, relating to the MapleRidge of
Willoughby - Willoughby, Ohio. (Included as Exhibit 10.50 to
Registration Statement No. 333-76538 on Form S-11 and incorporated
herein by reference.)
10.44 Lease Agreement between CNL Retirement MA2 Arkansas, LP and Eight Pack
Management Corp. dated December 20, 2002, relating to the Pleasant
Hills Retirement Community - Little Rock, Arkansas. (Included as
Exhibit 10.51 to Registration Statement No. 333-76538 on Form S-11 and
incorporated herein by reference.)
10.45 Purchase and Sale Agreement between Marriott Senior Living Services,
Inc., MSLS-MapleRidge, Inc., and Marriott International, Inc., as
Sellers, and CNL Retirement MA2, LP, as Purchaser, CNL Retirement
Partners, LP as the Orland Park Owner and Eight Pack Management Corp.,
as Tenant, relating to the Brighton Gardens of Hoffman Estates -
Hoffman Estates, Illinois; Brighton Gardens of Tulsa - Tulsa, Oklahoma;
MapleRidge of Hemet - Hemet, California; MapleRidge of Plymouth -
Plymouth, Massachusetts; MapleRidge of Willoughby - Willoughby, Ohio
and Pleasant Hills Retirement Community - Little Rock, Arkansas.
(Included as Exhibit 10.52 to Registration Statement No. 333-76538 on
Form S-11 and incorporated herein by reference.)
10.46 Purchase and Sale Agreement between Marriott Senior Living Services,
Inc., MSLS-MapleRidge, Inc., and Marriott International, Inc., as
Sellers, and CNL Retirement MA3, LP, as Purchaser, and Eleven Pack
Management Corp., as Tenant, relating to the Brighton Gardens of
Bellevue - Bellevue, Washington; Brighton Gardens of Oklahoma City -
Oklahoma City, Oklahoma; Brighton Gardens of Santa Rosa - Santa Rosa,
California; Brighton Gardens of Vinings - Atlanta, Georgia; Hearthside
of Lynnwood - Lynnwood, Washington and Hearthside of Snohomish -
Snohomish, Washington. (Included as Exhibit 10.53 to Registration
Statement No. 333-76538 on Form S-11 and incorporated herein by
reference.)
21 Subsidiaries of the Registrant (Filed herewith.)
99.1 Certification of the Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of the Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (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 GP / Tennessee Corp. Delaware
CNL Retirement LP Corp. Delaware
CNL Retirement GP National Corp. Delaware
CNL Retirement MA1, LP Delaware
CNL Retirement MA1 GP, LLC Delaware
CNL Retirement TRS Corp. Delaware
CNL Retirement PC1, LP Delaware
CNL Retirement PC1 GP Holding, LLC Delaware
CNL Retirement PC1 GP Naples FL, LLC Delaware
CNL Retirement PC1 GP Venice FL, LLC Delaware
CNL Retirement PC1 GP, LLC Delaware
CNL Retirement ER1 GP, LLC Delaware
CNL Retirement MA2, LP Delaware
CNL Retirement MA2 GP Holding, LLC Delaware
CNL Retirement MA3, LP Delaware
CNL Retirement MA3 GP Holding, LLC Delaware
CNL Retirement RP-VB1, LLC Delaware
CNL Retirement Partners, LP Delaware
CNL Retirement AM / Florida LP Delaware
CNL Retirement AM / Texas LP Delaware
CNL Retirement AM / Colorado LP Delaware
CNL Retirement AM / Illinois LP Delaware
CNL Retirement AM / Tennessee LP Delaware
CNL Retirement Clayton OH, LP Delaware
CNL Retirement Laguna Creek CA, LP Delaware
CNL Retirement Dartmouth MA, LP Delaware
CNL Retirement Towson MD, LP Delaware
CNL Retirement Camarillo CA, LP Delaware
CNL Retirement PC1 Naples FL, LP Delaware
CNL Retirement PC1 Venice FL, LP Delaware
CNL Retirement PC1 New Jersey, LP Delaware
CNL Retirement PC1 Friendship Heights MD, LP Delaware
CNL Retirement PC1 North Carolina, LP Delaware
CNL Retirement PC1 Stamford CT, LP Delaware
CNL Retirement PC1 Buckhead GA, LP Delaware
CNL Retirement PC1 Brentwood TN, LP Delaware
CNL Retirement ER1, LP Delaware
CNL Retirement MA2 Illinois, LP Delaware
CNL Retirement MA2 Massachusetts, LP Delaware
CNL Retirement MA2 Ohio, LP Delaware
CNL Retirement MA2 Oklahoma, LP Delaware
Name of Subsidiary State of Incorporation
- ------------------------------------------------------ --------------------------------------
CNL Retirement MA2 Arkansas, LP Delaware
CNL Retirement MA2 California, LP Delaware
CNL Retirement MA2 Utah, LP Delaware
CNL Retirement MA3 California, LP Delaware
CNL Retirement MA3 Georgia, LP Delaware
CNL Retirement MA3 Kentucky, LP Delaware
CNL Retirement MA3 Oklahoma, LP Delaware
CNL Retirement MA3 Pennsylvania, LP Delaware
CNL Retirement MA3 South Carolina, LP Delaware
CNL Retirement MA3 Virginia, LP Delaware
CNL Retirement MA3 Washington, LP Delaware
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 99.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, the undersigned certifies that (1) this Annual
Report of CNL Retirement Properties, Inc. (the "Company") on Form 10-K for the
year ended December 31, 2002, as filed with the Securities and Exchange
Commission on the date hereof (this "Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, and (2) the information contained in this Report fairly presents, in
all material respects, the financial condition of the Company as of December 31,
2002 and 2001 and its results of operations for the three year period ended
December 31, 2002.
Date: February 24, 2003 /s/ James M. Seneff, Jr.
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James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 99.2
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, the undersigned certifies that (1) this Annual
Report of CNL Retirement Properties, Inc. (the "Company") on Form 10-K for the
year ended December 31, 2002, as filed with the Securities and Exchange
Commission on the date hereof (this "Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, and (2) the information contained in this Report fairly presents, in
all material respects, the financial condition of the Company as of December 31,
2002 and 2001 and its results of operations for the three year period ended
December 31, 2002.
Date: February 24, 2003 /s/ Stuart J. Beebe
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Stuart J. Beebe
Chief Financial Officer