FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
---------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number
000-32607
------------------------------
CNL Retirement Properties, Inc.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 59-3491443
------------------------------ ------------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
The number of shares of common stock outstanding as of May 12, 2003, was
70,440,072.
CONTENTS
Part I: Financial Information
Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Earnings 2
Condensed Consolidated Statements of Stockholders' Equity 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16-26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26-27
Item 4. Controls and Procedures 27
Part II: Other Information
Item 1. Legal Proceedings 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28-34
Signatures 35
Certifications 36-37
Exhibits
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2003 2002
----------------- ----------------
ASSETS
Investment properties:
Accounted for using the operating method, net $ 624,613,218 $ 272,483,664
Accounted for using the direct financing method 141,919,308 115,783,256
Cash and cash equivalents 24,000,487 40,799,871
Restricted cash 860,935 1,684,684
Notes and other receivables 2,946,406 3,192,203
Investment in unconsolidated subsidiary 164,186 154,148
Loan costs, less accumulated amortization of $262,058 and $88,650 3,506,295 1,220,108
Accrued rental income 3,098,977 1,472,458
Other assets 257,161 4,975,061
------------------ ------------------
$ 801,366,973 $ 441,765,453
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 91,860,126 $ 45,326,677
Bonds payable 88,510,695 --
Line of credit 71,370,000 --
Due to related parties 5,552,159 347,786
Accounts payable and accrued expenses 1,143,228 1,337,296
Security deposits 5,591,404 4,866,973
Rent paid in advance 4,939 91,432
------------------ ------------------
Total liabilities 264,032,551 51,970,164
------------------ ------------------
Minority interest 266 265
------------------ ------------------
Commitments and contingencies (Note 6)
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 60,622,064 and 44,254,603
shares, respectively, outstanding 60,555,377 and 44,210,566
shares, respectively 605,554 442,106
Capital in excess of par value 540,869,098 393,307,990
Accumulated distributions in excess of net earnings (4,140,496) (3,955,072)
------------------ ------------------
Total stockholders' equity 537,334,156 389,795,024
------------------ ------------------
$ 801,366,973 $ 441,765,453
================== ==================
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Quarter
Ended March 31,
2003 2002
------------ ------------
Revenues:
Rental income from operating leases $ 8,246,652 $ 1,401,373
Earned income from direct financing leases 3,508,391 --
Contingent rent 8,851 --
FF&E reserve income 327,228 9,335
Interest and other income 412,834 257,053
------------- -------------
12,503,956 1,667,761
------------- -------------
Expenses:
Interest 581,284 108,692
General operating and administrative 648,183 246,839
Property expenses 11,584 --
Asset management fees to related party 553,776 65,228
Depreciation and amortization 2,217,818 418,398
------------- -------------
4,012,645 839,157
------------- -------------
Earnings Before Equity in Earnings of Unconsolidated 8,491,311 828,604
Subsidiary
Equity in Earnings of Unconsolidated Subsidiary 12,285 --
------------- -------------
Net Earnings $ 8,503,596 $ 828,604
============= =============
Net Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.16 $ 0.09
============= =============
Weighted Average Number of Shares of
Common Stock Outstanding (Basic and Diluted) 51,672,439 9,682,887
============= =============
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 2003 and Year Ended December 31, 2002
(UNAUDITED)
Common stock Accumulated
------------------------------ Capital in distributions
Number Par excess of in excess of
of shares Value par value net earnings Total
-------------- ------------ ---------------- ---------------- ----------------
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
distribution 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
Subscriptions received for common
stock through public offering and
distribution reinvestment plan 16,367,461 163,675 163,510,933 -- 163,674,608
Retirement of common stock (22,650) (227) (208,157) -- (208,384)
Stock issuance costs -- -- (15,741,668) -- (15,741,668)
Net earnings -- -- -- 8,503,597 8,503,597
Distributions declared and paid
($0.1767 per share) -- -- -- (8,689,021) (8,689,021)
--------------- ------------ --------------- ----------------- ----------------
Balance at March 31, 2003 60,555,377 $605,554 $ 540,869,098 $ (4,140,496) $537,334,156
=============== ============ =============== ================= ================
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended
March 31,
2003 2002
-------------- --------------
Increase (decrease) in cash and cash equivalents:
Net cash provided by operating activities $ 7,351,087 $ 3,082,728
--------------- ---------------
Investing activities:
Investment in land, buildings and equipment on
operating leases (247,821,284) (33,047,816)
Investment in direct financing leases (2,000,000) --
Payment of acquisition costs (12,381,755) (3,420,767)
Proceeds from note receivable 2,000,000 --
Decrease (increase) in restricted cash 823,749 (287,290)
--------------- ---------------
Net cash used in investing activities (259,379,290) (36,755,873)
--------------- ---------------
Financing activities:
Proceeds from borrowings on mortgages payable 26,000,000 --
Principal payments on mortgage loans (101,659) (40,538)
Payment of loan costs (2,459,595) (19,656)
Proceeds from line of credit 71,370,000 --
Subscriptions received from stockholders 163,674,608 53,126,179
Payment of stock issuance costs (14,373,741) (6,314,263)
Distributions to stockholders (8,689,021) (1,552,344)
Retirement of common stock (191,773) (18,400)
--------------- ---------------
Net cash provided by financing activities 235,228,819 45,180,978
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (16,799,384) 11,507,833
Cash and cash equivalents at beginning of quarter 40,799,871 26,721,107
--------------- ---------------
Cash and cash equivalents at end of quarter $ 24,000,487 $ 38,228,940
=============== ===============
Supplemental schedule of non-cash
investing and financing activities:
Mortgage assumed on property purchased $ 20,635,108 $12,974,397
=============== ===============
Bonds assumed on property purchased $ 88,510,695 $ --
=============== ===============
See accompanying notes to condensed consolidated financial statements.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
1. Summary of Significant Accounting Policies:
Organization - 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 primarily located across
the United States of America. The Properties may include congregate living,
assisted living and skilled nursing facilities, continuing care retirement
communities and life care communities, medical office buildings and walk-in
clinics and similar types of healthcare related facilities. 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.
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and note disclosures required by accounting
principles generally accepted in the United States of America for complete
financial statements. The condensed consolidated financial statements reflect
all adjustments, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented. Operating results for the quarter ended March 31,
2003, may not be indicative of the results that may be expected for the year
ending December 31, 2003. Amounts included in the financial statements as of
December 31, 2002, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in the Report on Form 10-K of
CNL Retirement Properties, Inc. and its subsidiaries for the year ended December
31, 2002. The accompanying unaudited condensed consolidated financial statements
include the accounts of CNL Retirement Properties, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
Bonds Payable - In connection with the acquisition of two continuing care
retirement communities ("CCRC") Properties, the Company assumed non-interest
bearing lifecare bonds payable to certain residents of the CCRC's. Generally,
the bonds are refundable to a resident upon the resident moving out of the CCRC
or to a resident's estate upon the resident's death. In some instances, the
bonds are not refundable until the unit has been successfully remarketed to a
new resident. The Company expects to issue new bonds to future residents and the
proceeds received from the issuance of the new bonds will be used to retire the
existing bonds. As the maturity of these obligations is not determinable,
interest is not imputed on these obligations.
New Accounting Standards - In January 2003, the Financial Accounting Standards
Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities", to expand upon and strengthen
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
1. Summary of Significant Accounting Policies - Continued:
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. 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. Certain transactions entered into subsequent to January 31,
2003 could require the consolidation of certain tenant operating activities
beginning after June 15, 2003. The consolidation of these entities, if required,
is not expected to have a significant effect on the Company's financial position
nor results of operations.
2. Public Offerings:
From its formation in December 1997 through May 24, 2002, the Company commenced
and completed two public offerings of common stock pursuant to which it received
subscription proceeds of $164,718,974 (16,471,898 shares) (collectively, the
"Prior Offerings"). Immediately following the completion of the second public
offering on May 24, 2002, the Company commenced a third public offering of up to
45,000,000 shares of common stock ($450,000,000) (the "2002 Offering"). As of
March 31, 2003, the Company had received total subscription proceeds from its
Prior Offerings and the 2002 Offering of $606,020,668 (60,602,064 shares),
including $1,757,950 (175,795 shares) through the reinvestment plan.
3. Investment Properties:
Accounted for Using the Operating Method - As of March 31, 2003, the Company
owned 39 Properties that are subject to operating leases and a parcel of land on
which a seniors' housing facility is being constructed. Properties under
operating leases consisted of the following at:
March 31, December 31,
2003 2002
--------------- ---------------
Land $ 126,296,652 $ 53,311,856
Buildings 480,154,167 210,891,405
Equipment 22,198,007 11,023,964
--------------- ---------------
628,648,826 275,227,225
Less accumulated depreciation (6,185,149) (4,148,699)
--------------- ---------------
622,463,677 271,078,526
Construction in progress 2,149,541 1,405,138
--------------- ---------------
$ 624,613,218 $ 272,483,664
=============== ===============
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 tenants 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 leases commencing on the date the
Property was placed in service. For the quarters ended March 31, 2003 and 2002,
the Company recognized $1,626,519 and $130,153, respectively, of the straight
lining of lease revenues over current contractually due amounts. These amounts
are included in rental income from operating leases in the accompanying
consolidated statements of earnings.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
3. Investment Properties - Continued:
Future minimum lease payments due under noncancellable operating leases at March
31, 2003 are as follows:
2003 $ 36,784,466
2004 52,196,440
2005 53,345,076
2006 54,502,153
2007 56,206,754
Thereafter 683,627,104
-------------
$ 936,661,993
=============
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 - As of March 31, 2003, the
Company owned 13 Properties that 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 March 31, 2003:
Minimum lease payments receivable $764,361,961
Estimated residual values 132,355,108
Less unearned income (754,797,761)
--------------
Net investment in direct financing leases $141,919,308
==============
The leases contain escalating rent provisions that when accounted for on a
straight-line basis produce increases in the net investment in direct financing
leases during the early terms of the leases. The direct financing leases have
initial terms of 35 years and provide for minimum and contingent rent. The
leases contain provisions that allow the tenants to elect to purchase the
Properties at the end of the lease terms for the Company's aggregate initial
investment amount of $132,355,108 plus adjustments, if any, as defined in the
lease agreements. The leases also permit the Company to require the tenants 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 March
31, 2003 are as follows:
2003 $13,244,956
2004 14,365,490
2005 14,724,627
2006 15,092,743
2007 15,470,061
Thereafter 691,464,084
--------------
$764,361,961
==============
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
4. Notes and Other Receivables:
Notes and other receivables included the following at:
March 31, December 31,
2003 2002
--------------- ---------------
Rental revenues receivable $ 2,565,257 $ 809,279
Notes receivable -- 2,000,000
Other receivables 357,316 345,424
Accrued interest receivable 23,833 37,500
--------------- ---------------
$ 2,946,406 $ 3,192,203
=============== ===============
5. Other Assets:
Other assets as of March 31, 2003 and December 31, 2002, were $257,161 and
$4,975,061, 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.
6. Indebtedness and Other Contractual Obligations:
Mortgages payable collateralized by Properties consisted of the following at:
March 31, 2003 December 31, 2002
--------------------- ---------------------
Mortgage payable, bearing interest at a variable rate that ranges from
30-day LIBOR plus 350 basis points to 8.00 percent (5.74 percent at
March 31, 2003), with monthly principal and interest payments, maturing
October 2, 2003 $12,678,926 $12,743,332
Mortgage payable, bearing interest at 90-day LIBOR plus 390 basis
points, with a minimum interest rate of 6.50 percent (6.50 percent at
March 31, 2003), with monthly principal and interest payments, maturing
August 31, 2007 9,026,092 9,063,345
Mortgage payable, bearing interest at 186 basis points over the 30-day
commercial paper rate (2.63 percent at March 31, 2003), with monthly
payments of interest only,
maturing June 7, 2007 23,520,000 23,520,000
Mortgage payable, bearing interest at 30-day LIBOR plus 325 basis
points, with a minimum interest rate of 5.00 percent (5.00 percent at
March 31, 2003), with monthly principal and interest payments, maturing
March 31, 2005 8,060,000 --
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
6. Indebtedness and Other Contractual Obligations - Continued:
March 31, 2003 December 31, 2002
--------------------- ---------------------
Mortgage payable, bearing interest at 30-day LIBOR plus 325 basis
points, with a minimum interest rate of 5.00 percent (5.00 percent at
March 31, 2003), with monthly principal and interest payments, maturing
March 31, 2005 8,740,000 --
Mortgage payable, bearing interest at 30-day LIBOR plus 325 basis
points, with a minimum interest rate of 5.00 percent (5.00 percent at
March 31, 2003), with monthly principal and interest payments, maturing
March 31, 2005 9,200,000 --
Mortgage payable, bearing interest at 7.83 percent, with monthly
principal and interest payments, maturing
October, 2008 20,635,108 --
--------------------- ---------------------
$91,860,126 $45,326,677
===================== =====================
The following is a schedule of maturities for all mortgages payable at March 31,
2003:
2003 $ 13,860,663
2004 1,671,080
2005 1,787,697
2006 1,912,770
2007 56,846,476
Thereafter 15,781,440
--------------
Total $ 91,860,126
==============
The Company has a revolving line of credit (the "Revolving LOC") to fund the
acquisition and development of Properties and investments in Mortgage Loans and
other permitted investments. Under the terms of the Revolving LOC, the Company
is entitled to receive cash advances of up to $85 million for a two-year period.
The Revolving LOC requires payment of interest only at LIBOR plus a percentage
that fluctuates, depending on the Company's aggregate amount of debt outstanding
in relation to the Company's total assets, until maturity and is collateralized
by certain Properties with a carrying value of $116,403,137. The Revolving LOC
contains provisions that allow the facility to be increased up to $125 million
upon the Company pledging additional Properties as collateral. This facility has
several covenants typically found in revolving loan facilities, including
covenants to maintain a minimum net worth and minimum collateral value. At March
31, 2003, $71,370,000 was outstanding under the Revolving LOC at a weighted
average interest rate of 4.48 percent.
On March 28, 2003, in connection with the purchase of two CCRC Properties, the
Company assumed approximately $88.5 million in non-interest bearing bonds
payable to certain residents of the two Properties. Generally, the bonds are
refundable to a resident upon the resident moving out of the CCRC or a
resident's estate upon the resident's death. In some instances, the bonds are
not refundable until the unit has been successfully re-marketed to a new
resident. The Company expects to issue new bonds to future resident and the
proceeds received from the issuance of the new bonds will be used to retire the
existing bonds. At March 31, 2003, $88,510,695 was outstanding on the bonds
payable.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
6. Indebtedness and Other Contractual Obligations - Continued:
The following table presents the Company's commitments, contingencies and
guarantees and related expiration periods as of March 31, 2003:
Commitments, Contingencies Less than
and Guarantees 1 Year 2-3 Years 4-5 Years Thereafter Total
- ------------------------------- ------------- -------------- ------------- ------------- --------------
Guarantee of unsecured
promissory note of
unconsolidated
subsidiary (1) $ -- $ 2,513,333 $ -- $ -- $ 2,513,333
Earnout provisions (2) -- 11,834,233 -- -- 11,834,233
------------- -------------- ------------- ------------- --------------
Total Commitments,
Contingencies and
Guarantees $ -- $14,347,566 $ -- $ -- $ 14,347,566
============= ============== ============= ============= ==============
(1) In connection with the acquisition of a 10 percent limited
partnership interest in CNL Plaza, Ltd., the Company 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. As of March 31, 2003, the unsecured promissory
note had an outstanding balance of $15,080,000. 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.
(2) 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 respective
lease will be amended and annual minimum rent will increase
accordingly.
7. Redemption of Shares:
The Company has a redemption plan under which the Company may elect to redeem
shares, subject to certain conditions and limitations. Under the redemption
plan, prior to such time, if any, as listing occurs any stockholder who has held
shares for at least one year may present all or any portion equal to at least 25
percent of their shares to the Company for redemption in accordance with the
procedures outlined in the redemption plan. Upon presentation, the Company may,
at its option, redeem the shares, subject to certain conditions and limitations.
However, at no time during a 12-month period may the number of shares redeemed
by the Company exceed 5 percent of the number of shares of the Company's
outstanding common stock at the beginning of such 12-month period. During the
quarter ended March 31, 2003 and 2002, 22,650 and 881 shares, respectively of
common stock were redeemed for $208,384 and $8,107 ($9.20 per share),
respectively, and retired from shares outstanding of common stock.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
8. Stock Issuance Costs:
The Company has incurred offering expenses, including commissions, marketing
support fees and 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 Company's offerings.
During the quarter ended March 31, 2003, the Company incurred $15,741,668 in
offering costs, including $13,093,969 in commissions, marketing support fees and
due diligence expense reimbursements (see Note 10). These amounts have been
treated as stock issuance costs and charged to stockholders' equity.
9. Distributions:
For the quarter ended March 31, 2003, approximately 77 percent of the
distributions paid to stockholders were considered ordinary income and
approximately 23 percent were considered a return of capital for federal income
tax purposes. No amounts distributed to stockholders for the quarter ended March
31, 2003, 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. The characterization for tax purposes of distributions declared for the
quarter ended March 31, 2003, may not be indicative of the characterization of
distributions that may be expected for the year ending December 31, 2003.
10. Related Party Arrangements:
Certain directors and officers of the Company hold similar positions with the
Advisor, the parent of the Advisor and the managing dealer of the Company's
public offerings, CNL Securities Corp. A certain director and officer of the
Company indirectly owns a controlling interest in the parent of the Advisor.
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 quarters ended March 31, 2003
and 2002, the Company incurred $12,275,596 and $3,984,463, respectively, of such
fees, the majority of which were reallowed to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive 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 quarters
ended March 31, 2003 and 2002, the Company incurred $818,373 and $265,631,
respectively, of such fees, the majority of which were reallowed to other
broker-dealers.
CNL Securities Corp. will also receive, in connection with one of the Company's
Prior Offerings, a soliciting dealer servicing fee payable annually by the
Company beginning on December 31, 2003 until such time, if any, as the Company's
common stock is listed on a national securities or over-the-counter market in
the amount equal to 0.2 percent of the aggregate investment of stockholders who
purchased shares in the applicable 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 March 31, 2003, no such fees had been incurred.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
10. Related Party Arrangements - Continued:
The Advisor receives acquisition fees for services in identifying Properties and
structuring the terms of the leases and Mortgage Loans equal to 4.5 percent of
gross proceeds of the offerings and loan proceeds from permanent financing,
excluding that portion of the permanent financing used to finance Secured
Equipment Leases. In addition, the Advisor will receive an acquisition fee equal
to 4.5 percent of amounts outstanding on the line of credit, if any, at the time
of listing of the Company's common stock on a national securities exchange or
over-the-counter market. During the quarters ended March 31, 2003 and 2002, the
Company incurred $10,354,560 and $2,973,333, respectively, of such fees,
including $2,998,580 and $583,848, respectively, of acquisition fees on
permanent financing. Such 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
quarters ended March 31, 2003 and 2002, the Company incurred $553,776 and
$65,228, respectively, of such fees.
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
exceeds 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"). Operating expenses for the Expense Years ended March 31, 2003
and 2002, did not exceed the Expense Cap.
CNL Capital Corp., an affiliate of the Advisor, is a non-voting Class C member
of Century Capital Markets, LLC ("CCM"). In June 2002, CCM made the arrangements
for the $23,520,000 commercial paper loan described in Note 6. 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. CCM was paid $86,407 during the
quarter ended March 31, 2003, related to these services.
The Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors and are stockholders. The amounts
deposited with this bank were $7,517,871 and $5,031 at March 31, 2003 and 2002,
respectively. The terms and conditions offered by this bank are similar and
competitive with terms offered by unrelated banks.
The Company owns 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. The Company
periodically receives distributions from the partnership, however, no
distributions were received during the quarter ended March 31, 2003.
In March 2003, the Advisor's parent company purchased a 30 percent voting
membership interest in a limited liability company which is affiliated with four
of the Company's tenants. These four tenants contributed 41.3 percent of total
rental income from operating leases and earned income from investments in direct
financing leases for the quarter ended March 31, 2003.
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).
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
10. Related Party Arrangements - Continued:
The expenses incurred for these services were classified as follows for the
quarters ended March 31:
2003 2002
------------- -------------
Stock issuance costs $ 996,814 $ 881,229
Investment properties on operating leases and other
assets -- 7,678
General operating and administrative expenses 209,312 109,139
------------- -------------
$ 1,206,126 $ 998,046
============= =============
Amounts due to related parties consisted of the following at:
March 31, December 31,
2003 2002
----------------- ----------------
Due to the Advisor and its affiliates:
Expenditures incurred for offering expenses on behalf
of the Company $ 219,612 $ 1,366
Accounting and administrative services 301,119 75,944
Acquisition fees and miscellaneous acquisition
expenses 3,736,637 125,366
----------------- ----------------
4,257,368 202,676
----------------- ----------------
Due to CNL Securities Corp.:
Commissions 1,212,795 145,110
Marketing support fees and due diligence expense
reimbursements 81,996 --
----------------- ----------------
1,294,791 145,110
----------------- ----------------
$ 5,552,159 $ 347,786
================= ================
11. Concentration of Credit Risk:
Of the 53 Properties owned by the Company as of March 31, 2003, substantially
all of the Properties are operated by either Sunrise Senior Living Services,
Inc. or American Retirement Corporation ("ARC"). Forty-two Properties which were
previously operated by Marriott Senior Living Services, Inc. are now operated by
Sunrise Senior Living Services, Inc., a wholly owned subsidiary of Sunrise
Assisted Living, Inc. ("Sunrise"). In a press release dated March 31, 2003,
Sunrise announced it had acquired all of the outstanding stock of Marriott
Senior Living Services, Inc. When the stock sale was completed, the long-term
management agreements which the Company's tenants had entered into with Marriott
Senior Living Services, Inc. were assumed by Sunrise Senior Living Services,
Inc., which now operates all of the Company's Properties that were previously
operated by Marriott Senior Living Services, Inc.
Fifty-two of the Company's Properties owned as of March 31, 2003, are leased to
nine tenants, two of which contributed 29.0% and 18.2% of the Company's total
rental income from operating leases and earned income from direct financing
leases for the quarter ended March 31, 2003. The remaining Property owned by the
Company as of March 31, 2003, is a parcel of land on which a retirement facility
is being constructed.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
11. Concentration of Credit Risk - Continued:
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. In addition, as of March 31, 2003, the
Company had $5,591,404 in security deposits related to certain Properties as
well as the guarantees described below.
In connection with five Properties previously operated by Marriott Senior Living
Services, Inc., 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 March 31, 2003, Marriott International, Inc.
remained liable for the remaining guarantee balance of $4,431,555.
Marriott International, Inc. had also guaranteed a tenant's obligation to pay
minimum rent due under a lease for a Property formerly operated by Marriott
Senior Living Services, Inc., up to a maximum of $2,769,780. As of March 31,
2003, Sunrise Senior Living Services, Inc. had assumed this obligation and
remains liable for the guarantee balance of $990,219.
An affiliate of Prime Care Properties, LLC has guaranteed the tenants'
obligations to pay minimum rent due under 11 leases up to a maximum of
$2,000,000. As of March 31, 2003, $790,431 of the guarantee had been used to pay
rent, leaving a remaining guarantee balance of $1,209,569. An affiliate of Prime
Care Properties, LLC has also guaranteed two tenants' obligations to pay minimum
rent due under an additional lease up to a maximum of $500,000. As of March 31,
2003, the Company had not drawn any amounts under the $500,000 guarantee.
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 acquires Properties located in various states and regions
and carefully screens its tenants in order to reduce risks of default, failure
of these tenants, their guarantors or the ARC or Sunrise 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 tenants will
decrease as additional Properties are acquired and leased to diversified tenants
during subsequent periods.
12. Subsequent Events:
During the period April 1, 2003 through May 12, 2003, the Company received
subscription proceeds for an additional 9,884,695 shares ($98,846,949) of common
stock.
On April 1, 2003 and May 1, 2003, the Company declared distributions totaling
$3,574,222 and $4,016,788, respectively, or $0.0589 per share of common stock,
payable by June 30, 2003, to stockholders of record on April 1, 2003 and May 1,
2003, respectively.
CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2003 and 2002
(UNAUDITED)
12. Subsequent Events - Continued:
On April 3, 2003, the Company completed its 2002 Offering pursuant to which it
received subscription proceeds of $450,000,000 (45,000,000 shares) including
$1,288,817 (128,882 shares) through the Company's reinvestment plan. Immediately
following the completion of the 2002 Offering, the Company commenced an offering
of up to 175,000,000 shares of common stock ($1,750,000,000) (the "2003
Offering"). Of the 175,000,000 shares of common stock offered, up to 25,000,000
are available to stockholders purchasing shares through the reinvestment plan.
The price per share and other terms of the 2003 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 2002
Offering. The Board of Directors will 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.
On April 30, 2003, the Company repaid $51,370,000 on its Revolving LOC, leaving
a remaining balance outstanding of $20,000,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
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") primarily
located across the United States of America. The Retirement Facilities may
include congregate living, assisted living and skilled nursing facilities,
continuing care retirement communities and life care communities, medical office
buildings and walk-in clinics and similar types of health care related
facilities. 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 tenants generally are
responsible for repairs, maintenance, property taxes, utilities and insurance as
well as the payment of rent. The tenants' 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 and security deposits, secure the tenants' 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.
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 second public offering
(the "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 third public offering (the "2002 Offering") of up to 45,000,000
shares of common stock ($450,000,000). On April 3, 2003, the Company completed
its 2002 Offering from which it received subscription proceeds of $450,000,000
(45,000,000 shares), and immediately commenced its fourth public offering of
common stock of up to 175,000,000 additional shares ($1,750,000,000) (the "2003
Offering"). Of the 175,000,000 shares of common stock offered, up to 25,000,000
are available to stockholders purchasing shares through the reinvestment plan.
The Board of Directors will 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 March 31, 2003, the Company
has received an initial $200,000 (20,000 shares) contribution from the Advisor
and subscription proceeds of $606,020,668 (60,602,064 shares), including
$1,757,950 (175,795 shares) through the reinvestment plan. The Company believes
that the net proceeds received from 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 ("Listing").
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 March 31, 2003, the
Company had used approximately $471,400,000 of net offering proceeds,
approximately $71,600,000 of loan proceeds from permanent financing and
approximately $71,400,000 of proceeds from its revolving line of credit to
invest in 53 Properties located in 22 states (see "Property Acquisitions"
below), approximately $48,000,000 to pay acquisition fees and expenses and
approximately $600,000 to redeem 66,687 shares of common stock, leaving
approximately $18,000,000 available for investment in Properties, Mortgage Loans
and Secured Equipment Leases.
During the period April 1 through May 12, 2003, the Company received
additional offering proceeds of approximately $98,800,000. The Company expects
to use any uninvested net offering proceeds, plus any additional net offering
proceeds from the 2003 Offering to purchase additional Properties and to a
lesser extent, to invest in Mortgage Loans and other permitted investments. 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 aggregate amount of any permanent financing is not expected
to exceed 40 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
The Company has a redemption plan under which the Company may elect to
redeem shares, subject to certain conditions and limitations. Under the
redemption plan, prior to such time, if any, as Listing occurs, any stockholder
who has held shares for at least one year may present all or any portion equal
to at least 25 percent of their shares to the Company for redemption in
accordance with the procedures outlined in the redemption plan. Upon
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 quarter ended March 31, 2003, 22,650 shares were
redeemed at $9.20 per share (for a total of $280,384) and retired.
Property Acquisitions
At March 31, 2003, the Company owned 53 Properties located in 22
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 management 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 basis, meaning the tenants are
also 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 quarter ended March 31, 2003, the Company acquired 14
Properties that are subject to operating leases for an aggregate purchase price
of approximately $336.3 million plus closing costs. The operating leases
generally provide for an initial term of 15 years and 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 of the
leases 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.
To mitigate credit risk, certain operating leases were 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
of leases contain terms whereby the net operating profits of the Properties are
combined for the purpose of funding rental payments due under each lease
("Pooling").
On March 31, 2003, the Company acquired two Properties through a direct
financing transaction with a subsidiary of Prime Care Properties, LLC for
$22,635,108 plus closing costs. The Company, as lessor, entered into a 35-year
lease agreement that requires aggregate minimum annual rent of $2,494,512
through December 31, 2003, and 2.5 percent annual increases thereafter. In
addition to minimum rent, the lease requires additional rent, which is based on
a percentage of the tenants' gross revenues. The lease also provides 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 lease contains provisions that allow the tenants to purchase
the Properties at the end of the lease term for the Company's initial investment
amount. The lease also permits the Company to require the tenants to purchase
the Properties at the end of the lease term for the same amount. The lease of
the two Properties contains 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 $500,000. As of May 12, 2003, the
remaining amount available under the guarantee was $500,000.
Fifteen of the sixteen Properties acquired during the quarter ended
March 31, 2003 are operated and managed by Sunrise Senior Living Services, Inc.
(see the "Operating Results - Major Operators and Tenants" section below).
Erickson Retirement Communities, LLC manages the remaining Property that was
acquired during the quarter ended March 31, 2003.
Borrowings
In connection with the acquisition of three Properties in March 2003,
the Company obtained permanent financing comprised of three loans in the
aggregate amount of $26 million. The loans bear interest at a variable rate
based on 30-day LIBOR plus 325 basis points with a minimum interest rate of 5
percent per annum. The loans require monthly principal and interest payments
through March 31, 2005, with the unpaid principal balances and all accrued
interest due at that time. The loans have certain financial covenants which are
typically found in commercial loans and which are based on the combined
operations of the three Properties. In connection with the loans, the Company
incurred loan fees and closing costs of approximately $352,000. These loans are
cross-collateralized and cross-defaulted.
On March 31, 2003, the Company assumed a mortgage in the amount of
$20,635,108 that matures in October 2008, in connection with the purchase of two
Properties. The mortgage bears interest at a fixed rate of 7.83 percent per
annum and requires monthly principal and interest payments of approximately
$206,000. In connection with the loan, the Company incurred assumption fees and
other loan costs of approximately $123,000.
As of March 31, 2003, the Company had seven mortgage loans with an
aggregate outstanding balance of $91,860,126 collateralized by 12 Properties.
Also in March 2003, the Company replaced its existing $25 million line
of credit with a two-year, $85 million revolving line of credit that may be
amended to allow the line of credit to be increased up to $125 million. Eleven
Properties with an aggregate cost of $115.2 million collateralize the $85
million revolving line of credit; however, the collateral provided by these 11
Properties only allows the Company to draw up to $71,370,000 under the revolving
line of credit. The Company would be required to pledge additional Properties as
collateral to fully maximize the $85 million liquidity available under the
revolving line of credit. This credit facility requires monthly payments of
interest only at LIBOR plus a percentage that fluctuates, depending on the
Company's aggregate amount of debt outstanding in relation to the Company's
total assets, 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 March 2003, the Company
borrowed $71,370,000 on the line of credit to acquire several Properties
described in "Liquidity and Capital Resources - Property Acquisitions" above. On
April 30, 2003, the Company repaid $51,370,000, leaving an outstanding balance
of $20,000,000. In connection with the $85 million revolving line of credit, the
Company has incurred $1,900,899 in loan fees and costs.
In connection with the acquisition of two continuing care retirement
communities in March 2003, the Company assumed approximately $88.5 million in
non-interest bearing bonds payable to certain residents of the two Retirement
Facilities. The Company will issue new bonds to future residents of these
Retirement Facilities, and the proceeds from the new bonds will be used to
retire the existing bonds.
Contractual Obligations and Commitments
The following table presents the Company's contractual cash obligations
and related payment periods as of March 31, 2003:
Contractual Cash Less than
Obligations 1 Year 2-3 Years 4-5 Years Thereafter Total
- --------------------------------- ------------ ------------ ------------ ------------ --------------
Mortgages payable $13,860,663 $ 3,458,777 $58,759,246 $15,781,440 $ 91,860,126
Revolving line of credit -- 71,370,000 -- -- 71,370,000
Refundable tenant security
deposits -- -- 5,591,404 5,591,404
------------ ------------ ------------ ------------ --------------
Total Contractual Cash
Obligations $13,860,663 $74,828,777 $58,759,246 $21,372,844 $168,821,530
============ ============ ============ ============ ==============
The following table presents the Company's commitments, contingencies
and guarantees and related expiration periods as of March 31, 2003:
Commitments, Contingencies and Less than
Guarantees 1 Year 2-3 Years 4-5 Years Thereafter Total
- --------------------------------- ------------ ------------ ------------ ------------ -------------
Guarantee of unsecured
promissory note of
unconsolidated
subsidiary (1) $ -- $ 2,513,333 $ -- $ -- $ 2,513,333
Earnout provisions (2) -- 11,834,233 -- -- 11,834,233
------------ ------------ ------------ ------------ -------------
Total Commitments,
Contingencies and
Guarantees $ -- $14,347,566 $ -- $ -- $14,347,566
============ ============ ============ ============ =============
(1) In connection with the acquisition of a 10 percent limited
partnership interest in CNL Plaza, Ltd., the Company 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. As of March 31, 2003, the unsecured promissory
note had an outstanding balance of $15,080,000. 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.
(2) 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 respective
lease will be amended and annual minimum rent will increase
accordingly.
(3) The bond obligations of the Company have not been included in the
above tables since it is expected that the proceeds from the
issuance of new bonds will be used to retire the existing bonds;
therefore, it does not create a net cash obligation for the
Company.
Market Risk
See Item 3. Quantitative and Qualitative Disclosures About Market Risk
below.
Cash and Cash Equivalents
Until Properties are acquired or Mortgage Loans are entered into, net
offering proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid investments which management believes to
have appropriate safety of principal. This investment strategy provides high
liquidity in order to facilitate the Company's use of these funds to acquire
Properties at such time as Properties suitable for acquisition are located or to
fund Mortgage Loans. At March 31, 2003, the Company had $24,000,487 invested in
such short-term investments as compared to $40,799,871 at December 31, 2002. The
decrease in the amount invested in short-term investments was primarily
attributable to the purchase of 16 Properties, partially offset by subscription
proceeds received from the sale of shares during the quarter ended March 31,
2003. The funds remaining at March 31, 2003, 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 other permitted
investments, to pay offering and acquisition expenses, to pay distributions to
stockholders, to meet other Company expenses and, in management's discretion, to
create cash reserves.
Notes and Other Receivables
The Company's notes and other receivables balance decreased from
$3,192,203 at December 31, 2002 to $2,946,406 as of March 31, 2003. The decrease
was primarily due to the repayment of a $2,000,000 loan the Company had made to
the seller of two Properties. Prior to the Company's purchase of the two
Properties, the Company loaned the seller $2,000,000 to extinguish debt at a
discounted amount, making the purchase of the Properties economically viable.
The Company acquired the two Properties on March 31, 2003, and the note was
repaid at that time. The repayment of the note was offset by an increase in
rental revenues receivable from $809,279 at December 31, 2002 to $2,565,257 at
March 31, 2003 as the result of an increase in the number of Properties from 37
to 53 as of each respective date. As of May 12, 2003, management believes the
receivable balance as of March 31, 2003 is fully collectible.
Loan Costs
The Company's net loan costs increased from $1,220,108 at December 31,
2002 to $3,506,295 as of March 31, 2003, as a result of the Company borrowing
$52 million in the form of three new mortgage loans, the assumption of a
$20,635,108 mortgage loan and a new $85 million revolving line of credit. The
increase is partially offset by loan cost amortization for the quarter ended
March 31, 2003.
Liquidity Requirements
During the quarters ended March 31, 2003 and 2002, the Company
generated cash from operations (which includes cash received from tenants and
interest income, less cash paid for operating expenses) of $7,351,087 and
$3,082,728, respectively. For the quarters ended March 31, 2003 and 2002, cash
from operations included security deposits of $724,431 and $1,840,889,
respectively, which were received from 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 revolving line of credit.
Management expects the Company to meet its other short-term liquidity
requirements, including payment of offering expenses, the acquisitions and
development of Properties, and the investment in Mortgage Loans and Secured
Equipment Leases, with proceeds from its offerings, advances under its 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. 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 the annual minimum
rent will be increased. For the quarters ended March 31, 2003 and 2002, revenue
relating to the FF&E reserve totaled $327,228 and $9,335, 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 $8,689,021 and $1,552,344 during the quarters ended March 31, 2003 and
2002, respectively using cash from operating activities from current and prior
periods. On April 1 and May 1, 2003, the Company declared distributions to
stockholders of record on April 1 and May 1, 2003, of $0.0589 per share of
common stock. These distributions are payable by June 30, 2003.
For the quarters ended March 31, 2003 and 2002, approximately 77
percent and 46 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and approximately 23 percent
and 54 percent, respectively, were considered a return of capital for federal
income tax purposes. No amounts distributed to stockholders for the quarters
ended March 31, 2003 and 2002, 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 Company intends to continue to declare
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, the parent of the Advisor and the managing dealer of the
Company's public offerings, CNL Securities Corp. A certain director and officer
of the Company indirectly owns a controlling interest in the parent of the
Advisor. 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 quarter ended March 31, 2003,
the Company incurred $12,275,596 of such fees, the majority of which were
reallowed to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive 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 quarter ended March 31, 2003, the Company incurred $818,373 of such
fees, the majority of which were 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, until such time, if any, as the Company's common
stock is Listed, in the amount equal to 0.2 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 March 31, 2003, 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 gross proceeds of the offerings and loan proceeds from permanent
financing, excluding that portion of the permanent financing used to finance
Secured Equipment Leases. In addition, the Advisor will receive an acquisition
fee equal to 4.5 percent of amounts outstanding on the line of credit, if any,
at the time of Listing. During the quarter ended March 31, 2003, the Company
incurred $10,354,560 of such fees, including $2,998,580 of acquisition fees on
permanent financing. Such 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 0.6 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 quarter ended March 31, 2003, the Company incurred
$553,776 of such fees.
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"). Operating expenses for the Expense Years ended March 31, 2003
and 2002, did not exceed the Expense Cap.
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 6 to the Notes to
Condensed Consolidated Financial Statements of the Company in Item 1. 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 are stockholders. The amount
deposited with this bank was $7,517,871 at March 31, 2003. The terms and
conditions offered by this bank are similar and competitive with the terms
offered by unrelated banks.
In March 2003, the Advisor's parent company purchased a 30 percent
voting membership interest in a limited liability company, which is affiliated
with four of the Company's tenants. These four tenants contributed 41.3 percent
of total rental income from operating leases and earned income from investments
in direct financing leases during the quarter ended March 31, 2003.
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 were classified as follows for the quarters ended March 31:
2003 2002
------------- -------------
Stock issuance costs $ 996,814 $ 881,229
Investment properties on operating leases and other --
assets 7,678
General operating and administrative expenses 209,312 109,139
------------- -------------
$ 1,206,126 $ 998,046
============= =============
Amounts due to related parties consisted of the following at:
March 31, December 31,
2003 2002
----------------- ----------------
Due to the Advisor and its affiliates:
Expenditures incurred for offering expenses on behalf
of the Company $ 219,612 $ 1,366
Accounting and administrative services 301,119 75,944
Acquisition fees and miscellaneous acquisition
expenses 3,736,637 125,366
----------------- ----------------
4,257,368 202,676
----------------- ----------------
Due to CNL Securities Corp.:
Commissions 1,212,795 145,110
Marketing support fees and due diligence expense
reimbursements 81,996 --
----------------- ----------------
1,294,791 145,110
----------------- ----------------
$ 5,552,159 $ 347,786
================= ================
Other
Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources. Management expects that the cash to
be generated from operations will be adequate to pay operating expenses and to
make distributions to stockholders.
Results of Operations
Revenues
At March 31, 2003, the Company owned 53 Properties located in 22
states. Thirty-nine of the Properties are subject to operating leases and
generally provide for an initial term of 15 years (expiring between 2015 and
2018). 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. Thirteen of the Properties are subject to
direct financing leases and each has a term of 35 years (expiring between 2037
and 2038). The direct financing leases contain provisions that allow each tenant
to elect to purchase the Property at the end of the lease term for the Company's
initial investment amount and also allow each tenant to elect 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 management agreement with an
operator of the Retirement Facility to operate and manage the Property.
The Property leases provide for minimum annual base rent, generally
payable in monthly installments. In addition, the leases provide that the annual
base rent required under the leases will increase at pre-determined intervals
(generally on an annual basis). In addition to annual base rent, the leases
require the payment of contingent rent computed as a percentage of gross sales
of the Property (above certain thresholds). For the quarters ended March 31,
2003 and 2002, the Company earned $11,755,043 and $1,401,373, 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
$327,228 and $9,335 in FF&E reserve income during the quarters ended March 31,
2003 and 2002, respectively. The increase in rental and FF&E reserve income was
due to the Company owning 53 Properties during the quarter ended March 31, 2003,
as compared to six Properties during the quarter ended March 31, 2002. Because
16 Properties were owned for only a portion of the quarter ended March 31, 2003
and additional Property acquisitions are expected to occur, rental income from
operating leases, earned income from direct financing leases and FF&E reserve
income are expected to increase in subsequent periods.
During the quarters ended March 31, 2003 and 2002, the Company also
earned $235,399 and $257,001, respectively, in interest income from investments
in money market accounts and other short-term, highly liquid investments.
Although the average amount invested in short-term investments increased during
the quarter ended March 31, 2003, as compared to the quarter ended March 31,
2002, the interest income decreased due to a decrease in interest rates earned
on the short-term investments. Interest income is expected to increase as the
Company invests offering proceeds received in the future in highly liquid
investments pending investment in Properties and Mortgage Loans. However, 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. Interest income related to notes and other
receivables for the quarter ended March 31, 2003 was approximately $177,000.
Major Operators and Tenants
Of the 53 Properties owned by the Company as of March 31, 2003,
substantially all of the Properties are operated by either Sunrise Senior Living
Services, Inc. or American Retirement Corporation ("ARC"). Forty-two Properties
which were previously operated by Marriott Senior Living Services, Inc. are now
operated by Sunrise Senior Living Services, Inc., a wholly owned subsidiary of
Sunrise Assisted Living, Inc. ("Sunrise"). In a press release dated March 31,
2003, Sunrise announced it had acquired all of the outstanding stock of Marriott
Senior Living Services, Inc. When the stock sale was completed, the long-term
management agreements which the Company's tenants had entered into with Marriott
Senior Living Services, Inc. were assumed by Sunrise Senior Living Services,
Inc., which now operates all of the Company's Properties that were previously
operated by Marriott Senior Living Services, Inc.
Fifty-two of the Company's Properties owned as of March 31, 2003, are
leased to nine tenants, two of which contributed 29.0% and 18.2% of total rental
income for the quarter ended March 31, 2003. To mitigate credit risk,
substantially all of the lease agreements contain Cross-Default and Pooling
terms. In addition, as of March 31, 2003, the Company had $5,591,404 in security
deposits related to certain Properties as well as the guarantees described
below.
In connection with five Properties previously operated by Marriott
Senior Living Services, Inc., 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 May 12, 2003, Marriott
International, Inc. remains liable for the remaining guarantee balance of
$4,431,555.
Marriott International, Inc. had also guaranteed a tenant's obligation
to pay minimum rent due under a lease for a Property formerly operated by
Marriott Senior Living Services, Inc., up to a maximum of $2,769,780. As of
March 31, 2003, Sunrise Senior Living, Inc. had assumed this obligation and
remains liable for the guarantee balance of $990,219.
An affiliate of Prime Care Properties, LLC has guaranteed the tenants'
obligations to pay minimum rent due under 11 leases up to a maximum of
$2,000,000. As of May 12, 2003, $790,431 of the guarantee had been used to pay
rent leaving a remaining guarantee balance of $1,209,569. An affiliate of Prime
Care Properties, LLC has also guaranteed two tenants' obligations to pay minimum
rent due under an additional lease up to a maximum of $500,000. As of May 12,
2003, the Company had not drawn any amounts under the $500,000 guarantee.
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 tenants, their guarantors or the
Sunrise 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 tenants will decrease as additional
Properties are acquired and leased to diversified tenants during subsequent
periods.
Expenses
Operating expenses were $4,012,645 and $839,157 for the quarters ended
March 31, 2003 and 2002, respectively. Operating expenses for the quarter ended
March 31, 2003, increased as a result of the Company incurring asset management
fees, general operating and administrative expenses and depreciation and
amortization expense related to the Company owning 47 additional Properties. In
addition, interest expense increased for the quarter ended March 31, 2003, as a
result of the Company increasing the average amount of debt outstanding as
compared to the same quarter in the prior year. The dollar amount of operating
expenses is expected to increase as the Company acquires additional Properties,
invests in Mortgage Loans, obtains permanent financing and draws funds on its
revolving line of credit. However, general and administrative expenses as a
percentage of total revenues are expected to decrease as the Company acquires
additional Properties and invests in Mortgage Loans.
Funds from Operations
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 quarters ended March 31, 2003 and 2002, net
earnings included $1,626,519 and $130,152, 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:
Quarter
Ended March 31,
2003 2002
-------------- -------------
Net earnings $ 8,503,596 $ 828,604
Adjustments:
Depreciation of real estate assets 2,036,450 380,658
Effect of unconsolidated subsidiary 64,575 --
-------------- -------------
FFO $10,604,621 $ 1,209,262
============== =============
New Accounting Standards
In January 2003, the Financial Accounting Standards Board ("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. 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.
Certain transactions entered into subsequent to January 31, 2003 could require
the consolidation of certain tenant operating activities beginning after June
15, 2003. The consolidation of these entities, if required, is not expected to
have a significant effect on the Company's financial position nor results of
operations.
Statement Regarding Forward Looking Information
The preceeding 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 local
and national real estate conditions, availability of capital from borrowings
under the Company's line of credit, continued availability of proceeds from the
Company's current offering, the ability of the Company to obtain permanent
financing on satisfactory terms, 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Substantially all of the Company's mortgage loans payable at March 31,
2003, 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. The Company had $71,370,000
outstanding on its variable rate line of credit at March 31, 2003.
Management estimates that a one-percentage point increase in interest
rates for the quarter ended March 31, 2003, would have resulted in additional
interest costs of approximately $91,000. 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.
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. 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.
ITEM 4. 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 II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities and Use of Proceeds. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 CNL Health Care Properties, Inc. Amended and
Restated Articles of Incorporation.
(Included as Exhibit 3.1 to the Registrant's
1998 Report on Form 10-K filed with the
Securities and Exchange Commission on March
5, 1999, and incorporated herein by
reference.)
3.2 CNL Health Care Properties, Inc. Bylaws.
(Included as Exhibit 3.2 to the Registrant's
1998 Report on Form 10-K filed with the
Securities and Exchange Commission on March
5, 1999, and incorporated herein by
reference.)
3.3 CNL Health Care Properties, Inc. Articles of
Amendment to Amended and Restated Articles
of Incorporation dated June 27, 2000.
(Included as Exhibit 3.3 to the Registrant's
June 30, 2000, Report on Form 10-Q filed
with the Securities and Exchange Commission
on August 1, 2000, and incorporated herein
by reference.)
3.4 Articles of Amendment to the Amended and
Restated Articles of Incorporation of CNL
Health Care Properties, Inc. dated August
24, 2000. (Included as Exhibit 3.5 to
Registration Statement No. 333-37480 on Form
S-11 and incorporated herein by reference.)
3.5 Amendment No. 1 to the Bylaws of CNL Health
Care Properties, Inc. (Included as Exhibit
3.6 to Registration Statement No. 333-37480
on Form S-11 and incorporated herein by
reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4
to Registration Statement No. 333-37480 on
Form S-11 and incorporated herein by
reference.)
10.1 Advisory Agreement, dated as of 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.)
10.47 Credit Agreement between CNL Retirement
Partners, LP as Borrower, CNL Retirement GP
Corp., CNL Retirement LP Corp. and CNL
Retirement Properties, Inc., as Guarantors,
Bank of America, NA, as Administrative Agent
and Bank of America Securities, LLC as Sole
Lead Arranger and Book Manager dated March
17, 2003. (Filed herewith.)
10.48 Purchase and Sale Agreement between Marriott
Continuing Care, LLC, as Sellers, and
Marriott International, Inc. and CNL
Retirement MA3, LP, as Purchaser, relating
to the Fairfax Continuing Care Retirement
Community - Fort Belvoir, Virginia and the
Quadrangle Continuing Care Retirement
Community - Haverford, Pennsylvania. (Filed
herewith.)
10.49 Lease Agreement between CNL Retirement MA3
Virginia, LP and Marriott Continuing Care,
LLC dated March 28, 2003, relating to the
Fairfax Continuing Care Retirement Community
- Fort Belvoir, Virginia. (Filed herewith.)
10.50 Lease Agreement between CNL Retirement MA3
Pennsylvania, LP and Marriott Continuing
Care, LLC dated March 28, 2003, relating to
the Quadrangle Continuing Care Retirement
Community - Haverford, Pennsylvania. (Filed
herewith.)
10.51 Assumption and Reimbursement Agreement
between Marriott International, Inc., as
Assignor, Marriott Continuing Care, LLC, as
Assignor, CNL Retirement Properties, Inc.,
as Assignee, CNL Retirement MA3
Pennsylvania, LP, as Assignee, and CNL
Retirement MA3 Virginia, LP, as Assignee,
dated March 28, 2003. (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 March 31, 2003: Form 8-K filed on
January 6, 2003 which included disclosure under Item
2, 5 and 7 in connection with the acquisition of 12
Properties; Form 8-K/A filed on January 7, 2003 to
amend the Form 8-K filed on January 6, 2003 to attach
the press release as an exhibit under Item 7.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DATED this 14th day of May, 2003
CNL RETIREMENT PROPERTIES, INC.
By: /s/ James M. Seneff, Jr.
-------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Stuart J. Beebe
-------------------------------
STUART J. BEEBE
Chief Financial Officer
(Principal Financial and
Accounting Officer)
CNL RETIREMENT PROPERTIES, INC.
CERTIFICATIONS
I, James M. Seneff, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNL
Retirement Properties, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly 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 quarterly 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: May 14, 2002 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 quarterly report on Form 10-Q of CNL
Retirement Properties, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly 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 quarterly 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: May 14, 2003 By: /s/ Stuart J. Beebe
---------------------------------
STUART J. BEEBE
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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 RevolvingLine 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.)
10.47 Credit Agreement between CNL Retirement Partners, LP as Borrower, CNL
Retirement GP Corp., CNL Retirement LP Corp. and CNL Retirement
Properties, Inc. as Guarantors, Bank of America, NA, as Administrative
Agent and Bank of America Securities, LLC as Sole Lead Arranger and
Book Manager dated March 17, 2003. (Filed herewith.)
10.48 Purchase and Sale Agreement between Marriott Continuing Care, LLC, as
Sellers, and Marriott International, Inc. and CNL Retirement MA3, LP,
as Purchaser, relating to the Fairfax Continuing Care Retirement
Community - Fort Belvoir, Virginia and the Quadrangle Continuing Care
Retirement Community - Haverford, Pennsylvania. (Filed herewith.)
10.49 Lease Agreement between CNL Retirement MA3 Virginia, LP and Marriott
Continuing Care, LLC dated March 28, 2003, relating to the Fairfax
Continuing Care Retirement Community - Fort Belvoir, Virginia. (Filed
herewith.)
10.50 Lease Agreement between CNL Retirement MA3 Pennsylvania, LP and
Marriott Continuing Care, LLC dated March 28, 2003, relating to the
Quadrangle Continuing Care Retirement Community - Haverford,
Pennsylvania. (Filed herewith.)
10.51 Assumption and Reimbursement Agreement between Marriott International,
Inc., as Assignor, Marriott Continuing Care, LLC, as Assignor, CNL
Retirement Properties, Inc., as Assignee, CNL Retirement MA3
Pennsylvania, LP, as Assignee, and CNL Retirement MA3 Virginia, LP, as
Assignee, dated March 28, 2003. (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.)
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-Q
for the quarter ended March 31, 2003, 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 March 31,
2003 and December 31, 2002 and its results of operations for the quarter ended
March 31, 2003.
Date: May 14, 2003 /s/ James M. Seneff, Jr.
-----------------------------------
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-Q
for the quarter ended March 31, 2003, 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 March 31,
2003 and December 31, 2002 and its results of operations for the quarter ended
March 31, 2003.
Date: May 14, 2003 /s/ Stuart J. Beebe
-----------------------------------
Stuart J. Beebe
Chief Financial Officer