Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-47411
CNL HEALTH CARE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 59-3491443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
Aggregate market value of the common stock held by nonaffiliates of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares") on Form S-11 under the Securities Act of 1933, as amended. Since no
established market for such Shares exists, there is no market value for such
Shares. Each Share was originally sold at $10 per Share.
The number of shares of common stock outstanding as of March 5, 1999,
was 20,000.
PART I
Item 1. Business
CNL Health Care Properties, Inc. (the "Company") is a corporation which
was organized pursuant to the laws of the state of Maryland on December 22,
1997, and which intends to make an election for federal income tax purposes to
be taxed as a real estate investment trust (a "REIT"). Beginning in September
1998, the Company offered for sale up to $155,000,000 of shares of common stock
(the "Shares") (15,500,000 shares at $10 per share) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
September 18, 1998. As of December 31, 1998, the Company had received
subscription proceeds of $25,500 (2,550 shares) from the offering. Until
subscription proceeds for the Company total $2,500,000 (250,000 shares), the
proceeds will be held in escrow and interest earned on such will accrue to the
benefit of subscribers. The offering of the Shares of the Company will terminate
no later than September 18, 1999, unless the Company elects to extend it to a
date no later than September 18, 2000, in states that permit such extension. As
of December 31, 1998, capital contributions from the sole stockholder of the
Company, CNL Health Care Advisors, Inc. (the "Advisor"), totalled $200,000
(20,000 shares).
The Company has been formed primarily to acquire real estate properties
(the "Properties") related to health care and seniors' housing facilities (the
"Health Care Facilities") located across the United States. The Health Care
Facilities may include congregate living, assisted living and skilled nursing
facilities, continuing care retirement communities and life care communities,
and medical office buildings and walk-in clinics. The Properties will be leased
on a long-term, "triple-net" basis to operators of Health Care Facilities. Under
the Company's triple-net leases, the lessee will be responsible for repairs,
maintenance, property taxes, utilities, and insurance. The Company also may
offer mortgage financing (the "Mortgage Loans") to operators of Health Care
Facilities secured by real estate owned by the borrower. However, because it
prefers to focus on investing in Properties, which have the potential to
appreciate, the Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company expects that the interest rate and terms of the Mortgage
Loans will be similar to those of its leases. To a lesser extent, the Company
also may offer furniture, fixtures and equipment ("Equipment") financing to
operators of Health Care Facilities through loans or direct financing leases
(collectively, the "Secured Equipment Leases"). The aggregate outstanding
principal amount of Secured Equipment Leases is not expected to exceed 10% of
the Company's total assets. The Company has not yet acquired any Properties,
made any Mortgage Loans or entered into any Secured Equipment Leases, nor have
any Properties, Mortgage Loans or Secured Equipment Leases been identified for
investment.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) listing of the shares on a national securities
exchange or over-the-counter market (the "Listing"), or (b) the commencement of
orderly sales of the Company's assets and distribution of the proceeds thereof
(outside the ordinary course of business and consistent with its objectives of
qualifying as a REIT). There can be no assurance that these investment
objectives will be met. In addition, if the Shares are not listed by December
31, 2008, as to which there can be no assurance, the Company will commence the
orderly sale of its assets and the distribution of the proceeds. Listing does
not assure liquidity.
For the first five to ten years after the commencement of the offering,
the Company intends, to the extent consistent with the Company's objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the sale of a Property or Mortgage Loan that are not required to be
distributed to stockholders in order to preserve the Company's REIT status for
federal income tax purposes. Similarly, and to the extent consistent with REIT
qualification, the Company plans to use the proceeds of the sale of a Secured
Equipment Lease to fund additional Secured Equipment Leases, or to reduce its
outstanding indebtedness on the borrowings. At or prior to the end of such
ten-year period, the Company intends to provide stockholders of the Company with
liquidity of their investment, either in whole or in part, through Listing of
the Shares of the Company (although liquidity cannot be assured thereby) or by
commencing orderly sales of the Company's assets. If Listing occurs, the Company
intends to reinvest in additional Properties, Mortgage Loans and Secured
Equipment Leases any net sales proceeds not required to be distributed to
stockholders in order to preserve the Company's status as a REIT. The Company's
Articles of Incorporation provide, however, that if Listing does not occur by
December 31, 2008, the Company thereafter will undertake the orderly liquidation
of the Company and the sale of the Company's assets and will distribute any net
sales proceeds to stockholders. In addition, the Company will not sell any
assets if such sale would not be consistent with the Company's objective of
qualifying as a REIT.
In deciding the precise timing and terms of Property sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. The Company will have no
obligation to sell all or any portion of a Property at any particular time,
except as may be required under property or joint venture purchase options
granted to certain tenants. In connection with sales of Properties by the
Company, purchase money obligations may be taken by the Company as part payment
of the sales price. The terms of payment will be affected by custom in the area
in which the Property is located and prevailing economic conditions. When a
purchase money obligation is accepted in lieu of cash upon the sale of a
Property, the Company will continue to have a mortgage on the Property and the
proceeds of the sale will be realized over a period of years rather than at
closing of the sale.
The Company does not anticipate selling the Secured Equipment Leases
prior to expiration of the lease term, except in the event that the Company
undertakes orderly liquidation of its assets. In addition, the Company does not
anticipate selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building improvements which secure the Mortgage Loan and the sale of the
Property occurs, or (ii) the Company undertakes an orderly sale of its assets.
Leases
As of December 31, 1998, the Company had not entered into any
commitment for an acquisition of a Property. However, leases entered into in the
future are expected to be triple-net leases, which means that the tenants
generally will be required to pay all repairs, maintenance, property taxes,
utilities, and insurance. The tenants also will be required to pay for special
assessments, sales and use taxes, and the cost of any renovations permitted
under the leases. The Company will own the Properties either directly or
indirectly through a joint venture, partnership, or a subsidiary.
The initial terms of the leases are presently anticipated to be 10 to
20 years with up to four, five-year renewal options. The minimum rental payment
under the renewal option generally is expected to be greater than that due for
the final lease year of the initial term of the lease. During the initial term
of each lease, the tenant will pay the Company, as lessor, minimum annual rent
equal to a specified percentage of the Company's cost of purchasing the Property
payable in monthly installments. Typically, the leases will provide for
automatic fixed increases in the minimum annual rent or increases in the base
rent based on increases in consumer price indices at predetermined intervals
during the terms of the leases. If the Company is acquiring a Property that is
to be constructed or renovated pursuant to a development agreement, the cost of
purchasing the Property will include the purchase price of the land, including
all fees, costs, and expenses paid by the Company in connection with its
purchase of the land, and all fees, costs and expenses disbursed by the Company
for construction of building improvements.
It is anticipated that if the Company wishes at any time to sell a
Property pursuant to a bona fide offer from a third party, the tenant of that
Property will have the right to purchase the Property for the same price, and on
the same terms and conditions, as contained in the offer. In certain cases, the
tenant also may have the right to purchase the Property seven to twenty years
after commencement of the lease at a purchase price equal to the greater of (i)
the appraised value of the Property, or (ii) a specified amount, generally equal
to the Company's purchase price of the Property, plus a pre-determined
percentage of the Company's purchase price.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, the Advisor will provide management services relating to the Company,
the Properties, the Mortgage Loans and the Secured Equipment Lease program.
Under this agreement, the Advisor will be responsible for assisting the Company
in negotiating leases, Mortgage Loans, the line of credit (the "Line of Credit")
and Secured Equipment Leases, collecting rental, Mortgage Loan and Secured
Equipment Lease payments, inspecting the Properties and the tenants' books and
records, and responding to tenants inquiries and notices. The Advisor also will
provide information to the Company about the status of the leases, the
Properties, the Mortgage Loans, the Secured Equipment Leases, the Line of Credit
and the permanent financing. In exchange for these services, the Advisor will be
entitled to receive certain fees from the Company. For supervision of the
Properties and the Mortgage Loans, the Advisor will receive an asset management
fee, which is payable monthly in an amount equal to one-twelfth of .60% of the
total amount invested in the Properties, exclusive of acquisition fees and
acquisition expenses (the "Real Estate Asset Value") plus one-twelfth of .60% of
the outstanding principal amount of any Mortgage Loans, as of the end of the
preceding month. For negotiating Secured Equipment Leases and supervising the
Secured Equipment Lease program, the Advisor will receive, upon entering into
each lease, a secured equipment lease servicing fee, payable out of the proceeds
of the borrowings, equal to 2% of the purchase price of the equipment subject to
each Secured Equipment Lease (the "Secured Equipment Lease Servicing Fee"). For
identifying the Properties, structuring the terms of the acquisition and leases
of the Properties and structuring the terms of the Mortgage Loans, the Advisor
will receive a fee equal to 4.5% of gross proceeds from the offering, loan
proceeds from permanent financing (the "Permanent Financing") and amounts
outstanding on the Line of Credit, if any, at the time of Listing, but excluding
that portion of the Permanent Financing used to finance Secured Equipment
Leases.
The Advisory Agreement continues until September 15, 1999, and
thereafter my be extended annually upon mutual consent of the Advisor and the
Board of Directors of the Company unless terminated at an earlier date upon 60
days prior written notice by each party.
Borrowing
The Company plans to obtain a revolving Line of Credit initially in an
amount up to $45,000,000, and may, in addition, also obtain Permanent Financing
to acquire assets and to pay certain fees. The Line of Credit may be increased
at the discretion of the Board of Directors. The Line of Credit may be repaid
with offering proceeds, working capital or Permanent Financing. The Board of
Directors anticipates that the Permanent Financing will not exceed 30% of the
Company's total assets. However, in accordance with the Company's Articles of
Incorporation, the aggregate maximum amount the Company may borrow is 300% of
the Company's net assets (as defined in the Company's prospectus). The Company
has engaged in preliminary discussions with a potential lender, but has not yet
received a commitment for the Line of Credit or any Permanent Financing and
there is no assurance that the Company will obtain the Line of Credit or any
Permanent Financing on satisfactory terms. The Board of Directors may elect to
encumber assets in connection with any borrowing.
Competition
The Company anticipates that it will compete with other REITs, real
estate partnerships, health care providers and other investors, including, but
not limited to banks and insurance companies, many of which will have greater
financial resources than the Company, in the acquisition, leasing and financing
of Health Care Facilities. Further, non-profit entities are particularly
attracted to investments in senior care facilities because of their ability to
finance acquisitions through the issuance of tax-exempt bonds, providing
non-profit entities with a relatively lower cost of capital as compared to
for-profit purchasers. In addition, in certain states, health care facilities
owned by non-profit entities are exempt from taxes on real property. As
profitability increases for investors in health care properties, competition
among investors likely will become increasingly intense.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.
Item 2. Properties
Although the Advisor has not yet selected any Properties for
investment, it is expected that any Properties purchased by the Company will
conform generally to the following specifications of size, cost, and type of
land and buildings. The Company anticipates acquiring Properties related to
Health Care Facilities which may include, but will not be limited to, the
following types:
Congregate Living Facilities. Congregate living facilities are
primarily apartment buildings which contain a significant amount of common space
to accommodate dining, recreation, activities and other support services for
senior citizens. These properties range in size from 100 to 500 units with an
average size of approximately 225 units. Units include studios and one and two
bedrooms ranging in size from 450 square feet to over 1,500 square feet.
Assisted Living Facilities. Assisted living facilities provide a
special combination of housing, supportive services, personalized assistance and
health care to their residents in a manner which is designed to respond to
individual needs. These facilities offer a lower-cost alternative to skilled
nursing facilities for those who do not require intensive nursing care. Current
industry practice generally is to build freestanding assisted living facilities
with an average of between 40 and 100 units, depending on such factors as market
forces, site constraints and program orientation. Current economics place the
size of the private living space of a unit in the range of 300 gross square feet
for an efficiency unit to 750 square feet for a large one bedroom unit.
Skilled Nursing Facilities. In addition to housing, meals,
transportation and housekeeping, skilled nursing facilities provide
comprehensive nursing and long term care to their residents. Skilled nursing
facilities are also generally freestanding, but are typically more institutional
in nature, allowing for efficient cleaning and sterilization. The rooms in
skilled nursing facilities are equipped with patient monitoring devices and
emergency call systems. Oxygen systems may also be present. Both multiple floor
and single floor designs are common. Individual rooms in skilled nursing
facilities may be as small as 100 square feet, with common areas varying greatly
in size.
Continuing Care Retirement Communities. Congregate living facilities
sometimes have assisted living and/or skilled nursing facilities attached or
adjacent to their locations. When this occurs, the projects are often referred
to as continuing care retirement communities or life care communities. The
intent of continuing care retirement communities or life care communities is to
provide a continuum of care to the residents. In other words, as residents age
and their health care needs increase, they can receive the care they need
without having to move away from the "community" which has become their home.
Continuing care retirement communities typically operate on a fee-for-service
basis and the units are rented on a monthly basis to residents, while life care
centers generally charge an entrance fee that is partially refundable and covers
the cost of all of the residents' health care- related services, plus a monthly
maintenance fee.
Medical Office Buildings. Medical office buildings, including walk-in
clinics, are conventional office buildings with additional plumbing, mechanical
and electrical service amenities, which facilitate physicians and medical
delivery companies in the practice of medicine and delivery of health care
services. These facilities can range in size from 3,000 square feet (walk-in
clinic) up to 100,000 square feet (medical office building).
Either before or after construction or renovation, the Properties to be
acquired by the Company will be one of a Health Care Facility operator's
approved designs. Generally, Properties to be acquired by the Company will
consist of both land and building, although in a number of cases the Company may
acquire only the land underlying the building with the building owned by the
tenant or a third party, and also may acquire the building only with the land
owned by a third party. In general, the Properties will be freestanding and
surrounded by paved parking areas and landscaping. Although, buildings may be
suitable for conversion to various uses through modifications, some Properties
may not be economically convertible to other uses.
A tenant generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish buildings,
premises, signs, and equipment and maintain the leasehold in a manner that
allows operation for its intended purpose. These capital expenditures generally
will be paid by the tenant during the term of the lease.
Item 3. Legal Proceedings
Neither the Company, nor its Advisor or any affiliates of the Advisor,
nor any of their respective properties, is a party to, or subject to, any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of February 5, 1999, the sole stockholder of record of common stock was
the Advisor. There is no public trading market for the Shares, and even though
the Company intends to list the Shares on a national securities exchange or
over-the-counter market within ten years of commencement of the offering of
Shares, there is no assurance that one will develop and it is not known at this
time if a public market for the Shares will develop. Prior to such time, if any,
as Listing occurs, any stockholder (other than the Advisor) may present all or
any portion equal to at least 25% of such stockholder's Shares to the Company
for redemption at any time, in accordance with the procedures outlined in the
Company's prospectus. At such time, the Company may, at its sole option, redeem
such Shares presented for redemption for cash to the extent it has sufficient
funds available. In addition, the Company may, at its discretion, use up to
$100,000 per calendar quarter of the proceeds of any public offering of its
common stock for redemptions. Stockholders who wish to have their distributions
used to acquire additional Shares (to the extent Shares are available for
purchase), may do so pursuant to the Company's Reinvestment Plan. There is no
assurance that there will be sufficient funds available for redemption and,
accordingly, a stockholder's Shares may not be redeemed. Any Shares acquired
pursuant to a redemption will be retired and no longer available for issuance by
the Company. The Directors of the Company, in their discretion, may amend or
suspend the redemption plan at any time they determine that such amendment or
suspension is in the best interest of the Company.
As of December 31, 1998, the offering price per Share was $10.
(b) The information required by this item is set forth in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and is
hereby incorporated herein by reference.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8 hereof.
1998 (1) 1997 (1) (2)
--------- --------------
Year Ended December 31:
Revenues $ - $ -
Net earnings - -
Cash distributions declared - -
At December 31:
Total assets $976,579 $280,330
Total stockholder's equity 200,000 200,000
(1) No significant operations had commenced because the Company was in its
development stage. No operations will commence until such time as the
Company has sold at least 250,000 shares ($2,500,000).
(2) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company is a Maryland corporation that was organized on December
22, 1997, to acquire Properties related to health care and seniors' housing
facilities located across the United States. The Health Care Facilities may
include congregate living, assisted living and skilled nursing facilities,
continuing care retirement communities and life care communities, and medical
office buildings and walk-in clinics. The Properties will be leased on a
long-term, "triple-net" basis. The Company may also provide Mortgage Loans to
operators of Health Care Facilities in the aggregate principle amount of
approximately 5% to 10% of the Company's total assets. The Company also may
offer Secured Equipment Leases to operators of Health Care Facilities. The
aggregate principal amount of Secured Equipment Leases is not expected to exceed
10% of the Company's total assets.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) Listing of the Shares, or (b) the commencement
of the orderly sale of the Company's assets, and distribution of the proceeds
thereof (outside the ordinary course of business and consistent with its
objective of qualifying as a REIT).
Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933 effective September 18, 1998, the Company registered for sale an
aggregate of $155,000,000 of shares of common stock (15,500,000 shares at $10
per Share), with 500,000 of such shares available only to stockholders who elect
to participate in the Company's reinvestment plan. The offering of Shares of the
Company commenced on September 18, 1998. The offering of Shares of the Company
will terminate no later than September 18, 1999, unless the Company elects to
extend it to a date no later than September 18, 2000, in states that permit such
extension.
The managing dealer of the offering of shares of the Company is CNL
Securities Corp., an affiliate of the Company.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in local real estate conditions, availability of proceeds from the
Company's offering, the ability of the Company to obtain a line of credit or
permanent financing on satisfactory terms, the ability of the Company to locate
suitable tenants for its Properties and borrowers for its Mortgage Loans and
Secured Equipment Leases, and the ability of tenants and borrowers to make
payments under their respective leases, Mortgage Loans or Secured Equipment
Leases.
Liquidity and Capital Resources
A capital contribution of $200,000 from the Advisor is the Company's
sole source of capital until the Company sells the minimum number of 250,000
Shares ($2,500,000). As of February 5, 1999, subscription funds totalling
$35,500 had been deposited with the escrow agent for the offering of shares.
Until subscription proceeds for the Company total at least $2,500,000 (250,000
Shares), the proceeds will be held in escrow.
The Company expects to use net offering proceeds from the sale of
Shares to purchase Properties and to invest in Mortgage Loans. In addition, the
Company intends to borrow money to acquire Properties, to invest in Mortgage
Loans and Secured Equipment Leases, and to pay certain related fees. The Company
intends to encumber assets in connection with such borrowing. The Company plans
to initially obtain a revolving Line of Credit in an amount up to $45,000,000.
The Company also plans to obtain Permanent Financing. Although the Board of
Directors anticipates that the Line of Credit initially will be in the amount of
$45,000,000 and the aggregate amount of any Permanent Financing will not exceed
30% of the Company's total assets, the maximum amount the Company may borrow is
300% of the Company's net assets. The Company has engaged in preliminary
discussions with potential lenders but has not yet received a commitment for the
Line of Credit or any Permanent Financing and there is no assurance that the
Company will obtain the Line of Credit or any Permanent Financing on
satisfactory terms.
At December 31, 1998 and 1997, the Company's total assets were $976,579
and $280,330, respectively. The increase in total assets reflects deferred
offering expenses incurred during the year ended December 31, 1998.
During the year ended December 31, 1998 and the period December 22,
1997 (date of inception) through December 31, 1997, affiliates of the Company
incurred $562,739 and $43,397, respectively, for certain organizational and
offering expenses. As of December 31, 1998 and 1997, the Company owed the
affiliates $685,372 and $58,600, respectively, for such amounts, unpaid fees and
administrative expenses. In the event the minimum offering proceeds are not
received by the Company, the Company will have no obligation to repay such
amounts. Further, the Advisor of the Company has agreed to pay all
organizational and offering expenses (excluding commissions and marketing
support and due diligence expense reimbursement fees) in excess of three percent
of the gross offering proceeds.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's working capital
needs.
As of December 31, 1998, the Company had not entered into any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular Mortgage Loan or Secured Equipment Lease
would be funded. The number of Properties to be acquired and Mortgage Loans to
be invested in will depend upon the amount of net offering proceeds and loan
proceeds available to the Company. The amount invested in Secured Equipment
Leases is not expected to exceed 10% of the Company's total assets.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
Results of Operations
As of December 31, 1998, no significant operations had commenced
because the Company was in its development stage. No operations will commence
until such time as the Company has sold at least 250,000 Shares ($2,500,000).
Management is not aware of any known trends or uncertainties, other than
national economic conditions, which may reasonably be expected to have a
material impact, favorable or unfavorable, on revenues or income from the
acquisition and operation of the Properties.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Company does not have any information technology systems.
Affiliates of the Advisor provide all services requiring the use of information
technology systems pursuant to a management agreement with the Company. The
maintenance of embedded systems, if any, at the Company's Properties will be the
responsibility of the tenants of the Properties in accordance with the terms of
the Company's leases. The Advisor and its affiliates have established a team
dedicated to reviewing the internal information technology systems used in the
operation of the Company, and the information technology and embedded systems
and the Year 2000 compliance plans of the Company's tenants at such time that
the Company acquires Properties, significant suppliers, financial institutions
and transfer agent.
The information technology infrastructure of the affiliates of the
Advisor consists of a network of personal computers and servers that were
obtained from major suppliers. The affiliates utilize various administrative and
financial software applications on that infrastructure to perform the business
functions of the Company. The inability of the Advisor and its affiliates to
identify and timely correct material Year 2000 deficiencies in the software
and/or infrastructure could result in an interruption in, or failure of, certain
of the Company's business activities or operations. Accordingly, the Advisor and
its affiliates have requested and are evaluating documentation from the
suppliers of the software and infrastructure of the affiliates regarding the
Year 2000 compliance of their products that are used in the business activities
or operations of the Company. The Advisor has not yet received sufficient
certifications to be assured that the suppliers have fully considered and
mitigated any potential material impact of the Year 2000 deficiencies. The costs
expected to be incurred by the Advisor and its affiliates to become Year 2000
compliant will be incurred by the Advisor and its affiliates; therefore, these
costs will have no impact on the Company's financial position or results of
operations.
The Company will have material third party relationships with its
tenants, financial institutions and transfer agent. The Company will depend on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Company because of the Year 2000 deficiencies, such a failure may have a
material impact on the Company. Accordingly, the Advisor has requested and is
evaluating documentation from the Company's financial institutions and transfer
agent relating to their Year 2000 compliance plans. The Advisor has not yet
received sufficient certifications to be assured that the financial institutions
and transfer agent have fully considered and mitigated any potential material
impact of the Year 2000 deficiencies. Therefore, the Advisor does not, at this
time, know of the potential costs to the Company of any adverse impact or effect
of any Year 2000 deficiencies by these third parties.
The Advisor currently expects that all year 2000 compliance testing and
any necessary remedial measures on the information technology systems used in
the business activities and operations of the Company will be completed prior to
June 30, 1999. Based on the progress the Advisor and its affiliates have made in
identifying and addressing the Company's Year 2000 issues and the plan and
timeline to complete the compliance program, the Advisor does not foresee
significant risks associated with the Company's Year 2000 compliance at this
time. Because the Advisor and its affiliates are still evaluating the status of
the systems used in business activities and operations of the Company and the
systems of the third parties with which the Company conducts its business, the
Advisor has not yet developed a comprehensive contingency plan and is unable to
identify "the most reasonably likely worst case scenario" at this time. As the
Advisor identifies significant risks related to the Company's Year 2000
compliance or if the Company's Year 2000 compliance program's progress deviates
substantially from the anticipated timeline, the Advisor will develop
appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL HEALTH CARE PROPERTIES, INC.
CONTENTS
--------
Page
----
Report of Independent Accountants 11
Financial Statements:
Balance Sheets 12
Statements of Stockholders' Equity 13
Notes to Financial Statements 14-17
Report of Independent Accountants
---------------------------------
To the Board of Directors
CNL Health Care Properties, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Health Care Properties, Inc. (a development stage Maryland corporation)
at December 31, 1998 and 1997 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 15, 1999
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
BALANCE SHEETS
December 31, December 31,
1998 1997
---------- -----------
ASSETS
Cash $ 92 $200,000
Deferred offering costs 975,339 80,330
Other assets 1,148 --
----------- -----------
$976,579 $280,330
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to related parties $685,372 $58,600
Accounts payable and accrued expenses 91,207 21,730
----------- -----------
Total liabilities 776,579 80,330
----------- -----------
Stockholder's equity:
Preferred stock, without par value per share
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share
Authorized and unissued 103,000,000 shares -- --
Common stock, $.01 par value per share
Authorized 100,000,000 and 100,000
shares, respectively; 20,000 shares
issued and outstanding 200 200
Capital in excess of par value 199,800 199,800
----------- -----------
Total stockholder's equity 200,000 200,000
----------- -----------
$976,579 $280,330
=========== ===========
See accompanying notes to financial statements.
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
STATEMENTS OF STOCKHOLDER'S EQUITY
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
Common stock
----------------------- Capital in
Number Par excess of
of Shares value par value Total
---------- --------- ------------ ------------
Balance, December 22, 1997
(Date of Inception) $ -- $ -- $ -- $ --
Cash received from sale
of common stock to
CNL Health Care
Advisors, Inc. 20,000 200 199,800 200,000
---------- --------- ------------ ------------
Balance at December 31, 1997 20,000 200 199,800 200,000
Subscriptions received for common
stock through public offering 2,550 26 25,474 25,500
Subscriptions held in escrow at
December 31, 1998 (2,550 ) (26 ) (25,474 ) (25,500 )
---------- --------- ------------ ------------
Balance at December 31, 1998 $ 20,000 $ 200 $ 199,800 $ 200,000
========== ========= ============ ============
See accompanying notes to financial statements.
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Health Care Properties, Inc.
(the "Company") was organized pursuant to the laws of the state of
Maryland on December 22, 1997. The Company intends to use the proceeds
from its public offering (the "Offering") (see Note 2), after deducting
offering expenses, primarily to acquire real estate properties (the
"Properties") related to health care and seniors' housing facilities
(the "Health Care Facilities") located across the United States. The
Health Care Facilities may include congregate living, assisted living
and skilled nursing facilities, continuing care retirement communities
and life care communities, and medical office buildings and walk-in
clinics. The Company may provide mortgage financing (the "Mortgage
Loans") to operators of Health Care Facilities in the aggregate
principal amount of approximately 5% to 10% of the Company's total
assets. The Company also may offer furniture, fixture and equipment
financing ("Secured Equipment Leases") to operators of Health Care
Facilities. Secured Equipment Leases will be funded from the proceeds
of a loan in an amount up to ten percent of the Company's total assets.
As of December 31, 1998, the Company was in the development stage and
had not begun operations.
Income Taxes - The Company intends to make an election to be taxed as a
real estate investment trust ("REIT") under Sections 856 through 860 of
the Internal Revenue Code commencing with its taxable year ending
December 31, 1999. If the Company qualifies for taxation as a REIT, the
Company generally will not be subject to federal corporate income tax
to the extent it distributes its REIT taxable income to its
stockholders, so long as it distributes at least 95 percent of its REIT
taxable income. REITs are subject to a number of other organizational
and operational requirements. Even if the Company qualifies for
taxation as a REIT, it may be subject to certain state and local taxes
on its income and property, and federal income and excise taxes on its
undistributed income.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
New Accounting Standard - In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which will be
effective for the Company as of January 1, 1999. This SOP requires
start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a
cumulative effect adjustment in the statement of earnings. Management
of the Company does not believe that adoption of this SOP will have a
material effect on the Company's financial position or results of
operations.
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
2. Public Offering:
The Company has filed a currently effective registration statement on
Form S-11 with the Securities and Exchange Commission. A maximum of
15,500,000 shares ($155,000,000) may be sold, including 500,000 shares
($5,000,000) which are available only to stockholders who elect to
participate in the Company's reinvestment plan. The Company has adopted
a reinvestment plan pursuant to which stockholders may elect to have
the full amount of their cash distributions from the Company reinvested
in additional shares of common stock of the Company. In addition, the
Company has registered 600,000 shares issuable upon the exercise of
warrants granted to the managing dealer of the Offering. As of December
31, 1998, the Company had received subscription proceeds of $25,500
(2,550 shares). Until subscription proceeds for the Company total
$2,500,000 (250,000 shares), the proceeds will be held in escrow.
3. Deferred Offering Costs:
The Company has and will continue to incur certain costs in connection
with the Offering, including filing fees, legal, accounting, marketing
and printing costs and escrow fees, which will be deducted from the
gross proceeds of the Offering. Certain preliminary costs incurred
prior to raising capital have been and will be advanced by an affiliate
of the Company. CNL Health Care Advisors, Inc. (the "Advisor") has
agreed to pay all organizational and offering expenses (excluding
commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
As of December 31, 1998, the Company had incurred $975,339 in
organizational and offering costs which has been treated as deferred
offering costs. Once the Company receives the minimum amount of
subscriptions, the offering costs will be charged to stockholders'
capital subject to the three percent cap described above.
4. Capitalization:
In September 1998, the Company amended the Articles of Incorporation to
increase the number of authorized shares of capital stock from 100,000
shares to 206,000,000 shares (consisting of 100,000,000 common shares,
3,000,000 preferred shares and 103,000,000 excess shares).
5. Related Party Arrangements:
On December 22, 1997 (date of inception), CNL Health Care Advisors,
Inc. contributed $200,000 in cash to the Company and became its sole
stockholder.
The Advisor and certain affiliates of the Company will receive fees and
compensation in connection with the Offering, and the acquisition,
management, and sale of the assets of the Company.
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
5. Related Party Arrangements - Continued:
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the offering of the shares, a substantial portion of
which will be paid as commissions to other broker-dealers. During the
year ended December 31, 1998, the Company incurred $1,912 of such fees
of which $1,785 will be paid by CNL Securities Corp. as commissions to
other broker-dealers. These fees will not be paid until subscriptions
for at least 250,000 shares ($2,500,000) have been obtained from the
Offering.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the year ended December
31, 1998, the Company incurred $128 of such fee, the majority of which
will be reallowed to other broker-dealers and from which all bona fide
due diligence expenses will be paid. These fees will not be paid until
subscriptions for at least 250,000 shares ($2,500,000) have been
obtained from the Offering.
The Advisor is entitled to receive acquisition fees for services in
finding, negotiating the leases of and acquiring properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of Listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the year ended December 31, 1998, the Company incurred $1,148 of such
fees. Such fees are included in other assets at December 31, 1998.
These fees will not be paid until subscriptions for at least 250,000
shares ($2,500,000) have been obtained from the Offering.
In addition, the Company has agreed to issue and sell soliciting dealer
warrants ("Soliciting Dealer Warrants") to CNL Securities Corp. The
price for each warrant will be $0.0008 and one warrant will be issued
for every 25 shares sold by the managing dealer. All or a portion of
the Soliciting Dealer Warrants may be reallowed to soliciting dealers
with prior written approval from, and in the sole discretion of the
managing dealer, except where prohibited by either federal or state
securities laws. The holder of a Soliciting Dealer Warrant will be
entitled to purchase one share of common stock from the Company at a
price of $12.00 during the five year period commencing with the date
the offering begins. No Soliciting Dealer Warrant, however, will be
exercisable until one year from the date of issuance.
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the Offering), on
a day-to-day basis. For the year ended December 31, 1998 and the period
December 22, 1997 (date of inception) through December 31, 1997,
$196,184 and $15,202, respectively, were classified as deferred
offering costs for these services.
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
5. Related Party Arrangements - Continued:
Amounts due to related parties consisted of the following at:
December 31, December 31,
1998 1997
-------------- --------------
Due to the Advisor:
Expenditures incurred for organizational
and offering expenses on behalf
of the Company $470,798 $43,398
Accounting and administrative
services 211,386 15,202
Acquisition fees 1,148 --
------------- -----------
683,332 58,600
------------- -----------
Due to CNL Securities Corp.:
Commissions 1,912 --
Marketing support and due diligence
expense reimbursement fee 128 --
------------- -----------
2,040 --
------------- -----------
$685,372 $58,600
============= ===========
6. Subsequent Event:
During the period January 1, 1999 through January 15, 1999, the Company
received subscription proceeds of 1,000 shares ($10,000) of common
stock.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and executive officers of the Company are listed below:
Name Age Position with the Company
----------- -------- -------------------------
James M. Seneff, Jr. 52 Director, Chairman of the Board, and
Chief Executive Officer
Robert A. Bourne 51 Director and President
David W. Dunbar 46 Independent Director
Timothy S. Smick 46 Independent Director
Edward A. Moses 56 Independent Director
Phillip M. Anderson, Jr. 39 Chief Operating Officer and
Executive Vice President
Daniel L. Simmons 45 Executive Vice President
Curtis B. McWilliams 43 Executive Vice President
Jeanne A. Wall 40 Executive Vice President
Lynn E. Rose 50 Secretary and Treasurer
James M. Seneff, Jr. Director, Chairman of the Board, and Chief Executive
Officer. Mr. Seneff currently holds the position of Chairman of the Board, Chief
Executive Officer and director of CNL Health Care Advisors, Inc., the Advisor to
the Company. Mr. Seneff also serves as Chairman of the Board, Chief Executive
Officer and a director of CNL American Properties Fund, Inc. and CNL Hospitality
Properties, Inc., each of which is an unlisted REIT, and their advisors, CNL
Fund Advisors, Inc. and CNL Hospitality Advisors, Inc., respectively. Mr. Seneff
is a principal stockholder of CNL Group, Inc., a diversified real estate
company, and has served as its Chairman of the Board of Directors, director, and
Chief Executive Officer since its formation in 1980. CNL Group, Inc. is the
parent company of CNL Securities Corp., which is acting as the managing dealer
in the Company's Offering, CNL Investment Company, CNL Health Care Advisors,
Inc., CNL Fund Advisors, Inc. and CNL Hospitality Advisors, Inc. Mr. Seneff has
been Chairman of the Board, Chief Executive Officer and a director of CNL
Securities Corp. since its formation in 1979. Mr. Seneff also has held the
position of Chairman of the Board, Chief Executive Officer, President and a
director of CNL Management Company, a registered investment advisor, since its
formation in 1976, has served as Chief Executive Officer, Chairman of the Board
and a director of CNL Investment Company, and Chief Executive Officer and
Chairman of the Board of Commercial Net Lease Realty, Inc., a REIT listed on the
New York Stock Exchange, since 1992, served as Chief Executive Officer and
Chairman of the Board of CNL Realty Advisors, Inc. from its inception in 1991
through 1997 at which time such company merged with Commercial Net Lease Realty,
Inc., and has held the position of Chief Executive Officer, Chairman of the
Board and a director of CNL Institutional Advisors, Inc., a registered
investment advisor, since its inception in 1990. Mr. Seneff also serves as a
director of First Union National Bank of Florida, N.A. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
joint venturer in over 100 real estate ventures involved in the financing,
acquisition, construction, and rental of restaurants, office buildings,
apartment complexes, hotels, and other real estate. Included in these real
estate ventures are approximately 65 privately offered real estate limited
partnerships with investment objectives similar to one or more of the Company's
investment objectives, in which Mr. Seneff, directly or through an affiliated
entity, serves or has served as a general partner. Mr. Seneff received his
degree in Business Administration from Florida State University in 1968.
Robert A. Bourne. Director and President. Mr. Bourne currently holds the
position of President and director of CNL Health Care Advisors, Inc., the
Advisor to the Company. Mr. Bourne also serves as Vice Chairman of the Board of
Directors, director and Treasurer of CNL American Properties Fund, Inc. and as
President and a director of CNL Hospitality Properties, Inc., each of which is
an unlisted REIT. Mr. Bourne currently holds the position of President and
director of CNL Hospitality Advisors, Inc., the advisor of CNL Hospitality
Properties, Inc. and Vice Chairman of the Board of Directors, director and
Treasurer of CNL Fund Advisors, Inc., the advisor to CNL American Properties
Fund, Inc. Mr. Bourne served as President of CNL Fund Advisors, Inc. from the
date of its inception in 1994 through October 1997 and as President of CNL
American Properties Fund, Inc. from the date of its inception in 1994 to
February 1999. Mr. Bourne is President and Treasurer of CNL Group, Inc.,
President, Treasurer, a director, and a registered principal of CNL Securities
Corp. (the managing dealer of the Company's Offering), President, Treasurer, a
director and a registered principal of CNL Investment Company, and Chief
Investment Officer, a director and Treasurer of CNL Institutional Advisors,
Inc., a registered investment advisor. Mr. Bourne served as President of CNL
Institutional Advisors, Inc. from the date of its inception through June 30,
1997. Mr. Bourne served as President and a director from July 1992 to February
1996, served as Secretary and Treasurer from February 1996 through December
1997, and has served as Vice Chairman of the Board of Directors since February
1996, of Commercial Net Lease Realty, Inc., a REIT listed on the New York Stock
Exchange. In addition, Mr. Bourne served as President of CNL Realty Advisors,
Inc. from 1991 to February 1996, and served as a director of CNL Realty
Advisors, Inc. from 1991 through December 1997, and as Treasurer and Vice
Chairman from February 1996 through 1997, at which time such Company merged with
Commercial Net Lease Realty, Inc. Upon graduation from Florida State University
in 1970, where he received a B.A. in Accounting, with honors, Mr. Bourne worked
as a certified public accountant and, from September 1971 through December 1978
was employed by Coopers & Lybrand, Certified Public Accountants, where he held
the position of tax manager beginning in 1975. From January 1979 until June
1982, Mr. Bourne was a partner in the accounting firm of Cross & Bourne and from
July 1982 through January 1987 he was a partner in the accounting firm of Bourne
& Rose, P.A., Certified Public Accountants. Mr. Bourne, who joined CNL
Securities Corp. in 1979, has participated as a general partner or joint
venturer in over 100 real estate ventures involved in the financing,
acquisition, construction, and rental of restaurants, office buildings,
apartment complexes, hotels, and other real estate. Included in these real
estate ventures are approximately 64 privately offered real estate limited
partnerships with investment objectives similar to one or more of the Company's
investment objectives, in which Mr. Bourne, directly or through an affiliated
entity, serves or has served as a general partner.
David W. Dunbar. Independent Director. Mr. Dunbar serves as chairman and
chief executive officer of Peoples Bank, which he organized and founded in 1996.
Mr. Dunbar is also a member of the boards of directors of Morton Plant Mease
Health Care, Inc., an 841-bed, not-for-profit hospital, Morton Plant Mease
Hospital Foundation and North Bay Hospital, a 122-bed facility. In addition, Mr.
Dunbar serves as a member of the Florida Elections Commission, the body
responsible for investigating and holding hearings regarding alleged violations
of Florida's campaign finance laws. During 1994 and 1995, Mr. Dunbar was a
member of the board of directors and an executive officer of Peoples State Bank.
Mr. Dunbar was the chief executive officer of Republic Bank from 1991 through
1993. From 1988 through 1991, Mr. Dunbar developed commercial and medical office
buildings and, through a financial consulting company he founded, provided
specialized lending services for real estate development clients, specialized
construction litigation support for national insurance companies and strategic
planning services for institutional clients. In 1990, Mr. Dunbar was the chief
executive officer, developer and owner of a 60,000 square foot medical office
building located on the campus of Memorial Hospital in Tampa, Florida. In
addition, in 1990, Mr. Dunbar served as the Governor's appointee to the State of
Florida Taxation and Budget Reform Commission, a 25 member, blue ribbon
commission established to review, study and make appropriate recommendations for
changes to state tax laws. Mr. Dunbar received a degree in finance from Florida
State University. He is also a graduate of the American Bankers Association
National Commercial Lending School at the University of Oklahoma and the School
of Banking of the South at Louisiana State University.
Timothy S. Smick. Independent Director. From 1996 through February 1998,
Mr. Smick served as chief operating officer, executive vice president and a
member of the board of directors of Sunrise Assisted Living, Inc., one of the
nation's leading providers of assisted living care for seniors with 68
communities located in 13 states. In addition, Mr. Smick served as president of
Sunrise Management Inc., a wholly owned subsidiary of Sunrise Assisted Living,
Inc. During 1995, Mr. Smick served as a senior housing consultant to LaSalle
Advisory, Ltd., a pension fund advisory company. From 1985 through 1994, Mr.
Smick was chairman and chief executive officer of PersonaCare, Inc., a company
he co-founded that provided sub-acute, skilled nursing and assisted living care
with 12 facilities in six states. Mr. Smick's health care industry experience
also includes serving as the regional operations director for Manor Healthcare,
Inc., a division of ManorCare, Inc., and as operations director for Allied
Health and Management, Inc. Prior to co-founding PersonaCare, Inc., Mr. Smick
was a partner in Duncan & Smick, a commercial real estate development firm. Mr.
Smick received a B.A. in English from Wheaton College and pursued graduate
studies at Loyola College.
Edward A. Moses. Independent Director. Dr. Moses has served as dean of the
Roy E. Crummer Graduate School of Business at Rollins College since 1994, and as
a professor and NationsBank professor of finance since 1989. As dean, Dr. Moses
is presently establishing a comprehensive program of executive education for
health care management at the Roy E. Crummer Graduate School of Business. From
1985 to 1989 he served as dean and professor of finance at the University of
North Florida. He has also served in academic and administrative positions at
the University of Tulsa, Georgia State University and the University of Central
Florida. Dr. Moses has written six textbooks in the fields of investments and
corporate finance as well as numerous articles in leading business journals. He
has held offices in a number of professional organizations, including president
of the Southern Finance and Eastern Finance Associations, served on the Board of
the Southern Business Administration Association, and served as a consultant for
major banks as well as a number of Fortune 500 companies. He currently serves as
a faculty member in the Graduate School of Banking at Louisiana State
University, and is a member of the board of directors of HTE, Inc. Dr. Moses
received a B.S. in Accounting from the Wharton School at the University of
Pennsylvania in 1965 and a Masters of Business Administration (1967) and Ph.D.
in finance from the University of Georgia in 1971.
Phillip M. Anderson, Jr. Chief Operating Officer and Executive Vice
President. Mr. Anderson joined CNL Health Care Advisors, Inc. in January 1999
and is responsible for the planning and implementation of CNL's interest in
health care industry investments, including acquisitions, development, project
analysis and due diligence. He currently serves as the Chief Operating Officer
of both CNL Health Care Advisors, Inc., the Company's Advisor, and of CNL Health
Care Development, Inc. From 1987 through 1998, Mr. Anderson was employed by
Classic Residence by Hyatt. Classic Residence by Hyatt ("Classic") is affiliated
with Hyatt Hotels and Chicago's Pritzker family. Classic acquires, develops,
owns and operates seniors' housing, assisted living, skilled nursing and
Alzheimer's facilities throughout the United States. Mr. Anderson's
responsibilities grew from overseeing construction of Classic's first properties
to acquiring and developing new properties. After assuming responsibility for
acquisitions, Mr. Anderson doubled the number of senior living apartments/beds
("units") in the portfolio by adding over 1,200 units. In addition, the
development of an additional 1,000 units of seniors' housing commenced under Mr.
Anderson's direction. Mr. Anderson also served on Classic's Executive Committee
charged with the responsibility of monitoring performance of existing properties
and development projects. Mr. Anderson has been a member of the American Senior
Housing Association since 1994 and currently serves on the executive board. He
graduated from the Georgia Institute of Technology in 1982, where he received a
B.S. in Civil Engineering, with honors.
Daniel L. Simmons. Executive Vice President. Mr. Simmons serves as
Executive Vice President of CNL Health Care Advisors, Inc., the Advisor to the
Company. From November 1997 to June 1998, Mr. Simmons served as a consultant to
CNL, providing advice on issues regarding health care property development and
management. Since 1993, Mr. Simmons has served as a consultant to The
Celebration Company, a subsidiary of The Walt Disney Company, regarding seniors'
housing issues. From 1984 to 1993, Mr. Simmons was a co-founder and partner in
the Johnson Simmons Company, where he was responsible for site acquisition,
design, development, financing and regulatory matters for three continuing care
communities. Mr. Simmons was also responsible for the development, financing and
operations associated with the restaurant and commercial properties divisions of
the Johnson Simmons Company. During his tenure, Johnson Simmons Company
developed and managed over 1,100 units of seniors' housing and a 240-bed skilled
nursing facility, held in excess of $100 million in assets, and employed more
than 1,200 people. From 1983 to 1984, Mr. Simmons served as director of
development for Cadem Corporation, a subsidiary of National Medical Enterprises.
At Cadem, he was responsible for site, design, development and regulatory issues
for proposed seniors' housing projects. From 1982 to 1983, Mr. Simmons served as
vice president of Southern Management Services Corporation, where he was
responsible for the development and operations of seniors' housing, assisted
living, and skilled nursing facilities. He was also responsible for all
regulatory issues with the State of Florida, Department of Insurance, and the
current Agency for Health Care Administration regarding the licensing and
regulation of continuing care retirement communities, nursing homes and assisted
living facilities. Mr. Simmons attended Florida State University and the
University of South Florida and was a founding member of the National
Association of Senior Living Industries.
Curtis B. McWilliams. Executive Vice President. Mr. McWilliams serves as
Executive Vice President of CNL Health Care Advisors, Inc., the Advisor to the
Company. Mr. McWilliams joined CNL Group, Inc. in April 1997 and currently
serves as an Executive Vice President. In addition, Mr. McWilliams serves as
President of CNL American Properties Fund, Inc., an unlisted REIT, CNL Fund
Advisors, Inc., CNL Financial Services, Inc. and certain other subsidiaries of
CNL Group, Inc. From March 1997 to February 1999 Mr. McWilliams served as
Executive Vice President of CNL American Properties Fund, Inc. From September
1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch. From
January 1991 to August 1996, Mr. McWilliams was a managing director in the
corporate banking group of Merrill Lynch's investment banking division. During
this time, he was a senior relationship manager with Merrill Lynch and as such
was responsible for a number of the firm's larger corporate relationships. From
February 1990 to February 1993, he also served as co-head of one of the
Industrial Banking Groups within Merrill Lynch's investment banking division and
had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March 1997, Mr. McWilliams served as Chairman of Merrill Lynch's Private
Advisory Services. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Masters of Business Administration with a
concentration in finance from the University of Chicago in 1983.
Jeanne A. Wall. Executive Vice President. Ms. Wall serves as Executive Vice
President of CNL Health Care Advisors, Inc., the Advisor to the Company. Ms.
Wall is also Executive Vice President of CNL American Properties Fund, Inc. and
CNL Hospitality Properties, Inc., each of which is an unlisted REIT, and their
advisors, CNL Fund Advisors, Inc. and CNL Hospitality Advisors, Inc.,
respectively. Ms. Wall has served as Chief Operating Officer of CNL Investment
Company and CNL Securities Corp. since November 1994 and has served as Executive
Vice President of CNL Investment Company since January 1991. In 1984, Ms. Wall
joined CNL Securities Corp. In 1985, Ms. Wall became Vice President of CNL
Securities Corp., in 1987 she became a Senior Vice President and in July 1997,
she became Executive Vice President of CNL Securities Corp. In this capacity,
Ms. Wall serves as national marketing and sales director and oversees the
national marketing plan for the CNL investment programs. In addition, Ms. Wall
oversees product development, partnership administration and investor services
for programs offered through participating brokers, and investor communications.
Ms. Wall also has served as Senior Vice President of CNL Institutional Advisors,
Inc., a registered investment advisor, from 1990 to 1993, as Vice President of
CNL Realty Advisors, Inc. from its inception in 1991 through 1997, and as Vice
President of Commercial Net Lease Realty, Inc., a REIT listed on the New York
Stock Exchange, from 1992 through 1997. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the Board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose serves as Secretary,
Treasurer and a director of CNL Health Care Advisors, Inc., the Advisor to the
Company. Ms. Rose is also Secretary of CNL American Properties Fund, Inc. and
Secretary and Treasurer of CNL Hospitality Properties, Inc., each of which is an
unlisted REIT, and is Secretary, Treasurer and a director of CNL Hospitality
Advisors, Inc., the advisor of CNL Hospitality Properties, Inc. In addition, Ms.
Rose serves as Secretary and a director of CNL Fund Advisors, Inc., the advisor
of CNL American Properties Fund, Inc. Ms. Rose served as Treasurer of CNL Fund
Advisors, Inc. from the date of its inception through June 30, 1997 and as
Treasurer of CNL American Properties Fund, Inc. from the date of its inception
to February 1999. Ms. Rose, a certified public accountant, has served as
Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of CNL
Group, Inc., since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Secretary and a director of CNL Realty Advisors, Inc. from its
inception in 1991 through 1997, and as Treasurer of CNL Realty Advisors, Inc.
from 1991 to February 1996. In addition, Ms. Rose served as Secretary and
Treasurer of Commercial Net Lease Realty, Inc., a REIT listed on the New York
Stock Exchange, from 1992 to February 1996. Ms. Rose also currently serves as
Secretary for approximately 50 additional corporations. Ms. Rose oversees legal
compliance, accounting, tenant compliance, and reporting for over 250
corporations, partnerships and joint ventures. Prior to joining CNL, Ms. Rose
was a partner with Robert A. Bourne in the accounting firm of Bourne & Rose,
P.A., Certified Public Accountants. Ms. Rose holds a B.A. in Sociology from the
University of Central Florida and is a registered financial and operations
principal of CNL Securities Corp. She was licensed as a certified public
accountant in 1979.
Item 11. Executive Compensation
No annual or long-term compensation was paid by the Company to the
Chief Executive Officer for services rendered in all capacities to the Company
during the period December 22, 1997 (date of inception) through December 31,
1997 or during the year ended December 31, 1998. In addition, no executive
officer of the Company received an annual salary or bonus from the Company
during the fiscal year ended December 31, 1998. The Company's executive officers
also are employees and executive officers of Advisor and receive compensation
from CNL Group, Inc. in part for services in such capacities. See Item 13 for a
description of the fees payable and expenses reimbursed to the Advisor.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 5, 1999, the number and
percentage of outstanding shares beneficially owned by all persons known by the
Company to own beneficially more than five percent of the Company's Common
Stock, by each director and nominee, and by all officers and directors as a
group, based upon information furnished to the Company by such stockholders,
officers and directors.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Shares
Robert A. Bourne 0 --
David W. Dunbar 0 --
Edward A. Moses 0 --
James M. Seneff, Jr. 20,000 (1) (2)
Timothy S. Smick 0 --
All directors and executive 20,000 (1) (2)
officers as a group (10 persons)
(1) Represents shares held by CNL Group, Inc., of which Mr. Seneff is Chief
Executive Officer, Chairman of the Board of Directors, director and a
principal stockholder
(2) 100 percent.
Item 13. Certain Relationships and Related Transactions
All of the executive officers of the Company are executive officers of the
Advisor, a wholly owned subsidiary of CNL Group, Inc., of which Messrs. Seneff
and Bourne are affiliates. In addition, Messrs. Seneff and Bourne and Ms. Rose
and Ms. Wall are executive officers of CNL Securities Corp., the managing dealer
of the Company's offering of shares of common stock, and a wholly owned
subsidiary of CNL Group, Inc. Messrs. Seneff and Bourne are directors of the
Company, the Advisor and CNL Securities Corp., and Ms. Rose is a director of the
Advisor. Administration of the day-to-day operations of the Company is provided
by the Advisor, pursuant to the terms of the Advisory Agreement. The Advisor
also serves as the Company's consultant in connection with policy decisions to
be made by the Company's Board of Directors, manages the Company's properties
and renders such other services as the Board of Directors deems appropriate. The
Advisor also bears the expense of providing the executive personnel and office
space to the Company. The Advisor is at all times subject to the supervision of
the Board of Directors of the Company and has only such functions and authority
as the Company may delegate to it as the Company's agent.
CNL Securities Corp. is entitled to receive selling commissions amounting
to 7.5% of the total amount raised from the sale of Shares of common stock for
services in connection with the offering of Shares, a substantial portion of
which will be paid as commissions to other broker-dealers. For the year ended
December 31, 1998, the Company had incurred $1,912 of such fees, the majority of
which will be paid by CNL Securities Corp. as commissions to other
broker-dealers. These fees will not be paid until subscriptions for at least
250,000 Shares ($2,500,000) have been obtained from the Offering.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the total
amount raised from the sale of Shares, a portion of which may be reallowed to
other broker-dealers. For the year ended December 31, 1998, the Company had
incurred $128 of such fees, the majority of which will be reallowed to other
broker-dealers and from which all bona fide due diligence expenses will be paid.
These fees will not be paid until subscriptions for at least 250,000 Shares
($2,500,000) have been obtained from the Offering.
The Advisor is entitled to receive acquisition fees for services in
identifying the properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans equal
to 4.5% of gross proceeds, loan proceeds from Permanent Financing and amounts
outstanding on the Line of Credit, if any, at the time of Listing, but excluding
that portion of the Permanent Financing used to finance Secured Equipment
Leases. For the year ended December 31, 1998, the Company had incurred $1,148 of
such fees. These fees will not be paid until subscriptions for at least 250,000
Shares ($2,500,000) have been obtained from the Offering.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the year
ended December 31, 1998, the Company incurred a total of $196,184 for these
services, including costs related to preparing and distributing reports required
by the Securities and Exchange Commission. Such amounts will not be paid until
subscriptions for at least 250,000 Shares ($2,500,000) have been obtained from
the Offering.
The Company has and will continue to incur certain costs in connection with
the Offering, including filing fees, legal, accounting, marketing and printing
costs and escrow fees, which will be deducted from the gross proceeds of the
Offering. Certain preliminary costs incurred prior to raising capital have been
and will be advanced by an affiliate of the Company. The Advisor has agreed to
pay all organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which exceed
three percent of the gross offering proceeds received from the sale of shares of
the Company. For the year ended December 31, 1998, the Company had incurred
$562,739 for such costs. Of this amount, $79,170 represents consulting fees and
expenses paid to Daniel L. Simmons, who, prior to becoming an officer of the
Company, served as a consultant to the Company from November 1997 to June 1998.
Mr. Simmons currently serves as an Executive Vice President of the Company.
All amounts incurred by the Company to affiliates of CNL Group, Inc. are
believed by the Company to be fair and comparable to amounts that would be paid
for similar services provided by unaffiliated third parties.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Stockholder's Equity for the year ended December
31, 1998, and the period December 22, 1997 (date of inception)
through December 31, 1997
Notes to Financial Statements
3. Exhibits
3.1 CNL Health Care Properties, Inc. Amended and
Restated Articles of Incorporation (Filed herewith.)
3.2 CNL Health Care Properties, Inc. Bylaws
(Filed herewith.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 15, 1998,
between CNL Health Care Properties, Inc. and CNL
Health Care Advisors, Inc. (Filed herewith.)
10.2 Indemnification Agreement between CNL Health Care
Properties, Inc. and Phillip M. Anderson, Jr. dated
February 19, 1999. Each of the following director
and/or officer has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A.
Moses, Daniel L. Simmons, Curtis B. McWilliams,
Jeanne A. Wall and Lynn E. Rose dated September 15,
1998 (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)
(b) No reports on Form 8-K were filed during the period October 1, 1998
through December 31, 1998.
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act.
The Company has not sent an annual report for 1998 or proxy materials
for its 1999 annual meeting of shareholders to security holders and has no
present intention to do so.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 19th day of
February, 1999.
CNL HEALTH CARE PROPERTIES, INC.
By: ROBERT A. BOURNE
President (Principal Financial
and Accounting Officer)
/s/ Robert A. Bourne
------------------------
ROBERT A. BOURNE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ James M. Seneff, Jr.
- --------------------------- Chairman of the Board and Chief February 19, 1999
James M. Seneff, Jr. Executive Officer (Principal
Executive Officer)
/s/ Robert A. Bourne
- --------------------------- Director and President (Principal February 19, 1999
Robert A. Bourne Financial and Accounting Officer)
/s/ David W. Dunbar Independent Director February 19, 1999
- ---------------------------
David W. Dunbar
/s/ Timothy S. Smick Independent Director February 19, 1999
- ---------------------------
Timothy S. Smick
/s/ Edward A. Moses Independent Director February 19, 1999
- ---------------------------
Edward A. Moses
EXHIBITS
EXHIBIT INDEX
Exhibit Number
3.1 CNL Health Care Properties, Inc. Amended and
Restated Articles of Incorporation (Filed herewith.)
3.2 CNL Health Care Properties, Inc. Bylaws (Filed herewith.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 15, 1998,
between CNL Health Care Properties, Inc. and CNL Health Care
Advisors, Inc. (Filed herewith.)
10.2 Indemnification Agreement between CNL Health Care Properties,
Inc. and Phillip M. Anderson, Jr. dated February 19,
1999. Each of the following director and/or officer has
signed a substantially similar agreement as follows: James
M. Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy
S. Smick, Edward A. Moses, Daniel L. Simmons, Curtis B.
McWilliams, Jeanne A. Wall and Lynn E. Rose dated September
15, 1998 (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)