X
|
Quarterly Report Pursuant to Section 13 or
15(d)
of the Securities Exchange Act of 1934
|
|
For the quarterly period ended June 30, 2005 | ||
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 01-13031 |
Tennessee | 62-1674303 |
(State or Other Jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
111 Westwood Place, Suite 200, Brentwood,
TN
(Address of Principal Executive Offices)
|
37027
(Zip Code)
|
Item
1.
|
Financial
Statements
|
Page
|
3
|
||
4
|
||
5
|
||
6
|
||
8
|
||
Item
2.
|
||
21
|
||
Item
3.
|
39
|
|
Item
4.
|
39
|
|
PART
II.
|
OTHER
INFORMATION
|
|
Item
4.
|
41
|
|
Item 5. | Other Information | 41 |
Item
6.
|
41
|
|
44
|
Item
1. Financial Statements
|
|||||||
AMERICAN
RETIREMENT CORPORATION AND
SUBSIDIARIES
|
|||||||
CONDENSED
CONSOLIDATED BALANCE
SHEETS
|
|||||||
(UNAUDITED)
|
|||||||
(in
thousands, except share data)
|
June
30,
|
December
31,
|
|||||
2005
|
2004
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
46,472
|
$
|
28,454
|
|||
Restricted
cash
|
18,709
|
25,270
|
|||||
Accounts
receivable, net of allowance for doubtful accounts
|
16,117
|
16,175
|
|||||
Inventory
|
1,343
|
1,364
|
|||||
Prepaid
expenses
|
3,355
|
2,667
|
|||||
Deferred
income taxes
|
8,049
|
5,645
|
|||||
Other
current assets
|
11,273
|
8,490
|
|||||
Total
current assets
|
105,318
|
88,065
|
|||||
Restricted
cash, excluding amounts classified as current
|
20,345
|
24,864
|
|||||
Notes
receivable
|
21,270
|
18,563
|
|||||
Deferred
income taxes
|
51,646
|
-
|
|||||
Leasehold
acquisition costs, net
of accumulated amortization
|
23,175
|
29,362
|
|||||
Land,
buildings and equipment, net
|
516,786
|
496,297
|
|||||
Goodwill
|
36,463
|
36,463
|
|||||
Other
assets
|
54,434
|
55,636
|
|||||
Total
assets
|
$
|
829,437
|
$
|
749,250
|
|||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Current
portion of long-term debt
|
$
|
6,975
|
$
|
10,372
|
|||
Current
portion of capital lease and lease financing obligations
|
16,922
|
16,474
|
|||||
Accounts
payable
|
4,096
|
5,937
|
|||||
Accrued
payroll and benefits
|
12,407
|
10,125
|
|||||
Accrued
property taxes
|
8,438
|
8,872
|
|||||
Other
accrued expenses
|
9,923
|
9,023
|
|||||
Other
current liabilities
|
9,716
|
8,505
|
|||||
Tenant
deposits
|
4,733
|
4,804
|
|||||
Refundable
portion of entrance fees
|
83,556
|
79,148
|
|||||
Deferred
entrance fee income
|
35,732
|
33,800
|
|||||
Total
current liabilities
|
192,498
|
187,060
|
|||||
Long-term
debt, less current portion
|
98,549
|
125,584
|
|||||
Capital
lease and lease financing obligations, less current
portion
|
174,212
|
182,652
|
|||||
Deferred
entrance fee income
|
121,258
|
111,386
|
|||||
Deferred
gains on sale-leaseback transactions
|
92,965
|
98,876
|
|||||
Deferred
income taxes
|
-
|
6,027
|
|||||
Other
long-term liabilities
|
21,938
|
17,751
|
|||||
Total
liabilities
|
701,420
|
729,336
|
|||||
Minority
interest
|
7,739
|
14,213
|
|||||
Commitments
and contingencies (See notes)
|
|||||||
Shareholders'
equity:
|
|||||||
Preferred
stock, no par value; 5,000,000 shares authorized, no
|
|||||||
shares
issued or outstanding
|
-
|
-
|
|||||
Common
stock, $.01 par value; 200,000,000 shares authorized,
|
|||||||
31,205,588
and 25,636,429 shares issued and outstanding,
respectively
|
312
|
252
|
|||||
Additional
paid-in capital
|
220,487
|
168,092
|
|||||
Accumulated
deficit
|
(98,800
|
)
|
(160,425
|
)
|
|||
Deferred
compensation, restricted stock
|
(1,721
|
)
|
(2,218
|
)
|
|||
Total
shareholders' equity
|
120,278
|
5,701
|
|||||
Total
liabilities and shareholders' equity
|
$
|
829,437
|
$
|
749,250
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|||||||
(UNAUDITED)
|
|||||||
(in
thousands, except per share
data)
|
|||||||
Three
months ended June 30,
|
|||||||
2005
|
2004
|
||||||
(restated)
|
|||||||
Revenues:
|
|||||||
Resident
and health care
|
$
|
120,641
|
$
|
109,110
|
|||
Management
and development services
|
516
|
515
|
|||||
Reimbursed
expenses
|
542
|
524
|
|||||
Total
revenues
|
121,699
|
110,149
|
|||||
Operating
expenses:
|
|||||||
Community
operating expenses
|
79,896
|
74,065
|
|||||
General
and administrative
|
6,765
|
6,114
|
|||||
Lease
expense
|
15,445
|
14,872
|
|||||
Depreciation
and amortization
|
8,773
|
6,547
|
|||||
Amortization
of leasehold acquisition costs
|
689
|
728
|
|||||
Loss
(gain) on disposal or sale of assets
|
344
|
(6
|
)
|
||||
Reimbursed
expenses
|
542
|
524
|
|||||
Total
operating expenses
|
112,454
|
102,844
|
|||||
Operating
income
|
9,245
|
7,305
|
|||||
Other
income (expense):
|
|||||||
Interest
expense
|
(3,916
|
)
|
(8,932
|
)
|
|||
Interest
income
|
874
|
669
|
|||||
Other
|
5
|
(364
|
)
|
||||
Other
expense, net
|
(3,037
|
)
|
(8,627
|
)
|
|||
Income
(loss) before income taxes and minority interest
|
6,208
|
(1,322
|
)
|
||||
Income
tax (benefit) expense
|
(53,392
|
)
|
75
|
||||
Income
(loss) before minority interest
|
59,600
|
(1,397 | ) | ||||
Minority interest in earnings of consolidated subsidiaries, net of tax | (600 | ) | (863 | ) | |||
Net
income (loss)
|
$
|
59,000
|
$
|
(2,260
|
)
|
||
Basic
earnings (loss) per share
|
$
|
1.90
|
$
|
(0.09
|
)
|
||
Dilutive
earnings (loss) per share
|
$
|
1.82
|
$
|
(0.09
|
)
|
||
Weighted
average shares used for basic earnings (loss) per share
data
|
31,053
|
24,290
|
|||||
Effect
of dilutive common stock options
|
1,278
|
-
|
|||||
Weighted
average shares used for dilutive earnings (loss) per share
data
|
32,331
|
24,290
|
|||||
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|||||||
(UNAUDITED)
|
|||||||
(in
thousands, except per share
data)
|
|||||||
Six
months ended June 30,
|
|||||||
2005
|
2004
|
||||||
(restated)
|
|||||||
Revenues:
|
|||||||
Resident
and health care
|
$
|
238,330
|
$
|
217,061
|
|||
Management
and development services
|
1,016
|
939
|
|||||
Reimbursed
expenses
|
1,344
|
1,292
|
|||||
Total
revenues
|
240,690
|
219,292
|
|||||
Operating
expenses:
|
|||||||
Community
operating expenses
|
159,233
|
147,917
|
|||||
General
and administrative
|
13,356
|
12,702
|
|||||
Lease
expense
|
30,955
|
29,693
|
|||||
Depreciation
and amortization
|
18,044
|
13,460
|
|||||
Amortization
of leasehold acquisition costs
|
1,388
|
1,446
|
|||||
Loss
(gain) on disposal or sale of assets
|
356
|
(111
|
)
|
||||
Reimbursed
expenses
|
1,344
|
1,292
|
|||||
Total
operating expenses
|
224,676
|
206,399
|
|||||
Operating
income
|
16,014
|
12,893
|
|||||
Other
income (expense):
|
|||||||
Interest
expense
|
(7,473
|
)
|
(18,633
|
)
|
|||
Interest
income
|
1,594
|
1,271
|
|||||
Other
|
144
|
(253
|
)
|
||||
Other
expense, net
|
(5,735
|
)
|
(17,615
|
)
|
|||
Income
(loss) before income taxes and
minority interest
|
10,279
|
(4,722
|
)
|
||||
Income
tax (benefit) expense
|
(52,017
|
)
|
220
|
||||
Income
(loss) before minority interest
|
62,296
|
(4,942
|
) | ||||
Minority interest in earnings of consolidated subsidiaries, net of tax |
(671
|
) | (1,825 | ) | |||
Net
income (loss)
|
$
|
61,625
|
$
|
(6,767
|
)
|
||
Basic
earnings (loss) per share
|
$
|
2.06
|
$
|
(0.30
|
)
|
||
Dilutive
earnings (loss) per share
|
$
|
1.96
|
$
|
(0.30
|
)
|
||
Weighted
average shares used for basic earnings (loss) per share
data
|
29,976
|
22,770
|
|||||
Effect
of dilutive common stock options
|
1,540
|
-
|
|||||
Weighted
average shares used for dilutive earnings (loss) per share
data
|
31,516
|
22,770
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||||
(UNAUDITED)
|
|||||||
(in
thousands)
|
Six
months ended June 30,
|
||||||
2005
|
2004
|
||||||
(restated)
|
|||||||
Cash
flows from operating activities:
|
|||||||
Net
income (loss)
|
$
|
61,625
|
$
|
(6,767
|
)
|
||
Adjustments
to reconcile net income (loss) to cash and cash
|
|||||||
equivalents
provided by operating activities:
|
|||||||
Tax
benefit from release of tax valuation allowance
|
(55,697
|
)
|
-
|
||||
Depreciation
and amortization
|
19,432
|
14,906
|
|||||
Loss
on extinguishment of debt
|
794
|
||||||
Amortization
of deferred financing costs
|
253
|
1,208
|
|||||
Deferred
entrance fee items:
|
|||||||
Amortization
of deferred entrance fee income
|
(8,894
|
)
|
(8,745
|
)
|
|||
Proceeds
from entrance fee sales - deferred income
|
18,211
|
15,325
|
|||||
Accrual
of deferred interest
|
-
|
4,074
|
|||||
Amortization
of deferred gain on sale-leaseback transactions
|
(5,911
|
)
|
(5,078
|
)
|
|||
Amortization
of deferred compensation
|
412
|
-
|
|||||
Minority
interest in earnings of consolidated subsidiaries
|
671
|
1,825
|
|||||
Tax
benefit from exercise of stock options
|
558
|
-
|
|||||
(Gains)
losses from unconsolidated joint ventures
|
(160
|
)
|
220
|
||||
Loss
(gain) on disposal or sale of assets
|
356
|
(111
|
)
|
||||
Changes
in assets and liabilities, exclusive of acquisitions
|
|||||||
and
sale-leaseback transactions:
|
|||||||
Accounts
receivable
|
72
|
(651
|
)
|
||||
Inventory
|
29
|
34
|
|||||
Prepaid
expenses
|
(762
|
)
|
376
|
||||
Deferred
income taxes
|
(8,431
|
)
|
-
|
||||
Other
assets
|
3,861
|
3,973
|
|||||
Accounts
payable
|
(1,846
|
)
|
(121
|
)
|
|||
Other
accrued expenses and other current liabilities
|
4,000
|
(2,029
|
)
|
||||
Tenant
deposits
|
(161
|
)
|
(66
|
)
|
|||
Deferred
lease liability
|
1,445
|
(624
|
)
|
||||
Other
liabilities
|
755
|
3,640
|
|||||
Net
cash and cash equivalents provided by operating activities
|
30,612
|
21,389
|
|||||
Cash
flows from investing activities:
|
|||||||
Additions
to land, buildings and equipment
|
(13,583
|
)
|
(9,572
|
)
|
|||
Acquisition
of community and property
|
(13,950
|
)
|
-
|
||||
Proceeds
from the sale of assets
|
6,073
|
-
|
|||||
Investment
in restricted cash
|
(8,327
|
)
|
(7,578
|
)
|
|||
Proceeds
from release of restricted cash
|
19,343
|
4,144
|
|||||
Net
change in other restricted cash accounts
|
(236
|
)
|
(364
|
)
|
|||
Issuances
of notes receivable
|
(3,000
|
)
|
-
|
||||
Receipts
from notes receivable
|
113
|
180
|
|||||
Other
investing activities
|
466
|
366
|
|||||
Net
cash and cash equivalents used by investing activities
|
(13,101
|
)
|
(12,824
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from the issuance of long-term debt
|
-
|
43,838
|
|||||
Principal
payments on long-term debt
|
(45,569
|
)
|
(49,239
|
)
|
|||
Principal
reductions in master trust liability
|
(553
|
)
|
(634
|
)
|
|||
Refundable
entrance fee items:
|
|||||||
Proceeds
from entrance fee sales - refundable portion
|
8,878
|
7,295
|
|||||
Refunds
of entrance fee terminations
|
(11,615
|
)
|
(5,872
|
)
|
|||
Expenditures
for financing costs
|
(238
|
)
|
(341
|
)
|
|||
Distributions
to minority interest holders
|
(2,378
|
)
|
(2,225
|
)
|
|||
Proceeds
from the issuance of common stock
|
49,934
|
142
|
|||||
Proceeds
from the issuance of stock under the associate stock purchase
plan
|
1,035
|
-
|
|||||
Proceeds
from the exercise of stock options
|
1,013
|
204
|
|||||
Net
cash and cash equivalents provided (used) by financing
activities
|
507
|
(6,832
|
)
|
AMERICAN
RETIREMENT CORPORATION AND
SUBSIDIARIES
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED
|
|||||||
(UNAUDITED)
|
|||||||
(in
thousands)
|
|||||||
Six
months ended June 30,
|
|||||||
2005
|
2004
|
||||||
(restated)
|
|||||||
Net
increase in cash and cash equivalents
|
$
|
18,018
|
$
|
1,733
|
|||
Cash
and cash equivalents at beginning of period
|
28,454
|
17,192
|
|||||
Cash
and cash equivalents at end of period
|
$
|
46,472
|
$
|
18,925
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid during the period for interest (including capitalized
interest)
|
$
|
7,919
|
$
|
12,844
|
|||
Income
taxes paid
|
$
|
2,613
|
$
|
494
|
|||
During
the six months ended June 30, 2005, the Company acquired the
real assets
of an assisted living community previously operated pursuant
to an
operating lease and an entrance-fee continuing care retirement
community
for approximately $14.0 million of cash plus the assumption
of various
liabilities, including existing entrance fee refund obligations.
As a
result of the transaction, assets and liabilities changed as
follows:
|
|||||||
Six
months ended
June 30,
|
|||||||
2005
|
2004
|
||||||
Land,
buildings and equipment acquired
|
$
|
26,139
|
$
|
-
|
|||
Refundable
portion of entrance fees
|
(631
|
)
|
-
|
||||
Deferred
entrance fee income
|
(9,779
|
)
|
-
|
||||
Other
|
(1,779
|
)
|
-
|
||||
Cash
paid for acquisition of community and property
|
$
|
13,950
|
$
|
-
|
Supplemental
disclosure of non-cash transactions:
|
|||||||
During
the six months ended June 30, 2005, the Company completed a
transaction
with a real estate investment trust ("REIT") pursuant to which
the Company
received $9.5 million in proceeds under its existing
leases on two of
its retirement center communities. This investment by the REIT
is recorded
by the Company as a refinancing of a previous $8.7 million
note payable.
In connection with this refinancing, the Company incurred a
loss on debt
extinguishment which is included as a non-cash charge in the
Company's
condensed consolidated statements of cash flows for the six
months ended
June 30, 2005.
During
the six months ended June 30, 2004, the Company issued 4,808,898
shares of
common stock, par value $0.01 per share, to certain holders
of the
Company's 10% Convertible Senior Subordinated Series B Notes.
The holders
elected to convert $10.9 million of the Series B Notes to common
stock at
the conversion price of $2.25 per share. On April 1, 2004,
the Company
elected to redeem the balance of the Series B Notes on April
30, 2004. As
a result, debt and equity were changed as
follows:
|
|||||||
Six
months ended
June 30,
|
|||||||
2005
|
2004
|
||||||
Long-term
debt
|
$
|
-
|
$
|
(10,820
|
)
|
||
Common
stock
|
-
|
48
|
|||||
Additional
paid-in capital
|
-
|
10,772
|
Condensed
Consolidated Statements of Operations
(In
thousands, except per share data)
|
|||||||||||||||||||
For
the three months ended June 30, 2004
|
For
the six months ended June 30, 2004
|
||||||||||||||||||
As
previously
filed
|
Adjustments
|
Restated
|
As
previously
filed
|
Adjustments
|
Restated
|
||||||||||||||
Total
revenues
|
$
|
110,149
|
$
|
-
|
$
|
110,149
|
$
|
219,292
|
$
|
-
|
$
|
219,292
|
|||||||
Lease
expense
|
15,158
|
(286
|
)
|
14,872
|
30,272
|
(579
|
)
|
29,693
|
|||||||||||
(Gain)
loss on sale of assets
|
-
|
(6
|
)
|
(6
|
)
|
-
|
(111
|
)
|
(111
|
)
|
|||||||||
Total
operating expenses
|
103,136
|
(292
|
)
|
102,844
|
207,089
|
(690
|
)
|
206,399
|
|||||||||||
Operating
income
|
7,013
|
292
|
7,305
|
12,203
|
690
|
12,893
|
|||||||||||||
Loss
(gain) on sale of assets
|
(6
|
)
|
6
|
-
|
(111
|
)
|
111
|
-
|
|||||||||||
Other
expense, net
|
(8,621
|
)
|
(6
|
)
|
(8,627
|
)
|
(17,504
|
)
|
(111
|
)
|
(17,615
|
)
|
|||||||
Loss
before income taxes and minority interest
|
(1,608
|
)
|
286
|
(1,322
|
)
|
(5,301
|
)
|
579
|
(4,722
|
)
|
|||||||||
Income
tax expense
|
75
|
-
|
75
|
220
|
-
|
220
|
|||||||||||||
Net
loss
|
(2,546
|
)
|
286
|
(2,260
|
)
|
(7,346
|
)
|
579
|
(6,767
|
)
|
|||||||||
Basic
and diluted loss per share
|
(0.10
|
)
|
0.01
|
(0.09
|
)
|
(0.32
|
)
|
0.02
|
(0.30
|
)
|
|||||||||
Condensed
Consolidated Statement of Cash Flows
(In
thousands)
|
|||||||||||||||||||
|
For
the six months ended June 30, 2004
|
||||||||||||||||||
|
As
previously
filed
|
Adjustments
|
Restated
|
||||||||||||||||
Net
loss
|
(7,346
|
)
|
579
|
(6,767
|
)
|
||||||||||||||
Entrance
fee items:
|
|||||||||||||||||||
Amortization
of deferred entrance fee income
|
(8,745
|
)
|
-
|
(8,745
|
)
|
||||||||||||||
Proceeds
from entrance fee sales - deferred income
|
22,620
|
(7,295
|
)
|
15,325
|
|||||||||||||||
Refunds
of entrance fee terminations
|
(5,872
|
)
|
5,872
|
-
|
|||||||||||||||
Accrual
of deferred interest
|
-
|
4,074
|
4,074
|
||||||||||||||||
Other
assets
|
3,928
|
45
|
3,973
|
||||||||||||||||
Deferred
lease liability
|
-
|
(624
|
)
|
(624
|
)
|
||||||||||||||
Net
cash and cash equivalents provided by operating activities
|
18,738
|
2,651
|
21,389
|
||||||||||||||||
Net
cash and cash equivalents used by investing activities
|
(12,824
|
)
|
-
|
(12,824
|
)
|
||||||||||||||
Accrual
of deferred interest
|
4,074
|
(4,074
|
)
|
-
|
|||||||||||||||
Entrance
fee items:
|
|||||||||||||||||||
Proceeds
from entrance fee sales - refundable portion
|
-
|
7,295
|
7,295
|
||||||||||||||||
Refunds
of entrance fee terminations
|
-
|
(5,872
|
)
|
(5,872
|
)
|
||||||||||||||
Net
cash and cash equivalents used by financing activities
|
(4,181
|
)
|
(2,651
|
)
|
(6,832
|
)
|
|||||||||||||
Net
increase in cash and cash equivalents
|
1,733
|
-
|
1,733
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
(restated)
|
(restated)
|
||||||||||||
Revenues
|
|||||||||||||
Retirement
centers
|
$
|
93,794
|
$
|
85,578
|
$
|
185,276
|
$
|
170,866
|
|||||
Free-standing
assisted living communities
|
26,847
|
23,532
|
53,054
|
46,195
|
|||||||||
Management
services (2)
|
1,058
|
1,039
|
2,360
|
2,231
|
|||||||||
Total
revenue
|
$
|
121,699
|
$
|
110,149
|
$
|
240,690
|
$
|
219,292
|
|||||
Retirement
centers
|
|||||||||||||
Resident
and healthcare revenues
|
$
|
93,794
|
$
|
85,578
|
$
|
185,276
|
$
|
170,866
|
|||||
Community
operating expense
|
61,869
|
56,546
|
122,759
|
113,337
|
|||||||||
Segment
operating contribution (3)
|
31,925
|
29,032
|
62,517
|
57,529
|
|||||||||
Free-standing
assisted living communities
|
|||||||||||||
Resident
and healthcare revenues
|
26,847
|
23,532
|
53,054
|
46,195
|
|||||||||
Community
operating expense
|
18,027
|
17,519
|
36,474
|
34,580
|
|||||||||
Segment
operating contribution (3)
|
8,820
|
6,013
|
16,580
|
11,615
|
|||||||||
Management
services operating contribution
|
516
|
515
|
1,016
|
939
|
|||||||||
General
and administrative expense
|
6,765
|
6,114
|
13,356
|
12,702
|
|||||||||
Lease
expense
|
15,445
|
14,872
|
30,955
|
29,693
|
|||||||||
Depreciation
and amortization (4)
|
9,462
|
7,275
|
19,432
|
14,906
|
|||||||||
Loss
(gain) on sale of assets
|
344
|
(6
|
)
|
356
|
(111
|
)
|
|||||||
Operating
income
|
$
|
9,245
|
$
|
7,305
|
$
|
16,014
|
$
|
12,893
|
|
|
|
|||||||||||
June
30,
|
December
31,
|
||||||||||||
2005
|
2004
|
||||||||||||
Total
Assets
|
|||||||||||||
Retirement
centers
|
$
|
507,626
|
$
|
498,132
|
|||||||||
Free-standing
assisted living communities
|
185,840
|
182,353
|
|||||||||||
Management
services
|
135,971
|
68,765
|
|||||||||||
Total
|
$
|
829,437
|
$
|
749,250
|
(1)
|
Segment
financial and operating data does not include any inter-segment
transactions or allocated costs.
|
(2)
|
Management
Services represent the Company’s management fee revenue and reimbursed
expense revenue.
|
(3)
|
Segment
operating contribution is defined as segment revenues less segment
operating expenses.
|
(4)
|
The
Company’s depreciation expense for the six months ended June 30, 2004
includes $0.5 million of depreciation expense which would have been
recognized during 2003 while the assets were held-for-sale if the
assets
had been continuously classified as
held-for-use.
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
(restated)
|
(restated)
|
||||||||||||
Net
income (loss), as reported
|
$
|
59,000
|
$
|
(2,260
|
)
|
$
|
61,625
|
$
|
(6,767
|
)
|
|||
Deduct
total stock-based employee compensation
expense
determined under fair-value-based method
|
(294
|
)
|
(255
|
)
|
(322
|
)
|
(421
|
)
|
|||||
Pro
forma net income (loss)
|
$
|
58,706
|
$
|
(2,515
|
)
|
$
|
61,303
|
$
|
(7,188
|
)
|
|||
Earnings
(loss) per share:
|
|||||||||||||
Basic
- as reported
|
$
|
1.90
|
$
|
(0.09
|
)
|
$
|
2.06
|
$
|
(0.30
|
)
|
|||
Diluted
- as reported
|
$
|
1.82
|
$
|
(0.09
|
)
|
$
|
1.96
|
$
|
(0.30
|
)
|
|||
Basic
- pro forma
|
$
|
1.89
|
$
|
(0.10
|
)
|
$
|
2.05
|
$
|
(0.32
|
)
|
|||
Diluted
- pro forma
|
$
|
1.82
|
$
|
(0.10
|
)
|
$
|
1.95
|
$
|
(0.32
|
)
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
(restated)
|
(restated)
|
||||||||||||
Net
income (loss)
|
$
|
59,000
|
$
|
(2,260
|
)
|
$
|
61,625
|
$
|
(6,767
|
)
|
|||
Weighted
average shares used for basic earnings per share data
|
31,053
|
24,290
|
29,976
|
22,770
|
|||||||||
Effect
of dilutive common securities:
|
|||||||||||||
Employee
stock options
|
1,278
|
-
|
1,540
|
-
|
|||||||||
Weighted
average shares used for diluted earnings per share data
|
32,331
|
24,290
|
31,516
|
22,770
|
|||||||||
Basic
income (loss) per share
|
$
|
1.90
|
$
|
(0.09
|
)
|
$
|
2.06
|
$
|
(0.30
|
)
|
|||
Effect
of dilutive securities
|
(0.08
|
)
|
-
|
(0.10
|
)
|
-
|
|||||||
Diluted
income (loss) per share
|
$
|
1.82
|
$
|
(0.09
|
)
|
$
|
1.96
|
$
|
(0.30
|
)
|
Three
Months
|
Six
Months
|
||||||||||||
Ended
June 30,
|
Ended
June 30,
|
||||||||||||
2005
|
2004
|
2005
|
2004
|
||||||||||
Number
of options (in thousands)
|
36
|
746
|
176
|
1,038
|
|||||||||
Weighted-average
exercise price
|
$
|
14.48
|
$
|
4.90
|
$
|
13.60
|
$
|
4.84
|
June
30,
|
December
31,
|
||||||
2005
|
2004
|
||||||
Various
mortgage notes, interest at variable and fixed rates, generally payable
monthly
with any unpaid principal and interest due between 2006 and 2037.
Interest
rates at June 30, 2005 range from 5.81% to 9.5%. The loans are secured
by
certain land, buildings and equipment.
|
$
|
89,782
|
$
|
109,401
|
|||
Other
long-term debt, interest generally payable monthly with any unpaid
principal
due between 2005 and 2018. Fixed interest rates at June 30, 2005
range
from
4.6% to 9.0%.
|
15,742
|
26,555
|
|||||
Subtotal
debt
|
105,524
|
135,956
|
|||||
Capital
lease and lease financing obligations with principal and interest
payable
monthly
bearing interest at fixed rates ranging from 0.53% to 10.9%, with
final
payments
due between 2009 and 2017. The obligations are secured by certain
land,
buildings and equipment.
|
191,134
|
199,126
|
|||||
Total
debt including capital lease and lease financing
obligations
|
296,658
|
335,082
|
|||||
Less
current portion:
|
|||||||
Debt
|
(6,975
|
)
|
(10,372
|
)
|
|||
Capital
lease and lease financing obligations
|
(16,922
|
)
|
(16,474
|
)
|
|||
Total
long-term debt, excluding current portion:
|
|||||||
Debt
|
98,549
|
125,584
|
|||||
Capital
lease and lease financing obligations
|
174,212
|
182,652
|
|||||
Total
|
$
|
272,761
|
$
|
308,236
|
Long-term
Debt
|
Capital
Lease
and
Lease
Financing
Obligations
|
Total
Debt at
June
30, 2005
|
||||||||
For
the twelve months ended June 30, 2006
|
$
|
6,975
|
$
|
16,922
|
$
|
23,897
|
||||
For
the twelve months ended June 30, 2007
|
11,148
|
17,304
|
28,452
|
|||||||
For
the twelve months ended June 30, 2008
|
2,508
|
18,026
|
20,534
|
|||||||
For
the twelve months ended June 30, 2009
|
7,588
|
18,867
|
26,455
|
|||||||
For
the twelve months ended June 30, 2010
|
9,007
|
19,764
|
28,771
|
|||||||
Thereafter
|
68,298
|
100,251
|
168,549
|
|||||||
$
|
105,524
|
$
|
191,134
|
$
|
296,658
|
During
the three months ended December 31, 2005
|
$
|
5.5
million
|
||
During
the three months ended March 31, 2006
|
7.2
million
|
|||
During
the three months ended December 31, 2006
|
46.7
million
|
|||
|
$ |
59.4
million
|
Twelve
months ended June 30, 2006
|
$
|
69,109
|
||
Twelve
months ended June 30, 2007
|
70,214
|
|||
Twelve
months ended June 30, 2008
|
70,086
|
|||
Twelve
months ended June 30, 2009
|
70,109
|
|||
Twelve
months ended June 30, 2010
|
71,115
|
|||
Thereafter
|
397,979
|
|||
|
$
|
748,612
|
Future
Minimum Lease Payments
|
|||||||
Twelve
Months
Ending
|
Total
Remaining
|
||||||
June
30, 2006
|
Lease
Term
|
||||||
Master
lease agreements for ten communities. Initial term ranging from 10
to 15
years,
with renewal options for two additional ten year terms.
|
$
|
24,048
|
$
|
251,308
|
|||
Operating
lease agreements for three communities with an initial term of 15
years
and renewal options for two additional five year terms or two
additional
ten year terms.
|
9,194
|
142,418
|
|||||
Master
lease agreement for nine communities. Initial 12 year term, with
renewal
options
for two additional five year terms.
|
11,022
|
103,297
|
|||||
Operating
lease agreement for a community which has a 23 year term, with a
seven
year renewal option. The Company also has an option to purchase the
community
at the expiration of the lease term at fair market value.
|
4,345
|
52,285
|
|||||
Operating
lease agreement for a community with an initial term of 15 years
with
two
five year renewal options and a right of first refusal to repurchase
the
community.
The Company recorded a deferred gain of $11.7 million on the sale,
which
is being amortized over the base term of the lease.
|
3,893
|
46,185
|
|||||
Master
lease agreement for six communities with an initial ten year term,
with
renewal
options for four additional ten year terms.
|
6,067
|
45,717
|
|||||
Other
lease agreements for four communities, as well as a lease for the
home
office.
Initial
terms ranging from eight to 17 years, with various renewal options.
|
10,540
|
107,402
|
|||||
Total
operating lease obligations
|
$
|
69,109
|
$
|
748,612
|
·
|
Community
operating expenses
-
Labor and labor related expenses for community associates represent
approximately 60% to 65% of this line item. Other significant items
in
this category are food costs, property taxes, utility costs, marketing
costs and insurance.
|
·
|
General
and administrative
-
Labor costs also represent the largest component for this category,
comprising the home office and regional staff supporting community
operations. Other significant items are travel and legal and professional
service costs. In response to higher liability insurance costs and
deductibles in recent years, and the inherent liability risk in providing
personal and health-related services to seniors, we have significantly
increased our staff and resources involved in quality assurance,
compliance and risk management.
|
·
|
Lease
expense
-
Our lease expense has grown significantly over the past several years,
as
a result of the large number of sale-leaseback transactions completed
in
connection with various financing transactions. Our lease expense
includes
the rent expense for all operating leases, including an accrual for
known
lease escalators in future years (the impact of these future escalators
is
spread evenly over the lease term for financial reporting purposes),
and
is reduced by the amortization of deferred gains on previous
sale-leaseback transactions.
|
·
|
Depreciation
and amortization expense
-
We incur significant depreciation expense on our fixed assets (primarily
community buildings and equipment) and amortization expense related
primarily to leasehold acquisition
costs.
|
·
|
Interest
expense
-
Our interest expense is comprised of interest on our outstanding
debt,
capital lease and lease financing obligations.
|
·
|
Our
statements of operations for the three and six months ended June
30, 2005
show significant improvement versus the respective prior year periods.
Net
income for the three months ended June 30, 2005 was $59.0 million,
including the $55.7 million impact of the reduction of our deferred
tax
valuation allowance, versus a net loss for the three months ended
June 30,
2004 of $2.3 million. Net income for the six months ended June 30,
2005
was $61.6 million, including the $55.7 million impact of the reduction
of
our deferred tax valuation allowance, versus a net loss for the six
months
ended June 30, 2004 of $6.8 million. Cash provided by operating activities
has increased $9.2 million, to $30.6 million from $21.4 million for
the
six months ended June 30, 2005 and 2004, respectively.
|
·
|
In
order to continue to increase net income, we are focusing on improving
results in our retirement centers and free-standing assisted living
segments, while controlling our general and administrative costs
and
reducing our debt service costs. We are also focused on the growth
of our
ancillary service revenues, as well as the expansion of capacity
at
several communities.
|
·
|
We
are focused on increasing the revenues and operating contribution
of our
retirement centers. Revenue per unit increases at our retirement
centers
resulted primarily from increases in selling rates, increased therapy
and
ancillary service revenues, as well as annual billing rate increases
to
existing residents (typically 2% to 4% under most resident agreements).
In
addition, a significant component of the average revenue per unit
increase
stems from the “mark-to-market” effect of resident turnover. Since monthly
rates for new residents (current market selling rates) are generally
higher than billing rates for current residents (since annual increases
to
billing rates are typically capped in resident agreements), turnover
typically results in significantly increased monthly fees for the
new
resident. This “mark-to-market” increase is generally more significant in
entrance fee communities due to much longer average length of stay
(ten or
more years).
|
·
|
For
the three months ended June 30, 2005, retirement center revenues
were up
9.6% versus prior year, and segment operating contribution was up
10%
versus the same period last year. Operating contribution per unit
per
month increased 7.4% for the same period, from $1,155 to $1,241.
For the
six months ended June 30, 2005, retirement center revenues were up
8.4%
and segment operating contribution was up 8.7% versus the six months
ended
June 30, 2004. Operating contribution per unit per month increased
6.6%
from $1,144 to $1,219.
|
·
|
We
are also focusing on increasing our free-standing assisted living
segment
operating contribution further primarily by increasing occupancy
above the
current 90% level, and by increasing revenue per unit through price
increases, ancillary services, and the “mark-to-market” effect of turnover
of units that are at lower rates, while maintaining control of our
operating costs. Since monthly rates for new residents (current market
selling rates) are generally higher than billing rates for current
residents, turnover typically results in significantly increased
monthly
fees for the new resident. We believe that, absent unforeseen market
or
pricing pressures, occupancy increases above 90% should produce high
incremental community operating contribution margins for this segment.
The
risks to improving occupancy in our free-standing assisted living
community portfolio are unexpected increases in move outs in any
period
(due to health or other reasons) and the development of new unit
capacity
or renewed price discounting by competitors in our markets, which
could
make it more difficult to fill vacant units and which could result
in
lower revenue per unit.
|
·
|
Our
free-standing assisted living communities have continued to increase
revenue and segment operating contribution during 2005, primarily
as a
result of an 8.4% year over year increase in revenue per unit as
of June
30, 2005, as well as an increase in ending occupancy from 86% as
of June
30, 2004, to 90% as of June 30, 2005. The increased revenue per unit
in
our free-standing assisted living communities resulted primarily
from
selling rate increases, reduced discounting, and turnover of units
resulting in new residents paying higher current market rates. In
addition, our residency agreements provide for annual rate increases.
The
increased amount of ancillary services, including therapy services,
also
contributed to the increased revenue per
unit.
|
·
|
Our
free-standing assisted living community incremental increase in operating
contribution as a percentage of revenue increase was 85% and 72%
for the
three and six months ended June 30, 2005, respectively, versus 75%
and 85%
for the three and six months ended June 30, 2004. Our free-standing
assisted living community operating contribution per unit per month
increased 39% during the three months ended June 30, 2005, versus
the same
period last year, to $1,150 per unit per month. For the six months
ended
June 30, 2005, our free-standing assisted living community operating
contribution per unit per month increased 35% versus the same period
last
year to $1,086 per unit per month.
|
Number
of Communities /
|
Ending
Occupancy % /
|
Average
Occupancy % /
|
|||||||||||||||||
Total
Ending Capacity
|
Ending
Occupied Units
|
Average
Occupied Units
|
|||||||||||||||||
June
30,
|
June
30,
|
Six
Months Ended June 30,
|
|||||||||||||||||
2005
|
2004
|
2005
|
2004
|
2005
|
2004
|
||||||||||||||
Retirement
Centers
|
29
|
28
|
95
|
%
|
95
|
%
|
95
|
%
|
94
|
%
|
|||||||||
9,037
|
8,871
|
8,567
|
8,424
|
8,547
|
8,380
|
||||||||||||||
Free-standing
ALs
|
33
|
33
|
90
|
%
|
86
|
%
|
89
|
%
|
84
|
%
|
|||||||||
3,012
|
3,002
|
2,705
|
2,590
|
2,681
|
2,532
|
||||||||||||||
Management
Services
|
5
|
5
|
95
|
%
|
93
|
%
|
95
|
%
|
93
|
%
|
|||||||||
1,188
|
1,188
|
1,129
|
1,111
|
1,127
|
1,072
|
||||||||||||||
Total
|
67
|
66
|
94
|
%
|
93
|
%
|
94
|
%
|
92
|
%
|
|||||||||
13,237
|
13,061
|
12,401
|
12,125
|
12,355
|
11,984
|
Three
Months Ended June 30,
|
2005
vs. 2004
|
Six
Months Ended June 30,
|
2005
vs. 2004
|
||||||||||||||||||||||
|
|
2005
|
|
2004
|
|
Change
|
|
%
|
|
2005
|
|
2004
|
|
Change
|
|
%
|
|||||||||
(restated)
|
(restated)
|
||||||||||||||||||||||||
Revenues:
|
|||||||||||||||||||||||||
Retirement
Centers
|
$
|
93,794
|
$
|
85,578
|
$
|
8,216
|
9.6
|
%
|
$
|
185,276
|
$
|
170,866
|
$
|
14,410
|
8.4
|
%
|
|||||||||
Free-standing
Assisted Living Communities
|
26,847
|
23,532
|
3,315
|
14.1
|
%
|
53,054
|
46,195
|
6,859
|
14.8
|
%
|
|||||||||||||||
Management
Services
|
1,058
|
1,039
|
19
|
1.8
|
%
|
2,360
|
2,231
|
129
|
5.8
|
%
|
|||||||||||||||
Total
revenue
|
$
|
121,699
|
$
|
110,149
|
$
|
11,550
|
10.5
|
%
|
$
|
240,690
|
$
|
219,292
|
$
|
21,398
|
9.8
|
%
|
|||||||||
Retirement
Centers
|
|||||||||||||||||||||||||
Ending
occupied units
|
8,567
|
8,424
|
143
|
1.7
|
%
|
8,567
|
8,424
|
143
|
1.7
|
%
|
|||||||||||||||
Ending
occupancy %
|
95
|
%
|
95
|
%
|
0
|
%
|
95
|
%
|
95
|
%
|
0
|
%
|
|||||||||||||
Average
occupied units
|
8,572
|
8,382
|
190
|
2.3
|
%
|
8,547
|
8,380
|
167
|
2.0
|
%
|
|||||||||||||||
Average
occupancy %
|
95
|
%
|
94
|
%
|
1
|
%
|
95
|
%
|
94
|
%
|
1
|
%
|
|||||||||||||
Revenue
per occupied unit (per month)
|
$
|
3,647
|
$
|
3,403
|
$
|
244
|
7.2
|
%
|
$
|
3,613
|
$
|
3,398
|
$
|
215
|
6.3
|
%
|
|||||||||
Operating
contribution per unit (per month)
|
1,241
|
1,155
|
86
|
7.4
|
%
|
1,219
|
1,144
|
75
|
6.6
|
%
|
|||||||||||||||
Resident
and healthcare revenue
|
93,794
|
85,578
|
8,216
|
9.6
|
%
|
185,276
|
170,866
|
14,410
|
8.4
|
%
|
|||||||||||||||
Community
operating expense
|
61,869
|
56,546
|
5,323
|
9.4
|
%
|
122,759
|
113,337
|
9,422
|
8.3
|
%
|
|||||||||||||||
Segment
operating contribution (2)
|
|
31,925
|
29,032
|
2,893
|
10.0
|
%
|
62,517
|
57,529
|
4,988
|
8.7
|
%
|
||||||||||||||
Operating
contribution margin (3)
|
34.0
|
%
|
33.9
|
%
|
0.1
|
%
|
0.3
|
%
|
33.7
|
%
|
33.7
|
%
|
NM
|
NM
|
|||||||||||
Free-standing
Assisted Living Communities
|
|||||||||||||||||||||||||
Ending
occupied units (4)
|
2,561
|
2,456
|
105
|
4.3
|
%
|
2,561
|
2,456
|
105
|
4.3
|
%
|
|||||||||||||||
Ending
occupancy % (4)
|
90
|
%
|
86
|
%
|
4
|
%
|
90
|
%
|
86
|
%
|
4
|
%
|
|||||||||||||
Average
occupied units (4)
|
2,557
|
2,430
|
127
|
5.2
|
%
|
2,545
|
2,408
|
137
|
5.7
|
%
|
|||||||||||||||
Average
occupancy % (4)
|
90
|
%
|
86
|
%
|
4
|
%
|
90
|
%
|
85
|
%
|
5
|
%
|
|||||||||||||
Revenue
per occupied unit
|
$
|
3,500
|
$
|
3,228
|
$
|
272
|
8.4
|
%
|
$
|
3,474
|
$
|
3,197
|
$
|
277
|
8.7
|
%
|
|||||||||
Operating
contribution per unit (per month)
|
1,150
|
825
|
325
|
39.4
|
%
|
1,086
|
804
|
282
|
35.1
|
%
|
|||||||||||||||
Resident
and healthcare revenue
|
26,847
|
23,532
|
3,315
|
14.1
|
%
|
53,054
|
46,195
|
6,859
|
14.8
|
%
|
|||||||||||||||
Community
operating expense
|
18,027
|
17,519
|
508
|
2.9
|
%
|
36,474
|
34,580
|
1,894
|
5.5
|
%
|
|||||||||||||||
Segment
operating contribution (2)
|
8,820
|
6,013
|
2,807
|
46.7
|
%
|
16,580
|
11,615
|
4,965
|
42.7
|
%
|
|||||||||||||||
Operating
contribution margin (3)
|
32.9
|
%
|
25.6
|
%
|
7.3
|
%
|
28.6
|
%
|
31.3
|
%
|
25.1
|
%
|
6.2
|
%
|
24.7
|
%
|
|||||||||
Management
services operating contribution (2)
|
$
|
516
|
$
|
515
|
$
|
1
|
0.2
|
%
|
$
|
1,016
|
$
|
939
|
$
|
77
|
8.2
|
%
|
|||||||||
Total
segment operating contributions
|
41,261
|
35,560
|
5,701
|
16.0
|
%
|
80,113
|
70,083
|
10,030
|
14.3
|
%
|
|||||||||||||||
As
a
% of total revenue
|
33.9
|
%
|
32.3
|
%
|
1.6
|
%
|
5.0
|
%
|
33.3
|
%
|
32.0
|
%
|
1.3
|
%
|
4.1
|
%
|
|||||||||
General
and administrative
|
$
|
6,765
|
$
|
6,114
|
$
|
651
|
10.6
|
%
|
$
|
13,356
|
$
|
12,702
|
$
|
654
|
5.1
|
%
|
|||||||||
Lease
expense
|
15,445
|
14,872
|
573
|
3.9
|
%
|
30,955
|
29,693
|
1,262
|
4.3
|
%
|
|||||||||||||||
Depreciation
and amortization
|
8,773
|
6,547
|
2,226
|
34.0
|
%
|
18,044
|
13,460
|
4,584
|
34.1
|
%
|
|||||||||||||||
Amortization
of leasehold costs
|
689
|
728
|
(39
|
)
|
-5.4
|
%
|
1,388
|
1,446
|
(58
|
)
|
-4.0
|
%
|
|||||||||||||
Loss
(gain) on the sale of assets
|
344
|
(6
|
)
|
350
|
NM
|
356
|
(111
|
)
|
467
|
NM
|
|||||||||||||||
Operating
income
|
$
|
9,245
|
$
|
7,305
|
$
|
1,940
|
26.6
|
%
|
$
|
16,014
|
$
|
12,893
|
$
|
3,121
|
24.2
|
%
|
(1)
|
Selected
financial and operating data does not include any inter-segment
transactions or allocated
costs.
|
(2)
|
Segment
Operating Contribution is calculated by subtracting the segment operating
expenses from the segment revenues.
|
(3)
|
Segment
Operating Contribution Margin is calculated by dividing the operating
contribution of the segment by the respective segment
revenues.
|
(4)
|
Excludes
two free-standing assisted living communities we partially own
through
joint ventures. These joint ventures are not included in the consolidated
free-standing assisted living segment results since we do not own
a
majority interest.
|
NM
|
Not meaningful |
·
|
$1.2
million related to revenues from the February acquisition of Galleria
Woods. At June 30, 2005, 154 units or 74% of the community was occupied.
We expect revenues to increase as we increase occupancy at this retirement
center.
|
·
|
$6.6
million from increased revenue per occupied unit. This increase is
comprised primarily of selling rate increases and increased ancillary
services provided to residents (including a $2.5 million increase
in
therapy services). Rate increases include the mark-to-market effect
from
turnover of residents (reselling units at higher current selling
rates),
annual increases in monthly service fees from existing residents
and the
impact of increased Medicare reimbursement rates for skilled nursing
and
therapy services. We expect that selling rates to new residents will
generally continue to increase during 2005, absent an adverse change
in
market conditions.
|
·
|
$0.4
million from other increases in occupancy. Occupancy of the retirement
center segment at June 30, 2005 was 95%. Any occupancy gains above
this
level should produce significant incremental operating contributions.
We
are focused on maintaining this high level of occupancy across the
portfolio, and making incremental occupancy gains at selected communities
with below average occupancy levels for our retirement
centers.
|
·
|
$1.2
million related to operating expenses from the February acquisition
of
Galleria Woods.
|
·
|
$3.0
million of increased labor and related costs. This increase is primarily
a
result of wage rate increases for associates and additional staffing
costs, including approximately $1.5 million supporting the growth
of our
therapy services program. Although wage rates of associates are expected
to increase each year, we do not expect significant changes in staffing
levels in our retirement center segment, other than to support community
expansions or the growth of ancillary programs such as therapy services.
|
·
|
$1.1
million of other year-to-year cost increases. This includes increases
in
operating expenses such as utilities, property taxes, marketing,
food,
ancillary costs and other property related
costs.
|
·
|
The
operating contribution margin increased slightly to 34.0% from 33.9%
for
the three months ended June 30, 2005 and 2004, respectively.
|
·
|
The
operating contribution margin in 2005 reflected continued operational
improvements throughout the retirement center segment resulting from
increased occupancy and revenue per occupied unit (including continued
growth of the therapy services program), and control of community
operating expenses including labor, employee benefits and insurance
related costs. These margin improvements were offset by the break-even
contribution of the Galleria Woods community acquired in February
2005. We
expect continued operating margin improvement for this community,
as it
increases its occupancy above its current 74%
level.
|
·
|
$2.3
million from increased revenue per occupied unit. This increase includes
the impact of price increases, reduced discounting and promotional
allowances, and the mark-to-market effect from turnover
of residents (reselling units at higher current rates), and
includes
$0.8 million related to increased revenues from therapy services.
We will
be focused on increasing revenue per occupied unit, subject to market
constraints, through price increases, as well as the mark-to-market
turnover of residents with prior discounted rates, and an increase
in
ancillary services such as therapy.
|
·
|
$1.0
million from increased occupancy. Total occupancy increased from
86% at
June 30, 2004 to 90% at June 30, 2005, an increase of 4 percentage
points.
We are focused on continuing to increase the occupancy in the
free-standing assisted living communities, and believe that over
the
long-term, this segment of the industry should be able to achieve
average
occupancy levels at or near those achieved in our retirement center
segment. We are focused on increasing our number of move-ins, increasing
average length of stay, and expanding our marketing efforts and sales
training in order to increase
occupancy.
|
·
|
These
amounts exclude the revenue and occupancy for two free-standing assisted
living communities partially owned through unconsolidated joint
ventures.
|
·
|
$0.6
million
of
additional labor and labor related costs. This increase is primarily
a
result of wage rate increases for associates and additional staffing
costs
of approximately $0.3 million supporting the growth of our therapy
services programs. We do not expect significant increases in staffing
levels in our free-standing assisted living communities as occupancy
levels increase over the current 90%, since most of our communities
are
nearly fully staffed at current occupancy levels. However, growth
of
ancillary revenue programs such as therapy may require additional
staff to
support incremental activity. As a result of higher
recruiting and retention costs of qualified personnel, we
expect
increased wage rates each year, subject to labor market
conditions.
|
·
|
$0.1
million of other net cost decreases, primarily from property tax
savings,
which were partially offset by increases in community overhead costs,
such
as marketing and utilities, as well as food costs and various other
cost
increases.
|
·
|
For
the three months ended June 30, 2004 and 2005, the operating contribution
margin increased from 25.6% to 32.9%, respectively, an increase of
7.3
percentage points.
|
·
|
The
increased margin primarily relates to strong increases in revenue
per
occupied unit and occupancy increases, coupled with control of community
operating expenses. The incremental increase in operating contribution
as
a percentage of revenue increase was 85% for the three months ended
June
30, 2005 versus 75% for the three months ended June 30,
2004.
|
·
|
We
believe that, absent unforeseen cost pressures, revenue increases
resulting from occupancy increases should continue to produce high
incremental segment operating contribution margins (as a percentage
of
sales increase) for this segment.
|
·
|
General
and administrative expense as a percentage of total consolidated
revenues
was flat at 5.6% for the three months ended June 30, 2005 and 2004,
respectively.
|
·
|
We
believe that measuring general and administrative expense as a percentage
of total consolidated revenues and combined revenues (including
unconsolidated managed revenues) provides insight as to the level
of our
overhead in relation to our total operating activities (including
those
that relate to management services). General and administrative expense
as
a percentage of total combined revenues was flat at 5.0% for the
three
months ended June 30, 2005 and 2004, calculated as follows:
|
Three
Months Ended June 30,
|
|||||||
2005
|
2004
|
||||||
Total
consolidated revenues
|
$
|
121,699
|
$
|
110,149
|
|||
Revenues
of unconsolidated managed communities
|
13,925
|
13,668
|
|||||
Less
management fees
|
516
|
515
|
|||||
Total
combined revenue
|
$
|
135,108
|
$
|
123,302
|
|||
Total
general and administrative expense
|
$
|
6,765
|
$
|
6,114
|
|||
General
and administrative expense as a % of total
consolidated
revenues
|
5.6
|
%
|
5.6
|
%
|
|||
General
and administrative expense as a % of total
combined
revenue
|
5.0
|
%
|
5.0
|
%
|
·
|
As
a result of a sale-leaseback transaction completed in July 2004,
a
retirement center is currently operated pursuant to an operating
lease
(previously owned). Lease expense increased $0.6 million as a result
of
this transaction. This increase was offset by approximately $0.4
million
of increased amortization of deferred gain on sale and $0.3 million
in
reduced lease expense associated with the February 10, 2005 acquisition
of
the real estate of one free-standing assisted living community. This
community was previously operated pursuant to an operating
lease.
|
·
|
As
a result of the December 31, 2004 expiration of contingent earnouts
included in lease agreements for two free-standing assisted living
communities, these leases were accounted for as operating leases
as of
December 31, 2004 (versus lease financing obligation treatment for
these
leases in prior periods). Lease expense for the three months ended
June
30, 2005 increased $0.5 million related to these two free-standing
assisted living communities.
|
·
|
Net
lease expense for the three months ended June 30, 2005 was $15.4
million,
which includes current lease payments of $17.0 million, plus straight-line
accruals for future lease escalators of $1.4 million, net of the
amortization of the deferred gain from prior sale-leasebacks of $3.0
million.
|
·
|
As
of June 30, 2005, we had operating leases for 34 of our communities,
including 19 retirement centers and 15 free-standing assisted living
communities.
|
·
|
The
sale-leaseback transactions completed in July 2004, in which we repaid
the
remaining $82.6 million balance of the mezzanine loan, and $18.9
million
of first mortgage debt. These transactions decreased the three months
ended June 30, 2005 interest expense compared to the three months
ended
June 30, 2004 interest expense by approximately $4.8 million.
|
·
|
The
public equity offering completed in January 2005, as a result of
which we
repaid $17.2 million of our 9.625% fixed interest only mortgage notes,
issued in 2001, due October 1, 2008. These payments were made from
the
proceeds of the offering. These transactions decreased the three
months
ended June 30, 2005 interest expense compared to the three months
ended
June 30, 2004 interest expense by approximately $0.4
million.
|
·
|
The
change in fair value of our interest rate swap, which decreased interest
expense for the three months ended June 30, 2005 compared to the
three
months ended June 30, 2004 by approximately $0.3
million.
|
·
|
The
expiration of contingent earnouts included in lease agreements for
two
free-standing assisted living communities. These leases are presently
accounted for as operating leases (versus lease financing obligation
treatment for these leases for periods prior to December 31, 2004).
We
will continue to evaluate our other lease earnouts versus our cash
needs,
the cost and terms of alternative financing, and may consider extending
earnout terms in certain cases. Interest expense for the three months
ended June 30, 2005 decreased $0.3 million related to these two
free-standing assisted living communities.
|
·
|
This
decrease was partially offset by a $0.8 million charge resulting
from the
early extinguishment of debt related to the Somerby earnout transaction.
See Note 7 to the condensed consolidated financial
statements.
|
·
|
Interest
expense is expected to approximate a quarterly amount of $3.2 million,
before the impact of any increase in the interest rates of our variable
rate debt or other refinancing or transactional activity.
|
·
|
$2.0
million related to revenues from the February acquisition of Galleria
Woods. At June 30, 2005, 154 units or 74% of the community was occupied.
We expect to increase occupancy at this retirement center.
|
·
|
$11.4
million from increased revenue per occupied unit. This increase is
comprised primarily of selling rate increases and increased ancillary
services provided to residents (including a $4.8 million increase
in
therapy services). Rate increases include the mark-to-market effect
from
turnover of residents (reselling units at higher current selling
rates),
annual increases in monthly service fees from existing residents
and the
impact of increased Medicare reimbursement rates for skilled nursing
and
therapy services. We expect that selling rates to new residents will
generally continue to increase during the remainder of 2005, absent
an
adverse change in market
conditions.
|
·
|
$1.0
million from other increases in occupancy. Occupancy of the retirement
center segment at June 30, 2005 was 95%. Any occupancy gains above
this
level should produce significant incremental operating contributions.
We
are focused on maintaining this high level of occupancy across the
portfolio, and making incremental occupancy gains at selected communities
with below average occupancy levels for our retirement
centers.
|
·
|
$2.0
million related to operating expenses from the February acquisition
of
Galleria Woods.
|
·
|
$5.6
million of increased labor and related costs. This increase is primarily
a
result of wage rate increases for associates and additional staffing
costs, including approximately $2.8 million supporting the growth
of our
therapy services program. Although wage rates of associates are expected
to increase each year, we do not expect significant changes in staffing
levels in our retirement center segment, other than to support community
expansions or the growth of ancillary programs such as therapy services.
|
·
|
$1.8
million of other year-to-year cost increases. This includes increases
in
operating expenses such as utilities, property taxes, marketing,
food,
ancillary costs and other property related
costs.
|
·
|
The
operating contribution margin remained at 33.7% for the six months
ended
June 30, 2005 and 2004.
|
·
|
The
operating contribution margin in 2005 reflected continued operational
improvements throughout the retirement center segment resulting from
increased occupancy and revenue per occupied unit (including continued
growth of the therapy services program), and control of community
operating expenses including labor, employee benefits and insurance
related costs. These margin improvements were offset by the break-even
contribution of the Galleria Woods community acquired in February
2005,
and the additional start-up costs associated with the growth of our
therapy programs and outside therapy
contracts.
|
·
|
$4.8
million from increased revenue per occupied unit. This increase includes
the impact of price increases, reduced discounting and promotional
allowances, and the mark-to-market effect from turnover
of residents (reselling units at higher current rates), and
includes
$1.5 million related to increased revenues from therapy services.
We will
be focused on increasing revenue per occupied unit, subject to market
constraints, through price increases, as well as the mark-to-market
turnover of residents with prior discounted rates, and an increase
in
ancillary services such as therapy.
|
·
|
$2.1
million from increased occupancy. Total occupancy increased from
86% at
June 30, 2004 to 90% at June 30, 2005, an increase of 4 percentage
points.
We are focused on continuing to increase the occupancy in the
free-standing assisted living communities, and believe that over
the
long-term, this segment of the industry should be able to achieve
average
occupancy levels at or near those achieved in our retirement center
segment. We are focused on increasing our number of move-ins, increasing
average length of stay, and expanding our marketing efforts and sales
training in order to increase
occupancy.
|
·
|
These
amounts exclude the revenue and occupancy for two free-standing assisted
living communities partially owned through unconsolidated joint
ventures.
|
·
|
$1.6
million
of
additional labor and labor related costs. This increase is primarily
a
result of wage rate increases for associates and additional staffing
costs
of approximately $0.3 million supporting the growth of our therapy
services programs. We do not expect significant increases in staffing
levels in our free-standing assisted living communities as occupancy
levels increase over the current 90%, since most of our communities
are
nearly fully staffed at current occupancy levels. However, growth
of
ancillary revenue programs such as therapy may require additional
staff to
support incremental activity. As a result of higher
recruiting and retention costs of qualified personnel, we
expect
increased wage rates each year, subject to labor market
conditions.
|
·
|
$0.3
million of other net cost increases. This includes increased community
overhead costs, such as marketing and utilities, as well as food
costs and
various other cost increases, net of certain property tax
savings.
|
·
|
For
the six months ended June 30, 2004 and 2005, the operating contribution
margin increased from 25.1% to 31.3%, an increase of 6.2 percentage
points.
|
·
|
The
increased margin primarily relates to strong increases in revenue
per
occupied unit and occupancy increases, coupled with control of community
operating expenses. The incremental increase in operating contribution
as
a percentage of revenue increase was 72% for the six months ended
June 30,
2005 versus 85% for the six months ended June 30,
2004.
|
·
|
We
believe that, absent unforeseen cost pressures, revenue increases
resulting from occupancy increases should continue to produce high
incremental community operating contribution margins (as a percentage
of
revenue increase) for this segment.
|
·
|
General
and administrative expense as a percentage of total consolidated
revenues
was 5.5% and 5.8% for the six months ended June 30, 2005 and 2004,
respectively.
|
·
|
We
believe that measuring general and administrative expense as a percentage
of total consolidated revenues and combined revenues (including
unconsolidated managed revenues) provides insight as to the level
of our
overhead in relation to our total operating activities (including
those
that relate to management services). General and administrative expense
as
a percentage of total combined revenues was 5.0% and 5.2% for the
six
months ended June 30, 2005 and 2004, respectively, calculated as
follows:
|
Six
Months Ended June 30,
|
|||||||
2005
|
2004
|
||||||
Total
consolidated revenues
|
$
|
240,690
|
$
|
219,292
|
|||
Revenues
of unconsolidated managed communities
|
27,149
|
25,754
|
|||||
Less
management fees
|
1,016
|
939
|
|||||
Total
combined revenue
|
$
|
266,823
|
$
|
244,107
|
|||
Total
general and administrative expense
|
$
|
13,356
|
$
|
12,702
|
|||
General
and administrative expense as a % of total
consolidated
revenues
|
5.5
|
%
|
5.8
|
%
|
|||
General
and administrative expense as a % of total
combined
revenue
|
5.0
|
%
|
5.2
|
%
|
·
|
As
a result of a sale-leaseback transaction completed in July 2004,
a
retirement center is currently operated pursuant to an operating
lease
(previously owned). Lease expense increased $1.2 million as a result
of
this transaction. This increase was offset by approximately $0.8
million
of increased amortization of deferred gain on sale and $0.4 million
in
reduced lease expense associated with the February 10, 2005 acquisition
of
the real estate of one free-standing assisted living community. This
community was previously operated pursuant to an operating
lease.
|
·
|
As
a result of the expiration of contingent earnouts included in lease
agreements for two free-standing assisted living communities, these
leases
were accounted for as operating leases as of December 31, 2004 (versus
lease financing obligation treatment for these leases in prior periods).
Lease expense for the six months ended June 30, 2005 increased $0.9
million related to these two free-standing assisted living communities.
|
·
|
Net
lease expense for the six months ended June 30, 2005 was $31.0 million,
which includes current lease payments of $34.0 million, plus straight-line
accruals for future lease escalators of $2.9 million, net of the
amortization of the deferred gain from prior sale-leasebacks of $5.9
million.
|
·
|
As
of June 30, 2005, we had operating leases for 34 of our communities,
including 19 retirement centers and 15 free-standing assisted living
communities.
|
·
|
The
sale-leaseback transactions completed in July 2004, in which we repaid
the
remaining $82.6 million balance of the mezzanine loan, and $18.9
million
of first mortgage debt. These
transactions decreased the six months ended June 30, 2005 interest
expense
compared to the six months ended June 30, 2004 interest expense by
approximately $9.5 million.
|
·
|
The
December 31, 2004 expiration of contingent earnouts included in lease
agreements for two free-standing assisted living communities. These
leases
are presently accounted for as operating leases (versus lease financing
obligation treatment for these leases for periods prior to December
31,
2004). Interest expense for the six months ended June 30, 2005 decreased
$0.6 million related to these two free-standing assisted living
communities.
|
·
|
The
public equity offering completed in January 2005, as a result of
which we
repaid $17.2 million of our 9.625% fixed interest only mortgage notes,
issued in 2001, due October 1, 2008. In addition, during January
2005, we
repaid a $5.7 million, 9% fixed interest mortgage note, issued in
July 2004, due July 2006. These payments were made from the
proceeds
of the offering. These transactions decreased the six months ended
June
30, 2005 interest expense compared to the six months ended June 30,
2004
interest expense by approximately $0.7
million.
|
·
|
The
change in fair value of our interest rate swap, which decreased
the six months ended June 30, 2005 interest expense compared
to
the six months ended June 30, 2004 interest expense by approximately
$0.3 million.
|
·
|
The
redemption of $4.5 million in principal amount of our Series B Notes
on
April 30, 2004. This transaction decreased the six months ended June
30,
2005 interest expense compared to the six months ended June 30, 2004
interest expense by approximately $0.2
million.
|
·
|
This
decrease was partially offset by a $0.8 million charge resulting
from an
early extinguishment of debt related to the Somerby earnout transaction.
See Note 7 to the condensed consolidated financial
statements.
|
·
|
We
have total debt of $296.7 million at June 30, 2005. We also guaranty
$18.2
million of third party senior debt in connection with a retirement
center
and a free-standing assisted living community that we operate.
|
·
|
Our
long-term debt payments include recurring principal amortization
and other
amounts due each year plus various maturities of mortgages and other
loans. We have scheduled debt principal payments of $105.5 million,
including $7.0 million due during the twelve months ending June 30,
2006.
We intend to pay these amounts as they come due primarily from cash
provided by operations.
|
·
|
As
of June 30, 2005, we lease 44 of our communities (34 operating leases
and
10 leases accounted for as lease financing obligations). As a result,
we
have significant lease payments. Our capital lease and lease financing
obligations include payments of $16.9 million that are due in the
twelve
months ending June 30, 2006. During the twelve months ending June
30,
2006, we are also obligated to make minimum rental payments of
approximately $69.1 million under long-term operating leases. We
intend to
pay these capital lease, lease financing obligations and operating
lease
obligations primarily from cash provided by operations. See our Future
Cash Commitments table below.
|
·
|
Our
cash needs for debt and lease-related payments will remain a significant
cost for the foreseeable future. In order to further increase our
liquidity, we are focusing on increasing our cash flow from operations,
maintaining strong entrance fee sales and reducing our leverage and
debt
service costs. We are continuously exploring opportunities to reduce
our
leverage and average debt cost by refinancing higher cost debt, and
to
release certain restricted cash balances. In addition, we plan to
reduce
our leverage through scheduled amortization of debt and prepayments
of
certain additional amounts as funds are
available.
|
Six
Months Ended
|
|||||||
June
30,
|
|||||||
2005
|
2004
|
||||||
(restated)
|
|||||||
Cash
flows from operating activities:
|
|||||||
Proceeds
from entrance fee sales - deferred income
|
$
|
18,211
|
$
|
15,325
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from entrance fee sales - refundable portion
|
$
|
8,878
|
$
|
7,295
|
|||
Refunds
of entrance fee terminations
|
(11,615
|
)
|
(5,872
|
)
|
|||
Net
cash provided by entrance fee sales
|
$
|
15,474
|
$
|
16,748
|
Payments
Due by Twelve Months Ended June 30,
|
||||||||||||||||||||||
Total
|
2006
|
2007
|
2008
|
2009
|
2010
|
Thereafter
|
||||||||||||||||
Long-term
debt obligations
|
$
|
105,524
|
$
|
6,975
|
$
|
11,148
|
$
|
2,508
|
$
|
7,588
|
$
|
9,007
|
$
|
68,298
|
||||||||
Capital
lease and lease financing obligations
|
191,134
|
16,922
|
17,304
|
18,026
|
18,867
|
19,764
|
100,251
|
|||||||||||||||
Operating
lease obligations
|
748,612
|
69,109
|
70,214
|
70,086
|
70,109
|
71,115
|
397,979
|
|||||||||||||||
Refundable
entrance fee obligations(1)
|
83,556
|
9,191
|
9,191
|
9,191
|
9,191
|
9,191
|
37,601
|
|||||||||||||||
Total
contractual obligations
|
1,128,826
|
102,197
|
107,857
|
99,811
|
105,755
|
109,077
|
604,129
|
|||||||||||||||
Interest
income on
|
||||||||||||||||||||||
notes
receivable(2)
|
(23,434
|
)
|
(1,157
|
)
|
(1,063
|
)
|
(1,054
|
)
|
(1,038
|
)
|
(1,025
|
)
|
(18,097
|
)
|
||||||||
Contractual
obligations, net
|
$
|
1,105,392
|
$
|
101,040
|
$
|
106,794
|
$
|
98,757
|
$
|
104,717
|
$
|
108,052
|
$
|
586,032
|
|
Amount
of Commitment Expiration Per
Period
|
|||||||||||||||||||||
|
Total
|
2005
|
2006
|
2007
|
2008
|
2009
|
Thereafter
|
|||||||||||||||
Guaranties(3)
|
$
|
18,217
|
$
|
509
|
$
|
8,603
|
$
|
383
|
$
|
415
|
$
|
449
|
$
|
7,858
|
||||||||
Total
commercial commitments
|
$
|
18,217
|
$
|
509
|
$
|
8,603
|
$
|
383
|
$
|
415
|
$
|
449
|
$
|
7,858
|
(1)
|
Future
refunds of entrance fees are estimated based on historical payment
trends.
These refund obligations are offset by proceeds received from resale
of
the vacated apartment units. Historically, proceeds from resale of
entrance fee units each year completely offset refunds paid, and
generate
excess cash to us.
|
(2)
|
A
portion of the lease payments noted in the above table is repaid
to us as
interest income on a note receivable from the
lessor.
|
(3)
|
Guarantees
include mortgage debt related to two communities. The mortgage debt
we
guarantee relates to a retirement
center under a long-term operating lease agreement, and to a free-standing
assisted living community in which we have a joint venture
interest.
|
·
|
The
Company did not maintain adequate policies, procedures and personnel
related to its interim and annual financial reporting processes.
Specifically, the Company’s policies and procedures related to its
financial reporting processes did not provide for effective management
research and review by adequately qualified personnel of interim
and
annual financial statement classifications prior to issuance of the
related financial statements. In addition, the Company lacked adequate
personnel resources possessing sufficient expertise to effectively
perform
a review of interim and annual financial information prior to
issuance.
|
·
|
The
Company did not maintain adequate policies and procedures to ensure
accounting and reporting of certain leasing transactions in accordance
with US generally accepted accounting principles. Specifically, the
Company’s policies and procedures did not provide for the proper
application of US generally accepted accounting principles for certain
lease agreements that provide for escalating variable lease payments
over
the terms of such lease agreements.
|
Director
Nominee
|
For
|
Abstain/Withheld
|
||
Frank
M. Bumstead
|
28,524,098
|
350,185
|
||
J.
Edward Pearson
|
28,135,105
|
739,178
|
||
Nadine
C. Smith
|
28,134,705
|
739,578
|
Name
|
Term
Expires
|
|
Donald
D. Davis
|
2007
|
|
John
C. McCauley
|
2006
|
|
John
A. Morris, Jr., M.D.
|
2006
|
|
Daniel
K. O’Connell
|
2007
|
|
W.
E. Sheriff
|
2006
|
|
Lawrence
J. Stuesser
|
2007
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||
17,102,199
|
4,283,797
|
4,301,353
|
7,488,287
|
10.1
|
Fourth
Amendment to American Retirement Corporation Associate Stock Purchase
Plan
(incorporated by reference to Exhibit 4.5 to the Registrant’s Registration
Statement on Form S-8 (Registration No.
333-126096).
|
10.2
|
Loan
Agreement dated as of July 7, 2005, between Bank of America, N.A.
and ARC
HDV, LLC, a Tennessee limited liability
company.
|
10.3
|
Promissory
Note dated July 7, 2005, executed by ARC HDV, LLC, a Tennessee limited
liability company, in favor of Bank of America,
N.A.
|
10.4
|
Promissory
Note dated July 7, 2005, executed by ARC HDV, LLC, a Tennessee limited
liability company, in favor of Bank of America,
N.A.
|
10.5
|
Construction
Loan Administration Agreement, dated July 7, 2005, between Bank of
America, N.A., and ARC HDV, LLC, a Tennessee limited liability
company.
|
10.6
|
Construction
Loan Promissory Note dated July 7, 2005, executed by ARC HDV, LLC,
a
Tennessee limited liability company, in favor of Bank of America,
N.A.
|
10.7
|
Limited
Guaranty dated July 7, 2005, executed by American Retirement Corporation,
a Tennessee corporation, in favor of Bank of America,
N.A.
|
10.8
|
First
Amendment to Lease Agreement, dated June 29, 2005, between CNL Retirement
DSL1 Alabama, LP, a Delaware limited partnership, and Alabama Somerby,
LLC, a Delaware limited liability
company.
|
10.9
|
Second
Amendment to Master Lease, dated June 30, 2005, by and between Health
Care
Property Investors, Inc., a Maryland corporation, Texas HCP Holding,
L.P.,
a Delaware limited partnership, for itself and as successor-by-merger
to
Texas HCP REVX, L.P., a Delaware limited partnership, ARC Richmond
Place
Real Estate Holdings, LLC, a Delaware limited liability company,
ARC
Holland Real Estate Holdings, LLC, a Delaware limited liability company,
ARC Sun City Center Real Estate Holdings, LLC, a Delaware limited
liability company, and ARC LaBARC Real Estate Holdings, LLC, a Delaware
limited liability company, on the one hand, and Fort Austin Limited
Partnership, a Texas limited partnership, ARC Santa Catalina, Inc.,
a
Tennessee corporation, ARC
Richmond Place, Inc., a Delaware corporation, Freedom Village of
Holland,
Michigan, a Michigan general partnership, Freedom Village of Sun
City
Center, Ltd., a Florida limited partnership, and LaBARC, L.P., a
Tennessee
limited partnership, on the other hand.
|
10.10
|
Fifth
Amendment to Master Lease (Phase I), dated June 30, 2005, by and
between
Health Care Property Investors, Inc., a Maryland corporation and
Texas HCP
Holding, L.P., a Delaware limited partnership, on the one hand, and
ARC
Richmond Heights, LLC, a Tennessee limited liability company, ARC
Boynton
Beach, LLC, a Tennessee limited liability company, ARC Delray Beach,
LLC,
a Tennessee limited liability company, ARC Victoria, L.P., a Tennessee
limited partnership, ARC Carriage Club of Jacksonville, Inc., a Tennessee
corporation, ARC Shavano, L.P., a Tennessee limited partnership and
ARC
Post Oak, L.P., a Tennessee limited partnership, on the other
hand.
|
10.11
|
Fourth
Amendment to Master Lease and Security Agreement, dated June 30,
2005, by
and among Nationwide Health Properties, Inc., a Maryland corporation,
and
NH Texas Properties Limited Partnership, a Texas limited partnership,
ARC
Pinegate, L.P., a Tennessee limited partnership, ARC Pearland, L.P.,
a
Tennessee limited partnership, Trinity
Towers Limited Partnership, a Tennessee
limited partnership, ARC
Lakeway, L.P., a Tennessee limited partnership, ARC Spring Shadow,
L.P., a
Tennessee limited partnership, ARC Shadowlake, L.P., a Tennessee
limited
partnership, ARC Willowbrook, L.P., a Tennessee limited partnership,
ARC
Park Regency, Inc., a Tennessee corporation, ARC Parklane, Inc.,
a
Tennessee corporation,
ARC Westover Hills, L.P., a Tennessee limited partnership, ARC Deane
Hill,
LLC, a Tennessee limited liability company and American Retirement
Corporation, a Tennessee corporation.
|
10.12
|
Third
Amendment to Master Lease and Security Agreement (Pool 2), dated
June 30,
2005, by and among Nationwide Health Properties, Inc., a Maryland
Corporation, MLD Delaware Trust, a Delaware business trust, ARC Naples,
LLC, a Tennessee limited liability company, ARC Aurora, LLC, a Tennessee
limited liability company, ARC Lakewood, LLC, a Tennessee limited
liability company, ARC Countryside, LLC, a Tennessee limited liability
company, ARC Cleveland Park, LLC, a Tennessee limited liability company,
and American Retirement Corporation, a Tennessee
corporation.
|
10.13
|
First
Amendment to Lease and Security Agreement (Heritage Club), dated
June 30,
2005, by and among NHP Heritage Club, LLC, a Colorado limited liability
company, ARC Heritage Club, Inc., a Tennessee corporation, and American
Retirement Corporation, a Tennessee
corporation.
|
10.14
|
Fifth Amendment to American Retirement Corporation Association Stock Purchase Plan. |
10.15 | First Amendment to Lease Agreement, dated June 29, 2005, between CNL Retirement DSL1 Alabama, LP, a Delaware limited partnership, and Alabama Somerby, LLC, a Delaware limited liability company. |
31.1 | Certification of W.E. Sheriff pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Bryan D. Richardson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of W.E. Sheriff, Chief Executive Officer of American Retirement Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of Bryan D. Richardson, Chief Financial Officer of American Retirement Corporation, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
AMERICAN RETIREMENT CORPORATION | ||
Date:
August 5, 2005
|
By: /s/ Bryan D.
Richardson
|
|
Bryan D. Richardson | ||
Executive Vice President - Finance and | ||
Chief Financial Officer (Principal Financial | ||
and Accounting Officer) |