SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (fee required) For the fiscal year ended December
31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
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to
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Commission file number 0-14752.
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CAPITAL SENIOR LIVING COMMUNITIES, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1665759
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates
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(Title of Class)
Indicate by checkmark 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 for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and none will 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-KSB or any amendment to
this Form 10-KSB X
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The registrant's revenues for its most recent fiscal year were: $ 15,475,622
As of December 31, 1996, there were 1,172,146 Beneficial Unit Certificates of
limited partnership interest of the Partnership ("BUCs") outstanding, of which
580,161 were held by affiliates of the registrant. The BUCs are not quoted on
the NASDAQ System.
Documents incorporated by reference. None.
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Transitional small business disclosure format (check one): Yes No X
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<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
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General
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Capital Senior Living Communities, Limited Partnership (formerly known as
Retirement Living Tax-Exempt Mortgage Fund Limited Partnership) (the
"Partnership") was formed on December 17, 1985, under the Delaware Revised
Uniform Limited Partnership Act, and will continue until December 31, 2016,
unless terminated earlier under certain provisions of the partnership agreement.
In 1986, the Partnership issued to the public a total of 1,264,000 Beneficial
Unit Certificates ("BUCs"), representing assignments of limited partnership
interest. This issuance generated funds of $28,758,000, net of issuance costs,
which were used principally to acquire the Mortgage Loans (as defined below) on
April 11, 1986.
The Partnership was originally formed to acquire a portfolio of five federally
tax exempt, participating, non-recourse first mortgage bonds issued by
governmental issuers (the "Bonds") to finance the construction and/or ownership
of real estate projects (the "Projects"). Each of the Bonds was secured by a
non-recourse note from the owner of a Project and a mortgage on such Project
(the "Mortgage Loans"). The Projects consisted of four retirement living centers
and one multi-family residential apartment complex. Each Project was owned by a
partnership (called herein a "Project Owner"). The partners of each Project
Owner ("Guarantors") guaranteed the Mortgage Loan on such Project until that
Project met a base interest target and also guaranteed all unpaid base interest
on such Mortgage Loan until the earlier of maturity or acceleration (the
"Guarantees"). The Project Owners defaulted under the Mortgage Loans, and
effective September 11, 1991, the Project Owners transferred to a 99%-owned
subsidiary of the Partnership ("Retirement Partnership, Ltd", the "Partnership
Subsidiary"), through a negotiated settlement (the "Negotiated Settlement"): (a)
the five Projects securing the Mortgage Loans; (b) an option to acquire an
additional 132-unit apartment project owned by an affiliate of the Project
Owners and Guarantors (the "Village Green I Apartments") (this acquisition was
effective December 6, 1991); and (c) an approximate 12% interest in Encore
Limited Partnership, a limited partnership which invests in retirement living
communities and is not affiliated with the Project Owners or Guarantors. The
Partnership's interest in Encore Limited Partnership was subsequently diluted to
a 3% interest after the reorganization of the Encore Limited Partnership in
December, 1995.
In exchange for the transfer of these properties to the Partnership, the
Partnership agreed to (i) forgive approximately $6,000,000 of the principal owed
under the Mortgage Loans; (ii) release the Project Owners from any liability
under the remaining balance of the Mortgage Loans; (iii) release the Guarantors
from any obligations under their personal guarantees of the Mortgage Loans; (iv)
purchase the Village Green I Apartments for $2,633,202, payable $430,000 in cash
and by taking the project subject to a nonrecourse first lien mortgage payable
to Banc One Mortgage Corporation in the amount of approximately $2,203,202; and
(v) release the Project Owners and Guarantors from their obligation to reimburse
the Partnership for $203,500 in costs related to the Partnership's efforts to
collect unpaid base interest on the Mortgage Loans in 1989. Additionally, in
order to acquire the Projects, the Partnership surrendered the Bonds to the
government issuers for cancellation.
The Partnership now directly owns the four retirement living centers and
operates and manages them through management agreements with the general partner
of the Partnership and an affiliate of the general partner. The two multi-family
residential apartment complexes were sold on November 1, 1996 to a non-related
third party. See Acquisition and Divestiture" and "Item 12. Certain
Relationships and Related Transactions."
1
<PAGE>
General Partner
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The general partner of the Partnership is Retirement Living Communities ("RLC"),
an Indiana limited partnership, whose sole general partner was Capital Realty
Group Senior Housing, Inc.("Senior Housing"). Effective July 1, 1995, Senior
Housing assigned its general partnership interest to Capital Retirement Group,
Inc. ( Retirement Group"), a Texas corporation and an affiliate of Senior
Housing. The address of the principal executive offices of RLC and its general
partner is the same as the Partnership: 14160 Dallas Parkway, Suite 300, Dallas,
Texas 75240, and their telephone number at such address is the same as the
Partnership (972) 770-5600. The limited partner of the Partnership is Retirement
Living Fiduciary Corporation, an Indiana corporation ("RLFC").
Prior to March 23, 1990, the Project Owners were affiliates of RLC and RLFC.
However, on March 23, 1990, the general partners of RLC sold all of the general
partnership interests in RLC and all of the outstanding shares of RLFC to Senior
Housing, which is not an affiliate of the Project Owners, and the limited
partners of RLC sold all of the limited partnership interests in RLC to Capital
Realty Group Properties, Inc. ("CRGP"), a Texas corporation and an affiliate of
Senior Housing and Retirement Group. Effective January 1, 1991, CRGP transferred
its limited partnership interest in RLC to two individuals affiliated with
Senior Housing and Retirement Group. See "Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act." Accordingly, Retirement Group has sole management authority and control
over the affairs of RLC. On September 12, 1990, RLC completed a tender offer
solicitation of BUC holders in order to acquire BUCs, resulting in the
acquisition of 561,336 BUCs by RLC, representing approximately 44% of the total
BUCs outstanding. As of December 31, 1996, RLC owns 580,161 BUCs, representing
49.50% of the total BUCs outstanding. See "Item 11. Security Ownership of
Certain Beneficial Owners and Management" for further disclosure of affiliated
ownership.
Status for Federal Income Taxes
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The Partnership's operations are fully taxable for federal income tax purposes
and the individual BUC holders are required to report their respective shares of
any taxable income of the Partnership. Moreover, as a result of federal tax law
changes in 1986, BUC holders are not able to use losses from any other source
other than "passive activity" losses, to offset their share of the Partnership
taxable income.
In the event the Partnership is taxed as a corporation because it is "publicly
traded" under Section 7704 of the Internal Revenue Code of 1986, then the
Partnership would be taxed at corporate rates on all of its taxable income and
distributions to the BUC holders would be treated as fully taxable dividends to
the extent of current and accumulated earnings and profits, while distributions
in excess of current and accumulated earnings and profits would be treated as
the non-taxable return of capital to the extent of each BUC holder's basis in
the BUCs. RLC does not believe the Partnership will be taxed as "publicly
traded" for fiscal 1996 based on its interpretation of Section 7704 and no
provision for income taxes has been reflected in the accompanying statements of
income.
No ruling has been requested from the Internal Revenue Service regarding this
matter and there can be no certainty as to the ultimate outcome of this matter
at this time.
2
<PAGE>
Factors Associated with Real Estate
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Risks Inherent in Ownership of Real Property. Since the principal business of
the Partnership is to own, manage and operate real estate, the Partnership will
be subject to all the risks incident to ownership of real estate and interests
therein, many of which relate to the general illiquidity of real estate
investments. These risks include adverse changes in general or local economic
conditions; adverse changes in interest rates and in the availability of
permanent mortgage funds which may render acquisitions, sales or refinancing of
properties difficult or unattractive; adverse changes in real estate, zoning,
environmental or land-use laws; increases in real property taxes and federal or
local economic or rent controls; other governmental rules; increases in
operating costs and the need for additional capital and tenant improvements; the
supply of and demand for properties; over building in certain markets; ability
to obtain or maintain full occupancy of properties or to provide for adequate
maintenance or insurance; the presence of hazardous waste materials; mechanics
liens resulting from construction; property related claims and litigation;
fiscal policies; and acts of God. The illiquidity of real estate investments
generally will impair the ability of the Partnership to respond quickly to
changed circumstances.
Competition and Marketing. The real estate business is highly competitive and
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the Partnership conducts its business of owning and operating income-producing
real properties in competition with other real estate investment partnerships,
as well as individuals, corporations, bank and insurance company investment
accounts, and other entities engaged in real estate investment activities,
including companies larger than the Partnership with substantially greater
resources. Competition in the market for such properties varies with changes in
the supply and demand for similar properties in an area, changes in the interest
rates and in the availability of mortgage funds, and changes in tax, real
estate, environmental, and zoning laws.
The Partnership's profitability depends in part on maximizing the occupancy of
its rental property held by it at rental rates that cover all expenses and
include a profit component. Occupancy and rental rates are affected by changes
in general economic conditions in the area where the property is located and by
changes in other local conditions, such as supply of comparable rental
properties, zoning laws, and availability and costs of energy and
transportation.
Insurance. The Partnership carries insurance covering all Partnership properties
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for the replacement cost of all buildings, loss of rents, loss of contents, and
general liability. However, there are certain types of losses (generally of a
catastrophic nature, including floods) which are either uninsurable or not
economically insurable. Should such a disaster occur, the Partnership would
suffer a loss of the capital invested in, as well as anticipated profits from,
any property destroyed by such casualty.
Environmental Hazards. Owners and operators of real properties are faced with
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increasing regulation of environmental hazards, discharges and emissions. From
time to time the Partnership may be exposed to liability or fines for correcting
environmental problems or bringing properties into compliance with various
environmental standards even if the problems or violations were unintentional or
were caused by a prior owner or operator of the property.
3
<PAGE>
Employees
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The Partnership has no employees. Certain services are provided to the
Partnership by employees or affiliates of RLC and Retirement Group, and the
Partnership reimburses the affiliates for such services at cost. The Partnership
is not charged and does not pay for salaries or fringe benefits of any
principals of Retirement Group.
Government Regulations and Reimbursement
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The Partnership's retirement living centers are subject to compliance with
various state and local licensing requirements. These requirements relate to the
condition of the facilities and the adequacy and condition of the equipment used
therein, the quality and adequacy of personnel, and the quality of care. Such
requirements are subject to change. There can be no assurance that, in the
future, the Partnership will be able to maintain such licenses for its
facilities or that the Partnership will not be required to expend significant
sums in order to do so.
Towne Centre Retirement Community is subject to regulations in the State of
Indiana regarding its assisted living and nursing services. The Indiana State
Board of Health requires that the management company be licensed to provide the
services that are performed at Towne Centre. Capital Realty Group Management,
Inc. d/b/a Towne Centre Health Care, an affiliate of Retirement Group, has
received a license from the Indiana State Board of Health to operate a 64-bed
Comprehensive Care and 35-bed Residential Care facility. Residential Care
includes such services as assistance with dressing, grooming, bathing,
ambulating, and medical supervision. Comprehensive Care encompasses full nursing
services including assistance with daily medication, physical therapy, and
occupational therapy. The license is issued for a term of one year subject to
automatic renewal by the State Board of Health as long as the project is in
compliance with the terms of the license.
The State of Ohio requires the Canton Regency project to be licensed to provide
nursing services. Canton Regency Retirement Community has received the license
from the State of Ohio Department of Health to operate a 50-bed nursing home.
All levels of care are included in this license. The license has no expiration
date, but a renewal fee is due on September 11 of each year.
Medicaid is a medical assistance program for the indigent, operated by
individual states with the financial participation of the federal government.
Medicare is a health insurance program for the aged and certain other
chronically disabled individuals, operated by the federal government. Changes in
the reimbursement policies of such funding programs as a result of budget cuts
by federal and state governments or other legislative and regulatory action
could adversely affect the revenues of the Partnership. The Towne Centre project
is a provider of services under the Indiana Medicaid program. Accordingly, Towne
Centre is entitled to reimbursement under the foregoing program at established
rates which are lower than private pay rates. Payments from the Medicaid program
are adjusted prospectively, based on the filing of an annual cost report. The
Towne Centre and Canton Regency projects are also providers of services under
the Medicare program. These Projects are entitled to reimbursement under the
foregoing program in amounts determined based on the filing of an annual cost
report prepared in accordance with Federal regulations, which reports are
subject to audit and retroactive adjustment in future periods. Under Federal
regulations, Medicare reimbursements to these projects are limited to routine
cost limits determined on a geographical region. The Partnership has filed
exception reports to request reimbursement in excess of its routine cost limit
for the years of 1992, 1993, and 1994. There can be no assurance that an
exception to the properties routine cost limit will be granted. These Projects
receive payments from this program based on established rates and are adjusted
for differences between such rates and estimated amounts reimbursable from the
program. During fiscal 1996, the Medicaid and Medicare programs accounted for
approximately 15% of the Partnership's revenues.
4
<PAGE>
Acquisition and Divestiture
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On November 1, 1996, the Partnership sold its two multifamily apartment
projects, Silver Lakes and Lakeridge Apartments, to a non-related third party
for a combined sales price of $4,793,000. The transaction resulted in the
recognition of a $437,819 gain and net cash proceeds of $2,549,352, after
closing costs and payment of the mortgage.
During 1996 and 1995 the Partnership made various purchases of limited
partnership interests in HealthCare Properties, L.P. During 1996 and 1995, the
Partnership paid $3,200,685 and $308,825, respectively, for partnership
interests in HealthCare Properties, L.P. As of December 31, 1996, the
Partnership has cumulatively paid $3,509,510 for a 31% ownership in HealthCare
Properties, L.P. HealthCare Properties, L.P. owns a portfolio of 8 nursing home
facilities. As of March 27, 1997, the Partnership is committed to purchase
approximately $1,336,630 for an additional investment in HealthCare Properties
limited partnership interests.
In the second quarter of 1996, 9.36% in limited partnership interests in
HealthCare Properties, L.P. was purchased from Capital Realty Group Senior
Housing, Inc. (CRGSH), an affiliate of RLC, who had acquired the interests in
1993. The Partnership paid $1,269,077 to such affiliate, who recognized a
$878,592 gain on the transaction. Because or this purchase, the Partnership
changed its method of accounting for its investment in HealthCare Properties,
L.P. from the cost method to the equity method of accounting.
During 1996, and 1995 the Partnership made various purchases of outstanding
Pension Notes of NHP Retirement Housing Partners I L.P. During 1996 and 1995,
the Partnership paid $199,158 and $587,580, respectively, for purchases of
Pension Notes. As of December 31, 1996, the Partnership has cumulatively paid
$786,738 for a 4.2% ownership of outstanding Pension Notes of NHP Retirement
Housing Partners I L.P. As of March 27, 1997, the Partnership has subsequently
disbursed $7,868,820 for an additional investment in Pension Notes. These
purchases bring the Partnership's ownership of Pension Notes to 25.3%. NHP
Retirement Housing Partners I L.P. owns a portfolio of 5 independent living
retirement facilities. The Pension Notes bear simple interest at 13% per annum.
Interest of 7% is paid quarterly, with the remaining 6% interest deferred.
Deferred interest and principal matures on December 31, 2001. During 1996, the
Partnership paid $1,364 for a 3.1% ownership of limited partnership interests in
NHP Retirement Housing Partners I, L.P.
The general partner and managing agent of HealthCare Properties, L.P. and NHP
Retirement Housing Partners I, L.P. is an affiliate of RLC.
5
<PAGE>
The Partnership's Properties
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The following table sets forth summary information concerning the four
income-producing real properties owned by the Partnership as of December 31,
1996:
<TABLE>
<CAPTION>
<S> <C> <C>
No. of Units Occupancy
at December 31, 1996 12/31/96 12/31/95 12/31/94
-------------------- -------- -------- --------
Cottonwood Retirement Community
Cottonwood, Arizona 65-residential 95% 100% 100%
The Harrison Retirement Community
Indianapolis, Indiana 124-residential 83% 85% 90%
Towne Centre Retirement Community 148-residential 92% 95% 95%
Merrifllville, Indiana 34-assisted living
64-nursing
Canton Regency Retirement Community 147-residential 94% 94% 94%
Canton, Ohio 34-assisted living
50-nursing
</TABLE>
The Partnership has a $17,500,000 open end mortgage loan commitment for future
acquisition and development of properties from a non-affiliated mortgage
company, and pledged the Cottonwood Retirement Community, The Harrison
Retirement Community, Towne Centre Retirement Community and Canton Regency
Retirement Community as collateral. As of December 31, 1996, there have been no
advances made to the Partnership on this commitment.
Cottonwood Retirement Community - Cottonwood, Arizona
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The Cottonwood Retirement Community is located on a two-acre site in Cottonwood
about 100 miles north of Phoenix and 65 miles south of Flagstaff. The community
consists of a three-story building with 65 residential units. The services
provided under a special assistance program to residents needing assistance
include: medication reminders, dietary monitoring, and activities of daily
living (e.g., bathing, dressing, grooming). In the opinion of management, the
facility has maintained a high occupancy level due to the special assistance
program. No nursing care is available on site, although a nonaffiliated nursing
home is nearby.
The monthly rental rates range from $1,210 for alcoves (19 units), $995 for
studios (13 units), $1,495 for one bedrooms (29 units), and $1,980 for two
bedrooms (4 units). An additional second occupant fee of $300 is charged, if
applicable.
Capital improvements and repairs during 1996 were minor in nature. Management
has budgeted approximately $81,500 during 1997 for building interior
improvements and equipment.
On December 10, 1996, The Partnership entered into contract with Capital Senior
Development, Inc., an affiliate of RLC, to construct a 97 unit expansion of The
Cottonwood facility, consisting of 49 units for independent living and 48 units
for assisted living. The budgeted cost for the expansion is approximately
$6,756,000 and includes funding for kitchen and dining room renovation. The
Partnership intends to finance 100% of the costs and estimates completion by
January, 1998. As of December 31, 1996, expenditures for construction in process
is $280,946.
6
<PAGE>
The Cottonwood market is limited. The closest competition is a project located
about 30 miles away.
The Harrison Retirement Community - Indianapolis, Indiana
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The Harrison Retirement Community ("Harrison") is a 124-unit residential
community located on the west side of Indianapolis in the Eagle Valley area. The
Harrison consists of a two-story atrium building located on a four and one-half
acre site. The Harrison has a special assistance program but no nursing care
units, although a nonaffiliated 120-bed nursing home is located on adjacent
property. The services provided to residents needing assistance include:
medication reminders, dietary monitoring, and activities of daily living.
The monthly rental rates for the community range from $1,060 to $1,115 for
efficiencies (43 units), $1,250 to $1,305 for one-bedrooms (67 units), and
$1,575 to $1,630 for two-bedrooms (14 units). The rental rates for the community
are market rates and in line with the competition. An additional second
occupancy fee of $275 is charged, if applicable.
During 1996, property improvements and repairs were completed including minor
equipment, wallpaper, carpeting and painting. Management has budgeted
approximately $239,353 during 1997 for a new roof, carpeting and HVAC units.
The Harrison has significant competition in the Indianapolis area due to the
number of similar type retirement communities. Three other projects, totaling
425 units, are also located on the west side of Indianapolis. However, the
property continues to maintain good occupancy.
Towne Centre Retirement Community - Merrillville, Indiana
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The Towne Centre Retirement Community is located in Merrillville adjacent to a
nonaffiliated 182-unit adult rental community. It consists of a mid-rise atrium
building with 148 residential units, 34 assisted living units and 64 nursing
care beds. Towne Centre is located on a 15-acre site, approximately 100 miles
southeast of Chicago, Illinois, and south of Gary, Indiana.
The monthly rental rates for the community range from $1,310 for studios (40
units), an average of $1,595 for one-bedrooms (90 units) and an average of
$1,990 (depending on location in building) for two bedrooms (18 units). The
monthly rental rate increases by $300 for a second resident.
The assisted living and nursing care facilities are located in a separate,
adjoining wing. The rates are $2,250 for a private assisted living unit per
month, with daily rates of: $180 for a private intermediate bed, $96 for a
semi-private intermediate bed, $112 for a semi-private skilled bed, and $213 for
a private skilled bed. The nursing facility has eleven (11) beds certified for
Medicare reimbursement.
Capital improvements and repairs during 1996 were largely attributable to
replacing carpets, purchasing equipment, driveway resurfacing, and a bus.
Management has budgeted approximately $161,825 during 1997 for furnishings,
remodeling and equipment.
7
<PAGE>
The local Merrillville market is small. Towne Centre has three directly
competitive projects, of which two are currently at full occupancy. The third
competitor is a non-denominational church sponsored property that is reporting
an occupancy of 90%.
Canton Regency Retirement Community - Canton, Ohio
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The Canton Regency Retirement Community consists of an atrium building located
on a 10-acre site in the northwest suburbs of Canton. The building contains 147
residential units, 34 assisted living units and 50 nursing care beds.
The monthly rental rates for residential units range an average of $1,332 for
studios (39 units), an average of $1,604 for one-bedrooms (90 units), and an
average of $2,139 for two-bedrooms (18 units). The monthly rental rate increases
by $375 for a second resident.
Canton's assisted living and nursing care facilities are located in a separate
adjoining wing. The daily rates range from $66 for a private assisted living
unit, $117 for a private intermediate bed, $103 for a semi-private intermediate
bed, $129 for a private skilled bed and $116 for a semi-private-skilled bed.
Canton's nursing facility has twelve (12) beds certified for Medicare
reimbursement.
Capital improvements and repairs during 1996 were largely attributable to
additional carpeting, painting, new furnishings, and equipment. Management has
budgeted approximately $107,180 during 1997 for furnishings and equipment.
There are two competitive facilities in the Canton market. However, Canton
Regency's good reputation and strong commitment to service have allowed Canton
Regency to maintain a high occupancy level during 1996.
Leases
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Resident leases on Cottonwood Retirement Community, The Harrison Retirement
Community, Towne Centre Retirement Community, and Canton Regency Retirement
Community provide a 12 month lease with a 30 day no penalty cancellation clause.
These leases also allow for an immediate lease cancellation in the case of a
resident's death or admission to a higher level of care. Lease up incentives may
include free rent on the 6th month, move-in allowances and discounted rents on
less attractive units.
Item 2. DESCRIPTION OF PROPERTY
-----------------------
Other than the properties described under "Item 1. Description of Business," the
Partnership does not own or lease any significant physical properties. The
Partnership operates out of, and uses the premises of, Retirement Group at no
direct cost to the Partnership.
8
<PAGE>
Item 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Partnership is a
party.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
PART II
Item 5. MARKET FOR REGISTRANT'S PARTNERSHIP INTERESTS AND
RELATED PARTNERSHIP MATTERS
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Until July 18, 1989, the BUCs were quoted on the NASDAQ System under the symbol
RLIVZ. The BUCs are not presently listed or traded on any exchange or quoted on
the NASDAQ System. Bid and asked prices were reported in the "pink sheets"
during the second and third quarters of 1989. However, no bid or asked prices
have been reported since the third quarter of 1989. There is presently no
established trading market for the BUCs.
The number of BUC holders of record as of December 31, 1996 was 759.
The Partnership has not declared or paid any cash distributions or dividends
during the last two fiscal years. The Partnership presently plans to retain net
cash flow. There can be no assurance as to the timing or amount of future cash
distributions to BUC holders, which will be dependent on the cash flow of the
Partnership's properties.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
This discussion should be read in conjunction with the consolidated financial
statements of the Partnership included in this Report.
Prior to November, 1996, the Partnership's assets included four retirement
projects (Harrison, Cottonwood Village, Canton Regency, and Towne Centre), a
multi-family apartment project (Lakeridge Apartments, formerly known as Village
Green II Apartments), a 3% limited partnership interest in Encore Limited
Partnership, (diluted from 12% on December 15, 1995) and a 99% general
partnership interest in Retirement Partnership, Ltd. (the "Partnership
Subsidiary"), which owns a multi-family apartment project (Silver Lakes
Apartments, formerly known as Village Green I Apartments).
On November 1, 1996, the Partnership sold its two multi-family apartment
projects, Silver Lakes and Lakeridge Apartments, to a non-related third party
for a combined sales price of $4,793,000. The transaction resulted in the
recognition of a $437,819 gain and net cash proceeds of $2,549,352, after
closing costs and payment of the outstanding mortgage of $1,889,829.
9
<PAGE>
As of December 31, 1996, the Partnership's assets also include a 31% ownership
of limited partnership interests in HealthCare Properties, L.P., a 4.2%
ownership of outstanding Pension Notes of NHP Retirement Housing Partners I,
L.P., and a 3.1% ownership of limited partnership interests in NHP Retirement
Housing Partners I, L.P. See Item 1. Description of Business - Acquisition and
Divestiture".
Results of Operations
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1996 Compared with 1995
- -----------------------
Rental and other income for fiscal 1996 and 1995 was $15,475,622 and
$15,339,467, respectively. The 0.1% increase in rental and other income from
1995 to 1996 was attributable to higher rents, despite decreasing occupancies at
the Cottonwood, Harrison, and Towne Center facilities and the sale of the Silver
Lakes and Lakeridge Apartments. Rental income for independent and nursing
increased 2.0% and 2.8%, respectively, from 1995 to 1996. The increases in
rental income categories were attributable to rental rate increases. Other
income increased 6.1% from 1995 to 1996 and was attributable primarily to an
increase in therapy income from Medicare. Multi-family income decreased 10.5%
from 1995 to 1996, and was attributable to the sale of the Silver Lakes and
Lakeridge Apartments on November 1, 1996. Assisted living income decreased 3.3%
from 1995 to 1996 and was attributable to decreasing occupancy. Operating
expenses are maintained by property and by natural expense classification, but
are not allocated by revenue type. Salaries, wages and benefits of $5,817,289
were expensed by the Partnership for fiscal 1996. Approximately $5,254,495 of
such amount was paid to Senior Housing or Capital Senior Living, Inc. ("CSL"),
an affiliate of RLC, as reimbursement for their direct out-of-pocket costs under
the property management agreements for salaries, wages and benefits of on-site
employees employed at the properties, and $273,936 as reimbursement to CSL for
an allocable portion of its home office employees' salaries and wages for time
expended on matters attributable to the properties. Corresponding payments of
salaries and wages for fiscal 1995 was $5,875,046. Approximately $5,213,246 of
such amount was paid to Senior Housing for on-site employee payroll
reimbursement and $354,830 as reimbursement to Senior Housing for home office
employee payroll. Operating and other administrative expenses (other than
salaries, wages and benefits) decreased 1.4 % from $7,959,121 in 1995 to
$7,850,498 in 1996. The decrease in 1996 is primarily attributable to decreased
property taxes, insurance, general and administrative expense, bad debt expense,
and depreciation expense. The interest income of $425,697 and $353,974 for 1996
and 1995, respectively, resulted primarily from investments of cash reserves and
interest received on the Partnership's investment in Pension Notes of NHP
Retirement Housing Partners, L.P. Interest expense of $185,314 and $228,605 for
1996 and 1995, respectively, decreased 18.9% due to the payment of the
outstanding mortgage balance on the sale of the Silver Lake Apartments. As
discussed above, the $437,819 gain on sale of properties resulted from the sale
of the Silver Lakes and Lakeridge Apartments. Equity earnings on investments of
$458,992 during 1996 primarily resulted from the recognition of equity earnings
on the Partnership's investment in HealthCare Properties, L.P. The Partnership
expects its future operating results will depend in large part on its operating
costs and occupancy levels in its facilities. If the operating costs increase or
occupancy levels decline, the Partnership's operating results will be adversely
affected.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1996, the Partnership had cash and cash equivalents of
$10,463,887 and an unused mortgage loan commitment of $17,500,000. These
reserves and loan commitment will be used to support ongoing working capital
needs, pay existing debt obligations, meet the capital and marketing
improvements necessary to succeed in a competitive atmosphere, fund future
acquisitions of investments, and fund future acquisitions or development of real
estate projects. On December 24, 1992, significant amendments to the Partnership
Agreement were adopted which give the Partnership authority to operate in
10
<PAGE>
accordance with current and contemplated business operations as an operating
entity. With the approved amendments to the Partnership Agreement, the
Partnership has become an entity whereby cash and income generated from
operations or from the sale or refinancing of assets will be retained in order
to utilize such funds for a variety of purposes, including acquisitions or
development of real estate projects. Consequently, the Partnership does not
expect to make cash distributions to BUC Holders in the foreseeable future. This
may have an adverse effect on BUC Holders for federal income tax purposes, as
discussed below.
Cash and cash equivalents increased in the amount of $720,557 from the end of
fiscal year 1995 to the end of fiscal year 1996. Cash sources consisted of
$3,785,043 from operating activities, and $2,549,352 from proceeds on sale of
properties. Cash uses during fiscal year 1996 were primarily for additions to
property and equipment of $762,004, investments in limited partnerships of
$3,401,207, repurchase of beneficial unit certificates of $1,262,355, payment of
loan charges of $42,953 and payments on notes payable of $145,319.
As of March 27, 1997, the Partnership is committed to purchase approximately
$1,336,630 for investment in HealthCare Properties limited partnership interests
and has disbursed $7,868,820 for investment in Pension Notes of NHP Retirement
Housing Partners I, L.P.
As a result of the Negotiated Settlement (see "Item 1. Description of
Business-General"), the Partnership no longer owns Tax-Exempt bonds. Instead,
the Partnership holds and operates the properties. This has adversely impacted
the Tax-Exempt nature of the Partnership's operations in that it causes the
operations of the Partnership to be fully taxable for federal income tax
purposes and requires the individual BUC Holders to report their respective
shares of any taxable income of the Partnership, without any cash being
distributed by the Partnership to pay any tax due by a BUC Holder on such BUC
Holder's share of Partnership taxable income. For 1996, the Partnership's
taxable income was $3,077,378, which is approximately $2.51 for each outstanding
BUC. Moreover, as a result of federal tax law changes in 1986, BUC Holders will
not be able to use losses from any other source, other than "passive activity"
losses, to offset their share of the Partnership's taxable income. However, the
approximate $6,000,000 of mortgage loan indebtedness forgiven by the Partnership
in connection with the Negotiated Settlement resulted in a taxable loss to the
Partnership for federal income tax purposes which was reported by BUC Holders on
September 11, 1991, in proportion to the number of BUCs owned and to the extent
of each BUC holder's basis in the BUCs. BUC Holders acquiring BUCs after
September 11, 1991, are not entitled to report any portion of such loss.
In the event the Partnership is taxed as a corporation because it is "publicly
traded" under Section 7704 of the Internal Revenue Code of 1986, then the
Partnership would be taxed at corporate rates on all of its taxable income and
distributions to the BUC Holders would be treated as fully taxable dividends to
the extent of current and accumulated earnings and profits, while distributions
in excess of current and accumulated earnings and profits would be treated as
the non-taxable return of capital to the extent of each BUC Holder's basis in
the BUCs. RLC does not believe the Partnership will be taxed as "publicly
traded" for fiscal 1996 based on its interpretation of Section 7704 and no
provision for income taxes has been reflected in the accompanying consolidated
statements of income. No ruling has been requested from the Internal Revenue
Service regarding this matter and there can be no certainty as to the ultimate
outcome of this matter at this time.
11
<PAGE>
To the extent the Partnership is taxed as a corporation because it is "publicly
traded" under Section 7704, payments of federal income tax by the Partnership
will reduce the liquidity and net cash flow of the Partnership. On the other
hand, in such event, the BUC Holders would not be required to report any income
of the Partnership in their personal federal income tax returns absent any cash
distributions to them.
The management of the Partnership believes that the projected 1997 cash flow
generated from the four properties will be approximately $2.8 million to $3.0
million. The revenue from each Project is sufficient to cover the operating
expenses from that particular Project. The Partnership is able to use the
positive cash flow from one project to meet any unexpected capital improvement
needs on other projects. To the extent that the positive cash flow is not used
to meet any unexpected capital improvements on the Projects, the funds are
retained to build up the working capital reserves of the Partnership and to
provide funds for acquisitions of additional properties.
Item 7. FINANCIAL STATEMENTS
--------------------
The financial statements of the Partnership are listed in Item 13 of this report
and are contained at pages 19 through 32 of this Report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
There have been no changes in or disagreements with accountants that are
required to be reported herein.
12
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
----------------------------------------------------------
The Partnership has no directors or officers. RLC is the sole general partner of
the Partnership, and accordingly, manages and controls the affairs of the
Partnership. Retirement Group is the sole general partner of RLC.
Retirement Group is a privately owned corporation initially organized on August
23, 1995. Its principal business activity has been the ownership and management
of real property for its own account and for the account of various limited
partnerships of which it is the general partner. Retirement Group is a wholly
owned subsidiary of Capital Realty Group Corporation, a Texas corporation
("Capital"), with its corporate headquarters in Dallas, Texas. Capital is owned
50% by James A. Stroud (through a trust) and 50% by Jeffrey L. Beck.
The Partnership properties through February 1, 1995, were managed by Senior
Housing. On February 1, 1995, Senior Housing assigned its contract rights to
manage the Partnership properties to Capital Senior Living, Inc. ( CSL"). CSL is
a wholly owned subsidiary of Capital.
The following are the directors and executive officers of CSL and Retirement
Group.
Name Position
----------------------------------------------------------------------------
James A. Stroud Chief Operating Officer, Secretary and Director
Jeffrey L. Beck Chief Executive Officer and Director
Keith N. Johannessen President
David Beathard Vice President
Rob L. Goodpaster National Director of Marketing
David Brickman Vice President
Robert F. Hollister Controller
James A. Stroud, age 46. Mr. Stroud has served as an officer and a director of
Capital since December 1988. Mr. Stroud became Chief Operating Officer and
Secretary of Senior Housing in May 1991, CSL in February 1995 and Retirement
Group in June 1995. He owns 50% of Capital (through a trust). From 1984 until
1985, he was Executive Vice-President of Equity Management Corporation, Dallas,
Texas, a full service real estate company. From 1980 to 1983, he was director in
charge of the Tax Department of the law firm of Baker, Glast & Middleton,
Dallas, Texas. From 1978 until 1980, he was an associate with Brice & Mankoff
(formerly Durant and Mankoff), a law firm in Dallas, Texas. Mr. Stroud is a
Certified Public Accountant and a licensed attorney. He received his B.B.A. from
Texas Tech University with highest honors, his J.D. from the University of Texas
with honors, and his L.L.M. in taxation from New York University with honors.
While at New York University, he was a graduate editor of the New York
University Tax Law Review and a Wallace Scholar. Mr. Stroud is a founder and
director of the Assisted Living Facilities Association of America, a member of
the Health Industry Council, President-Elect of National Association for Senior
Living Industries ("NASLI"), and has delivered speeches on health care topics to
the NASLI, National Investment Conference and the Urban Land Institute.
13
<PAGE>
Jeffrey L. Beck, age 52. Mr. Beck has served as an officer and a director of
Capital since December 1988. Mr. Beck became Chief Executive Officer of Senior
Housing in May 1991, CSL in February 1995 and Retirement Group in June 1995. He
owns 50% of Capital. From 1975 to 1985, he was President of Beck Properties,
Inc., which was the predecessor of Capital. From 1973 to 1974, he was Regional
Controller with Trammell Crow & Company, a real estate company based in Dallas,
Texas. Mr. Beck is Chairman of the Board of Directors of United Texas Bank of
Dallas. Mr. Beck serves as Chairman of the American Senior Housing Association.
Keith N. Johannessen, age 40. Mr. Johannessen became Executive Vice President of
Senior Housing in May 1993 with responsibility for supervising the day-to-day
operations of Capital's retirement communities. Mr. Johannessen became President
of Senior Housing in March 1994, CSL in February 1995 and Retirement Group in
June 1995. From September 1992 through May 1993, Mr. Johannessen was a Senior
Manager in the North Central Region for the health care practice of Ernst &
Young LLP, responsible for assisting in the development and direction of the
firm's long term care center consulting projects in the region as well as on a
national basis. From August 1987 through September 1992, Mr. Johannessen was
Executive Vice President with Oxford Retirement Services, Inc. responsible for
the sales, marketing and operations of retirement communities and nursing homes.
From August 1978 to August 1987, Mr. Johannessen was employed by Life Care
Services Corporation in a variety of operations management positions, from
single retirement projects to multi-facility responsibilities. He is a licensed
nursing home administrator and holds a Bachelor of Arts Degree from Nyack
College, New York. Mr. Johannessen is active in the American Senior Housing
Association, National Association for Senior Living Industries and the American
Association of Homes and Services for the Aging.
David W. Beathard, age 49. Mr. Beathard is Vice President of Capital Senior
Living with responsibility for supervising the daily operations of Capital
Nursing Homes and Senior Communities. Prior to joining Capital, Mr. Beathard was
a management consultant for the retirement housing industry in Ohio. From 1978
to 1991, Mr. Beathard served as Executive Director, Regional Administrator,
Regional Vice President, and Vice President and Director of Operations
Management for Life Care Services Corp. Mr. Beathard has been in the senior
housing and services business for 20 years.
Rob L. Goodpaster, age 44. Mr. Goodpaster became National Director of Marketing
of Senior Housing in December 1992, CSL in February 1995 and Retirement Group in
June 1995, with overall responsibility for marketing and lease-up functions of
Capital's managed properties. With 20 years of experience in the industry, Mr.
Goodpaster has an extensive background in retirement housing marketing. His
experience includes analyzing demographics, developing and implementing
marketing plans, creating outreach and advertising programs, hiring and training
sales personnel and implementing lead management and tracking systems. Prior to
joining Capital, Mr. Goodpaster was National Director of Marketing for Autumn
America from January 1990 to November 1992. From 1985 until December 1989, he
was President of Retirement Living Concepts, Inc. where he marketed retirement
properties throughout the United States. Mr. Goodpaster was formerly Vice
President, Marketing for U.S. Retirement Corp. from 1984 to 1985 and Vice
President, Development for American Retirement Corp. from 1980 to 1984. Mr.
Goodpaster is a graduate of Ball State University with a B.S. in Business
Management and Marketing. Mr. Goodpaster is a member of the National Association
of Senior Living Industry and the Texas Association of Retirement Communities.
14
<PAGE>
David Brickman, age 38. Mr. Brickman has served as Vice President and Counsel
for Senior Housing since 1992, CSL since February 1995 and Retirement Group
since June 1995. Mr. Brickman received his Bachelor of Arts degree from Brandeis
University. He holds a J.D. from the University of South Carolina Law School, an
M.B.A. from the University of South Carolina School of Business Administration
and a Masters of Health Administration from Duke University. Prior to joining
Capital in 1992, he served as in-house counsel from 1986 through 1987 with Cigna
Health Plan, Inc., from 1987 through 1989 with American General Group Insurance
Company and from 1989 until joining Capital, with LifeCo Travel Management
Company located in Houston, Texas. In addition to his duties as Counsel for
Senior Housing, Retirement Group and CSL, Mr. Brickman is also responsible for
asset management activities, operational activities and investor relations for
Capital's portfolio.
Robert F. Hollister, age 41. Mr. Hollister has served as Controller of Senior
Housing since 1992, CSL in February 1995 and Retirement Group since June 1995.
Mr. Hollister received his Bachelor of Science in Accounting from the University
of Maryland. His experience includes public accounting and private experience in
fields such as securities, construction, and nursing homes. Prior to joining
Capital in 1992, Mr. Hollister was the chief financial officer and controller
for Kavanaugh Securities, Inc. from December 1985 until 1992. Mr. Hollister is
the property controller and supervises the day-to-day accounting and financial
aspects of Capital. Mr. Hollister is a Certified Financial Planner and a member
of both local and national professional accounting organizations.
The executive officers of CSL and Retirement Group are required to spend only
such time on the Partnership's affairs as is deemed necessary in the sole
judgment of CSL and Retirement Group. A significant amount of these officers'
time is expected to be spent on matters unrelated to the Partnership.
Based solely upon a review of Forms 3, 4 and 5 furnished to the Partnership
pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"), or upon written representations received by the
Partnership, the Partnership is not aware of any failure by any officer or
director of Retirement Group or beneficial owner of more than 10% of the BUCs to
timely file with the Securities and Exchange Commission any Form 3, 4 or 5
relating to 1994 except the following persons failed to file in a timely basis
the following reports: (1) James A. Stroud filed five late reports on Form 4,
reporting indirect ownership of Capital Trust's 15,028 BUCs, and (2) Jeffrey L.
Beck filed five late reports on Form 4, reporting indirect ownership of his
wife's 15,028 BUCs, for which he disclaims beneficial ownership.
Item 10. EXECUTIVE COMPENSATION
----------------------
RLC does not receive a fee for serving as general partner of the Partnership.
None of the executive officers or directors of Retirement Group receive a fee
from the Partnership for serving in such capacity. As discussed under "Item 12.
Certain Relationships and Related Transactions", Retirement Group and its
affiliates receive fees and expense reimbursements from the Partnership for
other services rendered.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
---------------------
As of December 31, 1996, RLC owned 580,161 BUCs (approximately 49.50% of the
total outstanding), Jeffrey L. Beck owned 10,482 BUCs individually, Janet Sue
Beck owned 70,846 BUCs individually, Capital Trust, a trust for which James A.
Stroud is the beneficiary, owned 16,943 BUCs, James A. Stroud owned 39,404 BUCs
individually and Stroud Children's Trust II owned 24,980 BUCs. Jeffrey L. Beck
and James A. Stroud may each be deemed to beneficially own the BUCs owned by
RLC. Jeffrey L. Beck disclaims beneficial ownership of the BUCs owned by Janet
Sue Beck, and Janet Sue Beck disclaims beneficial ownership of the BUCs owned by
Jeffrey L. Beck. No other person is known by the Partnership to own more than 5%
of the BUCs.
15
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Prior to February 1, 1995, Senior Housing managed the projects. Effective
February 1, 1995, CSL manages the retirement living projects pursuant to
separate asset management agreements between the Partnership and CSL, which can
be terminated with 45 days notice. The management agreements provide for
reimbursement of all expenses of managing the properties, including salaries of
on-site managers and out-of-pocket expenses of CSL, and provide for payment of a
property management fee to CSL equal to 5% of the gross revenues of each
project. For the periods ended December 31, 1996 and 1995, the Partnership paid
Senior Housing and CSL $987,104 and $986,877, respectively, in property
management fees for managing the projects and paid $332,438 in 1996 and $430,329
in 1995, for reimbursable expenses under the management agreements. In
accordance with the partnership agreement, RLC does not receive any fees from
the Partnership but it and affiliates may be reimbursed by the Partnership for
any actual costs and expenses incurred in connection with the operations of the
Partnership.
All property employees are paid by an affiliate of RLC. Reimbursed gross payroll
and health insurance premiums, which were expensed by the Partnership in 1996
and 1995, were $5,254,495 and $5,213,246, respectively.
In 1995, an affiliate of RLC received a 2% financing fee of $110,000 in
connection with increasing the Partnership's mortgage loan commitment. In
connection with the extension of the Silver Lakes mortgage, an affiliate of RLC
received $40,453 and $20,830 in 1996 and 1995, respectively, as a financing fee.
In May 1995, the Partnership contracted with Quality Home Care, Inc., an
affiliate of RLC, to provide nursing services to the assisted living residents
at the Harrison facility. The contract was executed to comply with certain state
regulations. As part of the contract, the Partnership has transferred its share
of assisted living revenues and expenses for the Harrison to Quality Home Care,
Inc. resulting in an approximate decrease of $63,000 in net annualized profits.
In April 1996, an affiliate of RLC recognized a $878,592 gain on the
Partnership's purchase of HealthCare Properties, L.P. limited partnership
interests.
Upon sale of the Silver Lakes and Lakeridge Apartments in November, 1996, an
affiliate of RLC received a $79,883 brokerage fee.
Jeffrey L. Beck is an approximate 50% partner in RLC and is chairman of the
board of a bank where the Partnership holds the majority of its operating cash
accounts.
16
<PAGE>
On December 10, 1996, The Partnership entered into contract with Capital Senior
Development, Inc., an affiliate of RLC, to construct a 97 unit expansion of The
Cottonwood facility, consisting of 49 units for independent living and 48 units
for assisted living. The budgeted cost for the expansion is approximately
$6,756,000 and includes funding for kitchen and dining room renovation. The
Partnership intends to finance 100% of the costs and estimates completion by
January, 1998. As of December 31, 1996, expenditures for construction in process
is $280,946.
The general partner and managing agent of HealthCare Properties, L.P. and NHP
Retirement Housing Partners I, L.P. is an affiliate of RLC.
17
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Financial Statements.
- --------------------
The following financial statements of the Partnership are filed as part of this
report on pages 19 through 32 hereof:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31,
1996 and 1995
Consolidated Statements of Partners' Capital for the years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995
Notes to Consolidated Financial Statements
Exhibits
- --------
The list of exhibits is incorporated herein by reference to the exhibit index on
pages 32 through 37 of this report.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed during the last quarter of fiscal 1996.
18
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners and Beneficial Unit Certificate Holders of
Capital Senior Living Communities, L.P.
We have audited the accompanying consolidated balance sheets of Capital Senior
Living Communities, L.P. and subsidiary as of December 31, 1996 and 1995 and the
related consolidated statements of income, partners' capital, and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Senior Living Communities, L.P. and subsidiary at December 31, 1996 and 1995 and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
February 21, 1997
Except for Note 10, as to which the date is
March 27, 1997
19
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
--------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1996 1995
- ------ ---- ----
PROPERTY AND EQUIPMENT, net (Notes 1 and 3) $12,576,523 $17,352,655
OTHER ASSETS:
Cash and cash equivalents (Note 10)
10,463,887 9,743,330
Cash, restricted (Note 6) 206,376 203,788
Accounts receivable, net of allowance for doubtful accounts of
$164,822 in 1996 and $141,452 in 1995 373,163 409,486
Prepaid expenses and other 92,302 128,728
Deferred financing charges, less accumulated amortization of
$311,938 in 1996 and $141,760 in 1995 (Note 5) 201,440 328,665
Investments in limited partnerships (Note 10) $ 8,275,920 $ 896,405
---------- ----------
Total assets $32,189,611 $29,063,057
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued expenses and other liabilities $ 1,303,833 $1,354,639
Note payable (Notes 1 and 5) 0 2,035,148
Customer deposits 248,458 279,982
---------- ---------
Total liabilities 1,552,291 3,669,769
---------- ---------
Deferred income (Note 10) 3,400,684 0
Commitments and contingencies (Notes 6 and 8)
PARTNERS' CAPITAL (Notes 7 and 11):
General partner 72,526 41,469
Limited partner 1 1
Beneficial unit certificates, 1,264,000
issued and 1,172,146 outstanding
28,426,464 25,351,818
Repurchased beneficial unit certificates (1,262,355) 0
---------- ----------
Total partners' capital
27,236,636 25,393,288
---------- ----------
Total liabilities and partners' capital $32,189,611 $29,063,057
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
20
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
--------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
RENTAL AND OTHER INCOME:
Multi-family $1,101,317 $1,230,859
Independent 7,283,631 7,138,356
Assisted living 1,603,074 1,658,463
Nursing 4,563,900 4,441,072
Other 923,700 870,717
---------- ----------
Total Rental and Other Income 15,475,622 15,339,467
---------- ----------
EXPENSES (Note 9)
Operating Expenses:
Salaries, wages, and benefits 5,543,353 5,520,216
Property taxes 565,415 673,399
Management fees 987,104 986,877
Utilities 940,070 904,413
Cost of meals provided 1,037,404 1,005,222
Ancillary services 792,713 611,318
Repairs and maintenance 246,859 226,005
Service contracts 152,532 149,681
Insurance 213,137 236,322
Bad debt expense 22,312 71,098
Other 879,896 842,989
Amortization of deferred financing charges 170,178 113,460
Depreciation 1,385,127 1,629,800
---------- ----------
Total Operating Expenses 12,936,100 12,970,800
---------- ----------
General and Administrative Expenses:
Salaries, wages and benefits 273,936 354,830
Professional fees 168,528 144,665
Office supplies, communications, and reproduction 116,132 127,187
Other 173,091 236,685
---------- ----------
Total General and Administrative Expenses 731,687 863,367
---------- ----------
Total Expenses 13,667,787 13,834,167
---------- ----------
Net Income from Operation 1,807,835 1,505,300
Other Income (Expenses):
Interest income 425,697 353,974
Interest expense (185,314) (228,605)
Gain on sale of properties 437,819 0
Equity earnings on investments (Note 10) 458,992 0
Amortization of deferred income (Note 10) 118,632 0
Income on investments 25,523 0
Other 16,519 0
----------- ----------
Total Other Income (Expense) 1,297,868 125,369
----------- ----------
NET INCOME $ 3,105,703 $ 1,630,669
=========== ==========
NET INCOME ALLOCATION:
General partner $ 31,057 $ 16,307
Beneficial unit certificate holders 3,074,646 1,614,362
----------- ----------
Total $ 3,105,703 $ 1,630,669
=========== ==========
NET INCOME PER BENEFICIAL UNIT CERTIFICATE $ 2.53 $ 1.29
=========== ==========
BENEFICIAL UNIT CERTIFICATES OUTSTANDING 1,172,146 1,264,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
21
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996 AND 1995
--------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Repurchased
Beneficial Beneficial
Unit Unit Limited General
Certificates Certificates Partner Partner Total
------------- -------------- --------------- ----------- ------------
BALANCE, December 31, 1994 $ 23,762,619 $ 0 $ 0 $ 25,162 $23,762,619
Net income 1,614,362 - - 6,307 1,630,669
---------- ----------- ----------- ---------- ----------
BALANCE, December 31, 1995 25,351,818 0 1 41,469 25,393,288
Net income 3,074,646 - - 31,057 3,105,703
Repurchased 91,854
Beneficial Unit Certificates
(Note 11) - (1,262,355) - - (1,262,355)
---------- ------------ ----------- ---------- ----------
BALANCE, December 31, 1996 $28,426,464 $ (1,262,355) $ 1 $ 72,526 $27,236,636
========== ============ =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
--------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,105,703 $ 1,630,669
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 1,385,127 1,629,800
Amortization of deferred financing charges 170,178 113,460
Provisions for bad debt 22,312 71,098
Gain on sale of properties (437,819) 0
Amortization of deferred income (118,632) 0
Equity earnings on investment (458,992) 0
Changes in operating assets and liabilities:
Cash, restricted (2,588) (152,803)
Accounts receivable 14,011 (215,232)
Prepaid expenses and other 36,426 (1,248)
Accrued expenses and other
liabilities 37,022 92,422
Customer deposits 32,295 26,204
---------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 3,785,043 3,194,370
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in limited partnerships (3,401,207) (896,405)
Proceeds from sale of properties 2,549,352 0
Additions to property and equipment (762,004) (383,711)
---------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (1,613,859) (1,280,116)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred loan charges paid (42,953) (130,830)
Payments on notes payable (145,319) (58,565)
Repurchase of beneficial unit certificates (1,262,355) 0
---------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (1,405,627) (189,395)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 720,557 1,724,859
CASH AND CASH EQUIVALENTS, Beginning of Year 9,743,330 8,018,471
---------- -----------
CASH AND CASH EQUIVALENTS, End of Year $10,463,887 $ 9,743,330
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 185,314 $ 228,605
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
22
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
--------------------------
1. ORGANIZATION:
------------
Capital Senior Living Communities, L.P. (formerly known as Retirement Living
Tax-Exempt Mortgage Fund Limited Partnership) (the "Partnership") was formed on
December 17, 1985, under the Delaware Revised Uniform Limited Partnership Act.
The Partnership was formed to acquire a portfolio of federally Tax-Exempt
nonrecourse participating first mortgage loans secured by income-producing real
estate consisting of four retirement living centers and one multifamily
residential apartment project (the "Projects"). The mortgage loans were acquired
on April 11, 1986. The Partnership will continue until December 31, 2016, unless
terminated earlier under certain provisions of the partnership agreement.
On April 10, 1986, the Partnership issued 1,264,000 Beneficial Unit Certificates
("BUCs") at $25 per BUC. The issuance generated funds of $28,758,000, net of
issuance costs, for the Partnership. These funds were used principally to
acquire the portfolio of mortgage loans previously discussed.
The general partner of the Partnership is Retirement Living Communities, an
Indiana limited partnership ("RLC"). The limited partner is Retirement Living
Fiduciary Corporation, an Indiana corporation ("RLFC").
A description of the Projects now owned and operated by the Partnership is as
follows:
Towne Centre Retirement Community ("Towne Centre") - This project is located on
- ---------------------------------------------------
a 15-acre site in Merrillville, Indiana, and includes a 148-unit retirement
living community, a 34-bed assisted living unit which is licensed as
residential, and a 64-bed intermediate and skilled healthcare unit licensed
under a comprehensive license. The facility was approximately 92 % and 95%
occupied at December 31, 1996 and 1995, respectively.
Canton Regency Retirement Community ("Canton Regency") -This project is located
- -------------------------------------------------------
on a 10-acre site in Canton, Ohio, and includes a 147-unit retirement living
community, a 34-bed assisted living unit, and a 50-bed intermediate and skilled
healthcare unit licensed by the Ohio Department of Health. The facility was
approximately 94 % occupied at December 31, 1996 and 1995.
Cottonwood Village Retirement Community ("Cottonwood Village") -This project is
- ---------------------------------------------------------------
a 65-unit retirement living center located on a 2-acre site in Cottonwood,
Arizona. The facility was approximately 95% and 100% occupied at December 31,
1996 and 1995 , respectively.
On December 10, 1996, the Partnership entered into contract with Capital Senior
Development, Inc., an affiliate of RLC, to construct a 97 unit expansion of the
Cottonwood facility, comprising of 49 units for independent living and 48 units
for assisted living. The budgeted cost for the expansion is approximately
$6,756,000 and includes funding for kitchen and dining room renovation. The
Partnership intends to finance 100% of the costs and estimates completion by
January, 1998. As of December 31, 1996, expenditures for construction in process
were $280,946.
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<PAGE>
Harrison Retirement Community ("Harrison") -This project is a 124-unit
- -----------------------------------------------
retirement living center located on a 4 1/2-acre site in Indianapolis, Indiana.
The facility was approximately 83% and 85% occupied at December 31, 1996 and
1995, respectively.
On November 1, 1996, the Partnership sold its two multi-family properties to a
non-related third party for a combined sales price of $4,793,000. This sale
resulted in the recognition of a $437,819 gain and net cash proceeds of
$2,549,352 to the Partnership, after repayment of the related mortgage payable
of $1,889,829. A description of these properties is as follows:
Village Green II Apartments (subsequently renamed "Lakeridge") -This project is
- ---------------------------------------------------------------
a 136-unit multifamily apartment complex located in Kissimmee, Florida. The
facility was approximately 90% occupied at December 31, 1995.
Village Green I Apartments (subsequently renamed "Silver Lakes") -This project
- ------------------------------------------------------------------
is a 132-unit multifamily apartment complex located in Kissimmee, Florida. This
facility was approximately 90% occupied at December 31, 1995.
On December 24, 1992, the Partnership Agreement was amended to reflect more
accurately the current and anticipated business operations and asset ownership
position of the Partnership. The amendment allows the general partner sole
discretion to determine cash distributions. It is the general partner's
intention to use current and future cash reserves to acquire additional
properties, investments, BUCs, and to expand the Partnership's currently owned
properties (see Note 10). The General Partner believes cash and cash equivalents
of $10,463,887 at December 31, 1996 is adequate for the working capital needs of
the Partnership.
2. OWNERSHIP BY RLC:
-----------------
On September 12, 1990, RLC completed a solicitation of BUC holders in order to
acquire BUC interests, resulting in the acquisition of 561,336 BUCs by RLC,
representing approximately 44% of the total BUCs outstanding. As of December 31,
1996, RLC owns 580,161 BUCs, representing 49.5% of the total BUCs outstanding.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of the
Partnership and its 99%-owned subsidiary, Retirement Partnership, Ltd. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The 1% minority interest in Retirement Partnership, Ltd. is not
presented separately due to its immateriality. The Partnership accounts for
investments in limited partnerships with controlling interests greater than 20%
under the equity method; therefore, operations from such investments are shown
separately in the accompanying consolidated statements of income as equity
earnings on investments.
24
<PAGE>
Property and Equipment
- ----------------------
The Partnership provides for depreciation on property and equipment using the
straight-line method over their estimated useful lives ranging from 5 to 27.5
years.
The cost of property and equipment and their useful lives are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Useful Life 1996 1995
----------- ---- ----
Land $ 879,723 $ 1,281,070
Land improvements 27.5 years 127,481 418,665
Buildings and building improvements 27.5 years 13,562,383 17,586,575
Furniture and equipment 5 years 4,499,330 4,786,064
Construction in process 280,946 0
---------- ----------
19,349,863 24,072,374
Less-accumulated depreciation (6,773,340) (6,719,719)
---------- ----------
$12,576,523 $17,352,655
========== ==========
</TABLE>
At each balance sheet date, the Partnership reviews the carrying value of the
property and equipment to determine if facts and circumstances suggest that they
may be impaired or that the depreciation period may need to be changed. The
Partnership considers external factors, including local market developments,
national trends, and other publicly available information. If these external
factors indicated the property and equipment will not be recoverable, as
determined based upon undiscounted cash flows of the business, the carrying
value of the asset will be reduced by the estimated shortfall of discounted cash
flows. The Partnership does not believe there currently are any indicators that
would require an adjustment to the carrying value of the property and equipment
or their respective remaining useful lives as of December 31, 1996.
Cash Equivalents
- ----------------
The Partnership considers investments with original maturities of three months
or less to be cash equivalents.
Revenue Recognition
- -------------------
Revenue from the four retirement living communities and the two multifamily
apartment complexes is recognized in the period in which the unit rental and/or
food services relate.
Revenue from two of the Projects (Towne Centre and Canton Regency) which offer
assisted living, intermediate, and skilled healthcare (in addition to retirement
living), is recognized as services are performed. The Towne Center healthcare
center (the Center) is a provider of services under the Indiana Medicaid
program. Accordingly, the Center is entitled to reimbursement under the
foregoing program at established rates which are lower than private pay rates.
Patient service revenue for Medicaid patients is recorded at the reimbursement
rates as the rates are set prospectively by the state upon the filing of an
annual cost report. The Towne Centre and Canton Regency healthcare centers (the
Centers) are also providers of services under the Medicare program. The Centers
are entitled to reimbursement under the foregoing programs in amounts determined
based on the filing of an annual cost report prepared in accordance with Federal
25
<PAGE>
regulations, which reports are subject to audit and retroactive adjustments in
future periods. Revenue from the Medicare program is recorded at established
rates and adjusted for differences between such rates and estimated amounts
reimbursable from the program. Any differences between estimated and actual
reimbursements are included in operations in the year of settlement. Adjustments
in 1996 and 1995 totaled $73,366 and $28,254 in credits, respectively. Included
in accrued expenses and other liabilities at December 31, 1996 and 1995, is $0
and $123,000, respectively, for amounts due under the Medicare program. Under
Federal regulations, Medicare reimbursements to these facilities are limited to
routine cost limits determined on a geographical region. The Partnership has
filed exception reports to request reimbursement in excess of its routine cost
limit for the years 1992, 1993, and 1994. There can be no assurance that an
exception to the properties routine cost limit will be granted.
Revenues from the Medicare and Medicaid programs accounted for approximately 10%
and 5%, respectively, of the Partnership's net revenues for the year ended
December 31, 1996. Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Partnership believes
that it is in compliance with all applicable laws and regulations and is not
aware of any pending or threatened investigations involving allegations of
potential wrongdoing. While no such regulatory inquiries have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and Medicaid programs.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts and fair values of financial instruments at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 10,463,887 $ 10,463,887 $ 9,743,330 $9,743,330
Cash, restricted 206,376 206,376 203,788 203,788
Investments in
limited partnerships 8,275,920 6,348,776 896,405 887,228
Note payable 0 0 2,035,148 2,035,148
</TABLE>
The following methods and assumptions were used by the General Partner in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and cash equivalents approximate fair
value.
Investment in limited partnerships: The fair values are based on
the most recent purchase price.
Note payable: The fair value of note payable is estimated using
discounted cash flow analysis, based on current incremental
borrowing rates for similar types of borrowing arrangements.
26
<PAGE>
5. NOTE PAYABLE:
------------
<TABLE>
<CAPTION>
<S> <C>
Note payable consists of the following:
1996 1995
------------------ -----------------
Mortgage loan, bearing interest at 11%
maturing July 1,1996, and
payable in monthly installments
of $22,725, including interest with
remaining amounts due at maturity.
This mortgage is secured by Silver
Lakes Apartments. $ 0 $ 2,035,148
========= =================
</TABLE>
On November 1, 1996, the mortgage loan was paid upon sale of the Silver Lakes
Apartments.
The Partnership has a $17,500,000 open end mortgage loan commitment for future
acquisition and development of properties from a non-affiliated mortgage
company, and pledged the Cottonwood, Harrison, Towne Centre, and Canton Regency
retirement communities as collateral. The loan expires July 29, 1998. As of
December 31, 1996, there have been no advances made to the Partnership on this
loan commitment.
In connection with obtaining the open end mortgage loan commitment in 1994, the
Partnership incurred $449,596 in deferred financing charges, which are being
amortized over the life of the loan commitment using the straight line method.
6. COMMITMENTS:
-----------
The Partnership had $56,376 in certificates of deposit at December 31, 1996 and
$53,788 in certificates of deposit at December 31, 1995, restricted for utility
deposits. The certificates of deposit mature one year from the original purchase
date.
In conjunction with the Partnership's mortgage loan commitment, a compensating
balance of $150,000 was established with the mortgage company.
The operating properties have entered into various contracts for services. The
contracts are for a duration of 5 years or less and are on a fee basis as
services are rendered. Future commitments on fixed cost contracts and leases are
as follows:
Year Amount
---- ------
1997 $ 16,144
1998 11,199
1999 9,394
2000 8,786
2001 3,432
-----------
$ 48,955
===========
27
<PAGE>
7. CASH DISTRIBUTIONS:
------------------
Net operating income, if distributed as determined by the General Partner at its
sole discretion, is to be distributed 99% to the BUC holders and 1% to RLC until
the BUC holders receive distributions equal to a cumulative noncompounded annual
return of 11% on their adjusted capital contributions. Thereafter, remaining net
operating income is distributed 90% to the BUC holders and 10% to RLC.
The second amended Partnership Agreement allows the general partner sole
discretion in determining cash distributions. Prior to this amendment, cash
distributions were to be paid within 45 days of each calendar quarter. There
were no distributions for 1996 and 1995. It is the general partner's intention
to use current and future cash reserves to acquire additional properties and to
expand operations of currently owned properties.
Proceeds from the refinancing, sale, or other dispositions of Partnership
assets, less expenses directly attributable thereto (net residual proceeds),
will be distributed 100% to the BUC holders until the BUC holders have received
an amount equal to the sum of their adjusted capital contributions plus an
amount equal to a cumulative noncompounded annual return of 11% on their
adjusted capital contributions. All remaining net residual proceeds will be
distributed 100% to RLC until such amount equals 1% of all net residual proceeds
distributed to the BUC holders. Thereafter, any remaining net residual proceeds
will be distributed 90% to the BUC holders and 10% to RLC.
8. INCOME TAXES:
------------
No provision has been made in the financial statements for Federal income taxes
because, under current law, no Federal income taxes are paid directly by the
Partnership. The partners are responsible for their respective shares of
Partnership net income or loss. The Partnership reports certain transactions
differently for tax than for financial statement purposes. A reconciliation
between the financial statement net income and the net income for tax purposes
follows:
<TABLE>
<CAPTION>
<S> <C>
For the Year Ended December 31,
1996 1995
------------- -------------
Net income per
Statement of income $ 3,105,703 $ 1,630,669
(Decrease) increase in vacation expense (715) 10,766
accrual
Non-deductible bad debt expense 23,370 55,403
Other non-deductible expenses 1,250 1,253
Increase in workers compensation accrual 120 2,463
Excess of book over tax depreciation 101,069 347,376
Investment income accounted for under (603,147) 0
the equity method for book and not tax
Tax adjustment on sale of properties 268,068 0
Income from joint ventures 181,660 51,970
----------- -----------
Tax income $ 3,077,378 $ 2,099,900
=========== ===========
</TABLE>
28
<PAGE>
The tax basis of the Partner's capital accounts are as follows:
<TABLE>
<CAPTION>
<S> <C>
For the Year Ended December 31
1996 1995
------------- -------------
General Partner $ 19,024 $ (11,602)
BUC Holders 22,285,615 20,515,980
------------------- -------------------
$ 22,304,639 $ 20,504,378
=================== ===================
</TABLE>
The basis of property and equipment, net of accumulated depreciation, for
Federal income tax purposes was $13,504,827 and $18,192,768 at December 31, 1996
and 1995, respectively.
In the event the Partnership is taxed as a corporation because it is "publicly
traded" under Section 7704 of the Internal Revenue Code of 1986, then the
Partnership would be taxed at corporate rates on all of its taxable income and
distributions to the BUC holders would be treated as fully taxable dividends to
the extent of current and accumulated earnings and profits, while distributions
in excess of current and accumulated earnings and profits would be treated as
the nontaxable return of capital to the extent of each BUC holder's basis in the
BUCs. Partnership management does not believe the Partnership will be taxed as
"publicly traded" for fiscal 1996 based on its interpretation of Section 7704
and no provision for income taxes has been reflected in the accompanying
consolidated statements of income. No ruling has been requested from the
Internal Revenue Service regarding this matter and there can be no certainty as
to the ultimate outcome of this matter at this time.
9. TRANSACTIONS WITH RELATED PARTIES:
---------------------------------
In accordance with the partnership agreement, the general partner, RLC does not
receive any fees from the Partnership but may be reimbursed by the Partnership
for any actual costs and expenses incurred in connection with the operations of
the Partnership. All projects are managed by affiliates of RLC. Partnership
expenses incurred by RLC and affiliates, which were reimbursed and expensed by
the Partnership for the years ended December 31, 1996 and 1995, were $332,438
and $430,329, respectively. Management fees reimbursed and expensed by the
Partnership to an affiliate of RLC for the years ended December 31, 1996 and
1995 were $ 987,104 and $986,877, respectively.
All property employees are paid by an affiliate of RLC. Reimbursed gross payroll
and health insurance premiums, which were expensed by the Partnership in 1996
and 1995, were $5,254,495 and $5,213,246, respectively.
29
<PAGE>
Amounts due RLC and affiliates at December 31 are as follows:
1996 1995
------------- -------------
Payroll and health insurance $ 218,905 $ 213,239
Overhead reimbursement 29,781 38,817
Management fees 3,494 (269)
----------- --------
$ 252,180 $ 251,787
=========== ========
In 1995, an affiliate of RLC received a 2% financing fee of $110,000 in
connection with increasing the Partnership's mortgage loan commitment.
In connection with the extension of the Silver Lakes mortgage, an affiliate of
RLC received $40,453 and $20,830 in 1996 and 1995, respectively, as a financing
fee.
In May 1995, the Partnership contracted with Quality Home Care, Inc., an
affiliate of RLC, to provide nursing services to the assisted living residents
at the Harrison facility. The contract was executed to comply with certain state
regulations. As part of the contract, the Partnership has transferred its share
of assisted living revenues and expenses for the Harrison to Quality Home Care,
Inc. resulting in an approximate decrease of $63,000 in net annualized profits.
In April 1996, an affiliate of RLC recognized a $878,592 gain on the
Partnership's purchase of HealthCare Properties, L.P. limited partnership
interests. (See Note 10.)
Upon sale of The Silver Lakes and Lakeridge Apartments in November, 1996 an
affiliate of RLC received a $79,883 brokerage fee.
In addition, a 50% partner in RLC is chairman of the board of a bank where the
Partnership holds the majority of its operating cash accounts.
The general partner and managing agent of HealthCare Properties, L.P. and NHP
Retirement Housing Partners I, L.P. is an affiliate of RLC. (See Note 10.)
10. ACQUISITION AND DISPOSITION OF INVESTMENTS:
------------------------------------------
During 1996 and 1995, the Partnership made various purchases of limited
partnership interests in HealthCare Properties, L.P. During 1996 and 1995, the
Partnership paid $3,200,685 and $308,825, respectively, for partnership
interests in HealthCare Properties, L.P. As of December 31, 1996, the
Partnership has cumulatively paid $3,509,510 for a 31% ownership in HealthCare
Properties, L.P., which owns a portfolio of 8 nursing home facilities.
In the second quarter of 1996, 9.36% in limited partnership interests in
HealthCare Properties, L.P. was purchased from Capital Realty Group Senior
Housing, Inc. (CRGSH), an affiliate of RLC, who had acquired the interests in
1993. The Partnership paid $1,269,077 to such affiliate, who recognized a
$878,592 gain on the transaction. Because of this purchase, the Partnership
exceeded 20% ownership and changed its method of accounting from the cost method
to the equity method. The change resulted in recognizing $3,519,315 of deferred
income for the difference between cost and the underlying equity in HealthCare
Properties, L.P, which is being amortized over 20 years. The fair value of the
Partnership's investment in HealthCare Properties, L.P. is $5,171,626 at
December 31, 1996.
30
<PAGE>
Summary financial information regarding financial position and results of
operations of HealthCare Properties, L.P. as of December 31 and for the years
then ended, is summarized below.
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------------ -------------
Cash $ 8,995,455 $ 7,606,857
Property and equipment, net 22,112,619 25,251,255
Other assets 1,379,473 954,174
------------------ --------------
Total assets $ 32,487,547 $ 33,812,286
=================== =============
Liabilities $ 1,115,508 $ 1,609,403
Mortgage loans 7,207,414 9,775,601
Equity 24,164,625 22,427,282
------------------- -------------
Total liabilities and equity $ 32,487,547 $ 33,812,286
=================== =============
Net revenue $ 8,047,721 $ 7,181,604
================== =============
Net income $ 1,737,343 $ 1,250,333
================== =============
</TABLE>
During 1996 and 1995, the Partnership made various purchases of outstanding
Pension Notes of NHP Retirement Housing Partners I L.P. During 1996 and 1995,
the Partnership paid $199,158 and $587,580, respectively, for purchases of
Pension Notes. As of December 31, 1996, the Partnership has cumulatively paid
$786,738 for a 4.2% ownership of outstanding Pension Notes of NHP Retirement
Housing Partners I L.P. NHP Retirement Housing Partners I L.P. owns a portfolio
of 5 independent living retirement facilities. The Pension Notes bear simple
interest at 13% per annum. Interest of 7% is paid quarterly, with the remaining
6% interest deferred. Deferred interest and principal matures on December 31,
2001. The Partnership is not accruing the deferred interest on the Pension Notes
due to uncertainties regarding their ultimate realization. The ultimate
realization of the Pension Notes is expected to be based primarily upon the
value of the underlying properties. During 1996, the Partnership paid $1,364 for
a 3.1% ownership of limited partnership interests in NHP Retirement Housing
Partners I, L.P.
The Partnership accounts for the investments in NHP Retirement Housing Partners
I, L.P. (NHP) at cost and classifies them as held to maturity. The fair value of
the investments in NHP is $1,177,150 at December 31, 1996.
Subsequent to year end and through March 27, 1997, the Partnership is committed
to purchase approximately $1,336,630 for an additional investment in HealthCare
Properties, L. P. interests and has disbursed $7,868,820 for an additional
investment in Pension Notes of NHP Retirement Housing Partners I, L.P. These
purchases bring the Partnership's ownership of HealthCare Properties, L.P.
interests to 37.5% and 25.3% for NHP Retirement Housing I, L.P. Pension Notes.
31
<PAGE>
11. REPURCHASE OF BENEFICIAL UNIT CERTIFICATES
------------------------------------------
The Partnership purchased 91,854 beneficial unit certificates for $1,262,355
during 1996, at an average cost of $13.74 per unit.
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT LIST
Page Nos.
In This
Exhibit Description Filing
- ------- ------------------------------------------------- ------
</TABLE>
3-A Articles of Incorporation of Retirement Living Fiduciary Corporation, filed
as Exhibit 3-A to Amendment No. 3 to the Partnership's 1933 Act
Registration Statement on Form S-11 under Registration No. 33-3157 filed
with the Commission on March 31, 1986, and incorporated herein by
reference.
3-B By-Laws of Retirement Living Fiduciary Corporation filed as Exhibit 3-B to
Amendment No. 3 to the Partnership's 1933 Act Registration Statement on
Form S-11 under Registration No. 33-3157 filed with the Commission on March
31, 1986, and incorporated herein by reference.
4-A Agreement of Limited Partnership and Certificate of Retirement Living
Tax-Exempt Mortgage Fund Limited Partnership filed as Exhibit 4-A to
Amendment No. 3 to the Partnership's 1933 Act Registration Statement on
Form S-11 under Registration No. 33-3157 filed with the Commission on March
31, 1986, and incorporated herein by reference.
4-B Amended and Restated Agreement of Limited Partnership of Retirement Living
Tax-Exempt Mortgage Fund Limited Partnership filed as Exhibit 4-B to the
Partnership's 1986 Form 10-K Annual Report filed with the Commission on
March 31, 1987, and incorporated herein by reference.
4-C Form of Beneficial Unit Certificates, filed as Exhibit 4-C to Amendment No.
3 to the Partnership's 1933 Act Registration Statement on Form S-11 under
Registration No. 33-3157 filed with the Commission on March 31, 1986, and
incorporated herein by reference.
4-D Amendment Number 1 to amended and restated agreement of Limited Partnership
dated March 6, 1991, filed as Exhibit 4-D to the Partnership's 1990 Form
10-K Annual Report filed with the Commission on April 12, 1991, and
incorporated herein by reference.
4-E Certificates of Limited Partnership and Limited Partnership Agreements of
Retirement Partnership, Ltd. and Valley View Partnership, L.P., filed as
Exhibit 4-E to the Partnership's 1990 Form 10-K Annual Report filed with
the Commission on April 12, 1991, and incorporated herein by reference.
4-F Amended and Restated Certificate of Limited Partnership of the Partnership
dated effective January 11, 1993 filed as Exhibit 4-F to the Partnership's
1992 Form 10-K Annual Report filed with the Commission and incorporated
herein by reference.
4-G Second Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of December 24, 1992 filed as Exhibit 4-G to the
Partnership's 1992 Form 10-K Annual Report filed with the Commission and
incorporated herein by reference.
33
<PAGE>
10-A Asset Purchase Agreement between Congregate Housing Partnership of Canton,
in Indiana general partnership, Congregate Housing Partnership of
Cottonwood, an Indiana general partnership, Congregate Housing Partnership
of Indianapolis, an Indiana general partnership, Sanibel Investment Co., an
Indiana general partnership, Congregate Housing Partnership of
Merrillville, an Indiana general partnership, and Congregate Housing
Partnership, an Indiana general partnership, Retirement Living Partnership,
Ltd., a Texas limited partnership, and Valley View Partnership, a Texas
limited partnership and Retirement Living Tax-Exempt Mortgage Fund Limited
Partnership, a Delaware limited partnership filed as Exhibit 2-A to the
Partnership's 1990 Form 10-K Annual Report filed with the Commission on
April 12, 1991, and incorporated herein by reference.
10-B First Amendment of Asset Purchase Agreement (filed as Exhibit 10-A) dated
effective September 11, 1991, filed as Exhibit 2 to the Partnership's
Current Report on Form 8-K dated September 25, 1991, and incorporated
herein by reference.
10-C Real Estate Sales Contract dated effective September 11, 1991, relating to
acquisition of the Village Green I Apartments, filed as Exhibit 3 to the
Partnership's Current Report on Form 8-K dated September 25, 1991, and
incorporated herein by reference.
10-D Banc One Mortgage Corporation letter dated September 11, 1991 regarding
Village Green I Apartments, filed as Exhibit 4 to the Partnership's Current
Report on Form 8-K dated September 25, 1991, and incorporated herein by
reference.
10-E Modification, Consolidation and Extension Mortgage Note between EFB
Development Company and Retirement Partnership, Ltd. and Banc One Mortgage
Corporation, dated December 6, 1991, filed as Exhibit 10-E to the
Partnership's Annual Report on Form 10-K for the fiscal year ended December
31, 1991, and incorporated herein by reference.
10-F Management Agreement dated effective August 28, 1991 relating to Village
Green I Apartments, filed as Exhibit 5 to the Partnership's Current Report
on Form 8-K dated September 25, 1991, and incorporated herein by reference.
10-G Warranty Deed executed by Retirement Partnership, Ltd. which conveys to the
Partnership the real estate known as Canton Regency Retirement Community,
filed as Exhibit 10-G to the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, and incorporated herein by
reference.
10-H Warranty Deed executed by Retirement Partnership, Ltd. which conveys to the
Partnership the real estate known as Towne Centre Retirement Community,
filed as Exhibit 10-H to the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, and incorporated herein by
reference.
10-I Warranty Deed executed by Retirement Partnership, Ltd. which conveys to the
Partnership the real estate known as The Harrison Retirement Community,
filed as Exhibit 10-I to the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, and incorporated herein by
reference.
34
<PAGE>
10-J Warranty Deed executed by Retirement Partnership, Ltd. which conveys the
Partnership the real estate known as Cottonwood Village Retirement
Community, filed as Exhibit 10-J to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, and incorporated herein
by reference.
10-K Warranty Deed executed by Retirement Partnership, Ltd. which conveys to the
Partnership the real estate known as Village Green Apartments Phase II,
filed as Exhibit 10-K to the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, and incorporated herein by
reference.
10-L Management Agreement Dated September 11, 1991, between Capital Realty Group
Senior Housing, Inc. and Retirement Partnership, Ltd. for the property
management services relating to the Canton Regency Retirement Community,
filed as Exhibit 10-L to the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, and incorporated herein by
reference.
10-M Management Agreement Dated September 11, 1991, between Capital Realty Group
Senior Housing, Inc. and Retirement Partnership, Ltd. for the property
management services relating to the Towne Centre Retirement Community,
filed as Exhibit 10-M to the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991, and incorporated herein by
reference.
10-N Management Agreement Dated September 11, 1991, between Capital Realty Group
Senior Housing, Inc. and Retirement Partnership, Ltd. for the property
management services relating to The Harrison Retirement Community, filed as
Exhibit 10-N to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
10-O Management Agreement Dated September 11, 1991, between Capital Realty Group
Senior Housing, Inc. and Retirement Partnership, Ltd. for the property
management services relating to the Cottonwood Village Retirement
Community, filed as Exhibit 10-O to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, and incorporated herein
by reference.
10-P Three Management Agreements Dated March 1, 1991, between Capital Realty
Group Management, Inc. and Congregate Housing Partnership of Indianapolis,
Capital Realty Group Management, Inc. and Congregate Housing Partnership of
Cottonwood, Capital Realty Group Management, Inc. and Sanibel Investment
Company, filed as Exhibit 10-K to the Partnership's 1990 Form 10-K Annual
Report filed with the Commission on April 12, 1991, and incorporated herein
by reference.
10-Q Management Agreement Dated September 11, 1991, between Capital Realty Group
Management, Inc. and Retirement Partnership, Ltd. for the property
management services relating to Village Green Apartments Phase II, filed as
Exhibit 10-Q to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
35
<PAGE>
10-R Management Agreement Dated December 6, 1991, between Capital Realty Group
Management, Inc. and Retirement Partnership, Ltd. for the property
management services relating to Village Green Apartments Phase I, filed as
Exhibit 10-R to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
10-S Management Agreement Dated September 11, 1991, between Capital Realty Group
Management, Inc. and Retirement Partnership, Ltd. for the property
management services relating to Village Green Apartments Phase II, filed as
Exhibit 10-S to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
10-T Management Agreement Dated January 1, 1992, between Capital Realty Group
Senior Housing, Inc. and the Partnership for the property management
services relating to the Canton Regency Retirement Community, filed as
Exhibit 10-T to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
10-U Management Agreement Dated January 1, 1992, between Capital Realty Group
Senior Housing, Inc. and the Partnership for the property management
services relating to the Towne Centre Retirement Community, filed as
Exhibit 10-U to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
10-V Management Agreement Dated January 1, 1992, between Capital Realty Group
Senior Housing, Inc. and the Partnership for the property management
services relating to The Harrison Retirement Community, filed as Exhibit
10-V to the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, and incorporated herein by reference.
10-W Management Agreement Dated January 1, 1992, between Capital Realty Group
Senior Housing, Inc. and the Partnership for the property management
services relating to the Cottonwood Village Retirement Community, filed as
Exhibit 10-W to the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
10-X Congregate Housing Partnership, Inc. Assignment of its eleven and
two-thirds (11.6667%) percent interest in Encore Retirement Partners, Ltd.
- 1985 to Retirement Partnership, Ltd., dated April 1991, filed as Exhibit
10-X to the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, and incorporated herein by reference.
Retirement Partnership, Ltd. Assignment of its eleven and two-thirds
(11.6667%) percent interest in Encore Retirement Partners, Ltd. - 1985 to
the Partnership, dated January 1, 1992, filed as Exhibit 10-X to the
Partnership's Annual Report on Form 10-K for the fiscal year ended December
31, 1991, and incorporated herein by reference.
10-Y Beck Trophy Club, L.P. Partnership Agreement dated November 28, 1993 filed
as Exhibit 10-Y to the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, and incorporated herein by reference.
10-Z Beck Trophy Club, L.P. Resale Agreement dated December 3, 1993 filed as
Exhibit 10-Z to the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, and incorporated herein by reference.
36
<PAGE>
10-AAAssignment of Limited Partnership Interest and Second Amendment to Limited
Partnership Agreement of Beck Properties Trophy Club, L.P., filed as
Exhibit 10-AA to the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by reference.
*10-BB Management agreement dated February 1, 1995 between the Partnership and
CSL relating to The Harrison at Eagle Valley.
*10-CC Management Agreement dated February 1, 1995 between the Partnership and
CSL relating to Towne Centre.
*10-DD Management Agreement dated February 1, 1995 between the Partnership and
CSL relating to Cottonwood Village.
*10-EE Management Agreement dated February 1, 1995 between the Partnership and
CSL relating to Canton Regency Retirement Community.
*21 List of Subsidiaries.
*27 Financial Data Schedule required by Item 601 of Regulation S-B.
28-A Orders appointing Capital Realty Group Management, Inc. as receiver for
Congregate Housing Partnership of Merrillville and Congregate Housing
Partnership of Canton, filed as Exhibit 28-A to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991, and
incorporated herein by reference.
99 HealthCare Properties, L.P. financial statements at December 31, 1996.
* Filed herewith.
37
<PAGE>
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.
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
By: RETIREMENT LIVING COMMUNITIES
General Partner
By: CAPITAL RETIREMENT GROUP, INC.
General Partner
By: /s/ James A. Stroud
------------------------------------------
James A. Stroud, Chief Operating Officer
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.
<TABLE>
<CAPTION>
<S> <C>
/s/ James A. Stroud
- ----------------------------- Chief Operating Officer March 31, 1997
James A. Stroud and Director (Chief financial
and accounting officer)
/s/ Jeffrey L. Beck
- ----------------------------- Chief Executive Officer March 31, 1997
Jeffrey L. Beck
</TABLE>
38
<PAGE>
LIST OF SUBSIDIARIES
1. Retirement Partnership, Ltd., a Delaware Limited Partnership, 99% owned.
2. HealthCare Properties, L.P., a Delaware Limited Partnership, 37.5% owned.
39
<PAGE>
List of Subsidiaries
(Exhibit 21)
40
<PAGE>
Assignment of Limited Partnership Interest and Second Amendment to
Limited Partnership Agreement of Beck Properties Trophy Club, L.P.
(Exhibit 10-AA)
41
<PAGE>
Exhibit 99
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
HealthCare Properties, L.P.:
We have audited the accompanying consolidated balance sheets of HealthCare
Properties, L.P. and subsidiaries (a Delaware limited partnership) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partnership equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthCare
Properties, L.P. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1997, except as to the fifth paragraph of note 4, which is as of
March 21, 1997
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Assets 1996 1995
------ ---- ----
Cash and cash equivalents $ 8,995,455 7,606,857
Accounts receivable, less allowance for doubtful accounts of
of $4,225,811 in 1996 and $3,489,937 in 1995 (notes 6 and 9) 794,234 210,409
Prepaid expenses 85,295 129,714
Property and improvements, net (notes 3, 4 and 5) 22,112,619 25,251,255
Deferred charges, less accumulated amortization of $765,409 in
1996 and $734,146 in 1995 499,944 614,051
---- -------- ---- ---------- ----------
32,487,547 33,812,286
Liabilities and Partnership Equity
Accounts payable and accrued expenses (note 4) $1,004,204 1,526,209
Operating facility accounts payable 211,304 83,194
Mortgage loans payable - in default (note 4) - 2,068,539
Mortgage loans payable (note 4) 7,207,414 7,707,062
- --------- ---------
8,422,922 11,385,004
--------- ----------
Partnership equity (deficit):
Limited partners (4,172,457 units) 24,058,684 22,449,617
General partner 5,941 (22,335)
--------- ----------
24,064,625 22,427,282
Commitments and contingencies (note 4)
---------- ----------
$32,487,547 $33,812,286
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
43
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995 1994
---- ---- ----
Revenues (notes 5, 6 and 9):
Net patient service $ 2,969,991 3,268,800 6,698,751
Rental 4,590,113 5,100,085 5,296,655
Other income - 50,139 579,075
--------- --------- ---------
7,560,104 8,419,024 12,574,481
Expenses: --------- --------- ----------
Facility operating expenses 2,727,909 3,238,004 6,597,068
Depreciation 1,418,293 1,721,605 1,911,876
Fees to affiliates (note 7) 1,275,833 1,279,428 1,581,765
Bad debts 875,143 1,585,555 919,737
Lease default expenses 114,523 286,108 453,140
Administrative and other 192,385 114,625 222,055
------- ------- -------
6,604,086 8,225,325 11,685,641
--------- --------- ----------
Income from operations 956,018 193,699 888,840
------- ------- -------
Other income (expense):
Interest income 239,215 185,650 102,511
Interest expense (784,092) (1,324,845) (1,645,647)
Amortization (114,107) (171,265) (195,782)
Gain (loss) on disposition of operating
properties, net (note 3) 387,617 (1,237,420) -
Loss due to reduction of carrying value of
operating properties (note 3) - - (2,185,381)
-------- ---------- ----------
(271,367) (2,547,880) (3,924,299)
-------- ---------- ----------
Income (loss) before extraordinary item 684,651 (2,354,181) (3,035,459)
------- ---------- ----------
Extraordinary gain on disposition of
operating properties (note 3) 952,692 3,604,514 -
- ------- --------- -----------
Net income (loss) $ 1,637,343 1,250,333 (3,035,459)
----------- --------- ----------
Allocation of net income (loss):
Limited partners $ 1,609,067 960,336 (2,974,750)
General partners 28,276 289,997 (60,709)
------ ------- -------
$ 1,637,343 1,250,333 (3,035,459)
=========== ========= ==========
Per unit:
Income (loss) before extraordinary item $ .16 (.56) (.71)
Extraordinary gain .23 .79 -
--- --- ---
Net income (loss) $ .39 .23 (.71)
=========== === ====
Distributions $ - - -
Weighted average number of units 4,172,457 4,172,457 4,172,457
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Partnership Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Limited General
Partners Partner Total
-------- ------- -----
Equity at December 31, 1993 $ 24,464,031 (251,623) 24,212,408
Net loss (2,974,750) (60,709) (3,035,459)
---------- ------- ----------
Equity at December 31, 1994 21,489,281 (312,332) 21,176,949
Net income 960,336 289,997 1,250,333
------- ------- ---------
Equity at December 31, 1995 22,449,617 (22,335) 22,427,282
Net income 1,609,067 28,276 1,637,343
--------- ------ ---------
Equity at December 31, 1996 $24,058,684 5,941 24,064,625
=========== ===== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 1,637,343 1,250,333 (3,035,459)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,532,400 1,892,870 2,107,658
Bad debts 875,143 1,585,555 919,737
(Gain) loss on disposition of operating
properties, net (387,617) 1,237,420 -
Extraordinary gain on disposition of operating
properties (952,692) (3,604,514) -
Loss due to reduction of carrying value of
operating properties - - 2,185,381
Changes in assets and liabilities, net of
effects of property dispositions:
Accounts receivable (1,458,968) (1,228,720) (850,301)
Prepaid expenses 43,647 39,406 (11,473)
Accounts payable and accrued expenses 443,384 (89,940) 1,018,878
------- ------- ---------
Net cash provided by operating activities 1,732,640 1,082,410 2,334,421
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and improvements (21,969) (760) (514,406)
Proceeds from sale of property 2,246,114 2,958,287 -
Cash forfeiture on disposition of property held in
receivership - (67,969) -
Net cash provided by (used in) --------- ---------- --------
investing activities 2,224,145 2,889,558 (514,406)
--------- --------- --------
Cash flows from financing activities - payments on
mortgage loans payable (2,568,187) (1,971,385) (444,352)
---------- ---------- --------
Net increase in cash and cash equivalents 1,388,598 2,000,583 1,375,663
Cash and cash equivalents at beginning of year 7,606,857 5,606,274 4,230,611
--------- --------- ---------
Cash and cash equivalents at end of year $ 8,995,455 7,606,857 5,606,274
---------- --------- ---------
Cash paid for interest $ 716,910 850,747 981,346
========== ======= =======
</TABLE>
45
<PAGE>
See accompanying notes to consolidated financial statements.
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) General
-------
HealthCare Properties, L.P., is a Delaware limited partnership established
for the purpose of acquiring, leasing and operating existing or newly
constructed long-term health care properties. These properties are operated
by the Partnership or are leased to qualified operators who provide
specialized health care services. Effective July 1, 1993, Capital Realty
Group Senior Housing, Inc. (CRG) became the sole general partner of the
Partnership. Effective February 1, 1995, Capital Senior Living, Inc.,
(CSL), an affiliate of CRG became the managing agent for the Partnership
replacing CRG, which had been managing agent since July 1, 1992.
At December 31, 1995, CRG owned approximately 9% of the Partnership's
limited partner units. During 1996, Capital Senior Living Communities, L.P.
(CSLC), an affiliate of CRG, acquired CRG's 9% interest in the Partnership.
In addition, CSLC purchased approximately 16% of the limited partner units
from unaffiliated limited partners. At December 31, 1996 and 1995, CSLC
owned approximately 31% and 6% of the Partnership's limited partner units,
respectively.
The consolidated financial statements as of and for the years ended
December 31, 1995 and 1994 include the accounts of the Partnership and its
wholly owned subsidiaries, Danville Care, Inc., Foothills Care, Inc.,
Countryside Care, Inc. and Countryside Care, LP. In addition, the
consolidated financial statements as of and for the year ended December 31,
1996 include the accounts of the Partnership's wholly owned subsidiary,
Cambridge Nursing Home Limited Liability Company (Cambridge LLC), which
began operating Cambridge Nursing Home effective August 1, 1996 (see note
6). All significant intercompany accounts and transactions have been
eliminated in consolidation.
At December 31, 1996, 1995 and 1994, the status of the Partnership's
properties was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995 1994
---- ---- ----
Operated under bankruptcy and managed by CSL - 1 1
Leased to unaffiliated operators on a triple net basis 7 7 8
Operated by subsidiaries of the Partnership and
managed by CSL 1 1 2
Operated and managed under receivership by
an unaffiliated operator - - 1
-- -- --
8 9 12
= = ==
</TABLE>
During 1996, one of the properties (Countryside) operated by a subsidiary
of the Partnership was sold to an unrelated third party. Additionally,
during 1996, the operations of the property (Cambridge) previously operated
under bankruptcy and managed by CSL were transferred to Cambridge LLC. CSL
continues to manage this property (see note 6). During 1995, one of the
Partnership's leased properties was sold to an unrelated third party and
the deeds for two of the Partnership's operated properties were transferred
to the noteholders in lieu of foreclosure (see note 3).
(2) Summary of Significant Accounting Policies
------------------------------------------
Property and improvements are stated at cost. The Partnership adopted the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. The fair value is based on either the
expected future cash flows discounted at a rate which varies based on
associated risk or an independent third-party appraisal. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this Statement did not have a material
impact on the Partnership's 1996 financial position or results of
operations.
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, using
declining-balance and straight-line methods, as follows: buildings and
improvements, 25 to 31 years; furniture, fixtures and equipment, 5 to 10
years.
The financial statements and federal income tax returns are prepared on the
accrual method of accounting and include only those assets and liabilities
and results of operations which relate to the business of the Partnership
and its wholly owned subsidiaries. No provision has been made for federal
and state income taxes since such taxes are the responsibility of the
individual partners. Although the Partnership's subsidiaries file federal
corporate income tax returns, none of the subsidiaries had significant net
income for financial reporting or income tax purposes in 1996, 1995 or
1994. Accordingly, no provision has been made for federal and state income
taxes for these subsidiaries in 1996, 1995 or 1994.
Net income (loss) of the Partnership and taxable income (loss) are
generally allocated 98% to the limited partners and 2% to the general
partner. The net income of the Partnership from the disposition of a
property is allocated (i) to partners with deficit capital accounts on a
pro rata basis (ii) to limited partners until they have been paid an amount
equal to the amount of their Adjusted Investment (iii) to the limited
partners until they have been allocated income equal to their 12%
Liquidation Preference, and (iv) thereafter, 80% to the limited partners
and 20% to the general partner. The net loss of the Partnership from the
disposition of a property is allocated (i) to partners with positive
46
<PAGE>
capital accounts on a pro rata basis and (ii) thereafter, 98% to the
limited partners and 2% to the general partner. Distributions of available
cash flow are generally distributed 98% to the limited partners and 2% to
the general partner, until the limited partners have received an annual
preferential distribution, as defined. Thereafter, available cash flow is
distributed 90% to the limited partners and 10% to the general partner. No
distributions were made in 1996, 1995 or 1994.
Deferred charges primarily represent initial fees and other costs incurred
in negotiating leases and mortgage loans payable. These costs are being
amortized using the straight-line method over the lives of the related
leases or mortgage loans.
Net patient service revenue is reported at the estimated net realizable
amounts due from residents, third-party payors, and others for service
rendered. Revenue under third-party payor agreements is subject to audit
and retroactive adjustment. Provisions for estimated third-party payor
settlements are provided in the period the related services are rendered.
Differences between the estimated amounts accrued and interim and final
settlements are reported in operations in the year of settlement.
The Partnership records accounts receivable for contingent rentals and past
due rents only when circumstances indicate a substantial probability of
collection. Existing receivables are reserved to the extent collection is
deemed doubtful by the Partnership's management. Deductions to the
allowance for doubtful accounts were $45,682, $29,953 and $32,426 for 1996,
1995 and 1994, respectively.
The Partnership classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these consolidated financial statements. Actual results could differ from
those estimates.
(3) Property and Improvements
-------------------------
Property and improvements consist of:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
1996 1995
Land $ 3,145,803 3,570,802
Buildings and improvements 31,397,383 34,467,946
Furniture, fixtures and equipment 1,603,965 1,851,124
--------- ---------
36,147,151 39,889,872
Allowance for reduction in carrying value of
operating properties (2,185,381) (3,026,898)
---------- ----------
33,961,770 36,862,974
Less accumulated depreciation 11,849,151 11,611,719
---------- ----------
$ 22,112,619 25,251,255
============ ==========
</TABLE>
47
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
The following property dispositions occurred during 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
Net property Mortgage
and loans Net Net gain on
improvements payable Other proceeds disposition
------------ ------- ----- -------- -----------
1996:
- -----
Sale of Countryside
on May 1, 1996 $ 1,742,401 (2,068,539) (987,804) (26,367) 1,340,309
=========== ========== ======== ======= =========
1995:
Sale of Heritage
Manor on July 5,
1995 $ 2,530,645 (1,500,000) 63,857 (1,458,287) 363,785
Deed transferred to
noteholder in
lieu of fore-
closure:
Foothills 2,122,178 (2,360,895) (872,587) - 1,111,304
Diablo/Tamarack 2,071,334 (2,160,787) (802,552) - 892,005
--------- ---------- -------- ---------- ---------
$ 6,724,157 (6,021,682) (1,611,282) (1,458,287) 2,367,094
=========== ========== ========== ========== =========
</TABLE>
"Other" consists primarily of disposition costs, accrued interest payable
and deferred charges (prepaid loan fees).
The Countryside property was sold to an unrelated third-party investor on
May 1, 1996 for $2,246,114. The resulting net gain is comprised of (1) an
ordinary gain of $387,617 representing the difference between the carrying
value of the property and the sales proceeds and (2) an extraordinary gain
of $952,692 representing the difference between the agreed-upon cash
settlement with the lender and the mortgage loan payable including accrued
interest payable.
The Heritage Manor property was sold on July 5, 1995 to an unrelated
third-party investor for $3,075,000. With the proceeds, the Partnership
paid the $1,500,000 mortgage loan balance. The resulting net gain of
$363,785 represents the difference between the carrying value of the
property and the sales proceeds.
The deed to the Diablo/Tamarack property was transferred to the noteholder
in lieu of foreclosure on July 31, 1995. The resulting net gain is
comprised of (1) an ordinary loss of $686,770 representing the difference
between the carrying value and the fair value of the property and, (2) an
extraordinary gain of $1,578,775 representing the difference between the
fair value of the property, and the mortgage loan payable including accrued
interest payable.
(Continued)
48
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
Effective December 1, 1994, the Foothills property was placed in
receivership. The deed to the property was subsequently transferred to the
noteholder in lieu of foreclosure on JulyE19, 1995. The resulting net gain is
comprised of (1) an ordinary loss of $914,435, representing the difference
between the carrying value and the fair value of the property and, (2) an
extraordinary gain of $2,025,739 representing the difference between the fair
value of the property, and the mortgage loan payable including accrued interest
payable.
In 1994, management concluded that the carrying value of its Cambridge
property exceeded its estimated fair value. As a result, in the fourth quarter
of 1994, this property, which had been carried at $4,185,381, was written down
to $2,000,000.
Combined operating results for Cambridge, Foothills, Countryside and
Diablo/Tamarack follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
---- ---- ----
Net patient service revenue $ 2,969,991 3,268,800 6,698,751
----------- --------- ---------
Facility operating expenses 2,727,909 3,238,004 6,597,068
Depreciation 248,134 275,815 369,401
Fees to affiliates 261,517 319,454 650,740
Bad debts 79,682 325,921 52,263
Lease default expenses 35,923 120,258 81,014
3,353,165 4,279,452 7,750,486
--------- --------- ---------
Loss from operations $ (383,174) (1,010,652) (1,051,735)
----------- ---------- ----------
Interest expense $ 67,181 457,691 664,306
=========== ======= =======
</TABLE>
1996 operating results consist of amounts at the Cambridge facility from
August 1, 1996 through December 31, 1996 and at the Countryside facility from
January 1, 1996 through April 30, 1996. Operating results consist of amounts at
the Countryside facility for the year ended DecemberE31, 1995 and at the
Diablo/Tamarack facility from January 1, 1995 through July 31, 1995. 1994
operating results consist of amounts at the Countryside and Diablo/Tamarack
facilities for the year ended DecemberE31, 1994 and at the Foothills facility
from January 1, 1994 through November 30, 1994.
(4) Mortgage Loans Payable
----------------------
Mortgage loans payable consist of the following:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
---- ----
Mortgage loans payable - in default (note 3) $ - 2,068,539
Mortgage loans payable 7,207,414 7,707,062
--------- ---------
Total mortgage loans payable $ 7,207,414 9,775,601
=========== =========
</TABLE>
Mortgage loans payable (including $5,865,555 and $6,333,183 due to banks at
December 31, 1996 and 1995), bear interest ranging from 6.6% to 10.75% at
December 31, 1996 and 6.8% to 10.75% at December 31, 1995. These notes are
payable in monthly installments of $101,092 at December 31, 1996 and $94,618 at
December 31, 1995, including interest. The notes are secured by properties with
net book values aggregating $13,246,635 and $14,004,632 at December 31, 1996 and
1995, respectively. The notes range in maturity from 1997 to 2012.
49
<PAGE>
Mortgage loans payable - in default, consisted of one loan at December 31, 1995,
secured by the Countryside property. In 1996, the note secured by the
Countryside property was extinguished in connection with the disposition of the
property securing the note (see note 3). The note was secured by property with
net book value aggregating $1,779,852 at December 31, 1995. The note was in
default at December 31, 1995 because of the Partnership's failure to make
required debt service payments when due and because of the failure of the former
lessee to pay required property taxes to the taxing authorities.
The Partnership had one mortgage loan aggregating $1,062,237 at DecemberE31,
1995 that was in default as a result of not meeting a debt coverage ratio, as
defined. Despite this default, the lender waived this ratio requirement through
January 1, 1997. At December 31, 1996, the Partnership met the debt coverage
ratio. Accordingly, this loan balance is classified as "mortgage loans payable"
in the accompanying consolidated balance sheets.
Accrued interest payable related to mortgage loans payable - in default
aggregated $766,972 at December 31, 1995.
The Partnership leases four of its properties under a master lease (see note 6).
The rentals under the master lease provide additional security for two notes
payable used to finance two of the master lease properties. Both of these notes
were callable by the lenders at any time between January 1, 1993 and November
30, 1995; however, the lenders agreed not to exercise their call rights prior to
maturity on January 31, 1996 as long as the Partnership remained in compliance
with the loan agreements. One of the lenders agreed to extend the maturity date
of its note to December 1, 2001, pending completion of final loan documents. On
March 21, 1997, the other lender agreed not to exercise its call rights until
June 30, 1997. The Partnership is currently negotiating the extension of the
note until December 1, 2001.
Presented below is a summary of required principal payments on mortgage loans
payable. The note callable on June 30, 1997 is included in amounts due
currently.
1997 $ 2,568,389
1998 355,176
1999 385,309
2000 273,807
2001 178,193
2002 and thereafter 3,446,540
---------
$ 7,207,414
===========
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
(5) Leases
------
The Partnership leases its property and equipment to tenants under noncancelable
operating leases. The lease terms range from 9 to 12 years with options to renew
for additional five-year terms and options to purchase the leased property at
the current fair market value at the end of the initial lease term. The leases
generally provide for contingent rentals based on the performance of the
property. Contingent rentals aggregated $192,325, $165,042 and $173,541 in 1996,
1995 and 1994, respectively.
Minimum rentals for the next three years for leases not in default are
$3,971,328 per year, subject to change based on changes in interest rates.
Minimum rentals are $3,761,262 and $2,858,619 for the years 2000 and 2001. There
are no minimum rentals thereafter. Property and improvements less accumulated
depreciation attributable to such rentals, amounted to $20,502,517 and
$21,671,891 at December 31, 1996 and 1995, respectively.
(6) Lease Defaults
--------------
NCA Cambridge, Inc., the lessee of the Partnership's Cambridge Nursing Home
(Cambridge) property, petitioned for Chapter 11 bankruptcy protection in 1992.
In May 1993, CRG began operating Cambridge under the control of the bankruptcy
court pursuant to a settlement agreement with the lessee; however, the results
of operations of this property have not been included in the Partnership's
consolidated statements of operations for the two years ended December 31, 1995
and from the period January 1, 1996 through July 31, 1996. On August 1, 1996, in
accordance with the approval of the bankruptcy court, the operations of
Cambridge were transferred to Cambridge LLC, a subsidiary of the Partnership,
effectively removing the operations of the property from the jurisdiction of the
bankruptcy court. Accordingly, the results of operations of Cambridge are
included in the 1996 consolidated statements of operations for the period August
1, 1996 through December 31, 1996.
In connection with this property, the lessee was overpaid for services to
Medicaid patients during the period the lessee operated the property. Based on
certain interpretations of state regulations, the Partnership could have been
liable for approximately $1,400,000 in connection with the recovery of these
Medicaid overpayments. During 1995, the Partnership entered into a settlement
agreement with the state of Massachusetts, approved by the bankruptcy court,
whereby the $1,400,000 became a general, unsecured claim of the bankruptcy
estate of NCA Cambridge, Inc., which will be settled through bankruptcy court
proceedings. Additionally, as part of the settlement agreement with the state,
the Partnership agreed to loan NCA Cambridge, Inc. $590,000 to pay outstanding
real property taxes due on the Cambridge property. The Partnership fully
reserved for this receivable in 1995.
Four of the Partnership's properties are subject to a master lease with a single
operator, HealthSouth Rehabilitation Corp. (HealthSouth). This master lease, as
amended, contains a nine-year renewal option and provides for contingent rentals
equal to 4% of the revenue differential, as defined, effective January 30, 1997.
51
<PAGE>
During 1994, HealthSouth closed the Partnership's Sandybrook facility. In
February 1997, HealthSouth closed the Cedarbrook facility. Despite these
closures, HealthSouth has continued making its full lease payments under the
terms of the master lease.
Delinquent rentals fully reserved by the Partnership as a result of lease
defaults approximated $393,000 in 1996 and $674,000 in 1995 and 1994.
Other income in 1994 primarily consists of $560,000 in recovered administrative
expenses owed the Partnership from the former operator of two of the
Partnership's properties.
(7) Related Party Transactions
--------------------------
Approximate fees paid to the general partner and affiliates of the general
partner are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
---- ---- ----
Asset management fees $ 740,000 712,000 731,000
Property management fees 208,000 252,000 472,000
Administrative and other expenses 256,000 235,000 266,000
General partner management fees 72,000 80,000 113,000
------ ------ -------
$ 1,276,000 1,279,000 1,582,000
=========== ========= =========
</TABLE>
A 50% partner in CRG is chairman of the board of a bank where the
Partnership holds the majority of its operating cash accounts.
In connection with the sale of Countryside in 1996, the general partner
was paid fees aggregating $66,000. In connection with the sale of Heritage Manor
in 1995, the general partner was paid fees aggregating $92,250.
(8) Income Taxes
-----------
Reconciliation of financial statement basis partners' equity to federal
income tax basis partners' equity is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Years ended December 31
-----------------------
1996 1995 1994
---- ---- ----
Total partners' equity - financial statement
basis $ 24,064,625 22,427,282 21,176,949
Current year tax basis net earnings
over (under) financial statement basis (684,329) (2,942,675) 2,552,427
Cumulative tax basis net earnings over
financial statement basis 5,136,578 8,079,253 5,526,826
--------- --------- ---------
Total partners' equity - federal income
tax basis $28,516,874 27,563,860 29,256,202
=========== ========== ==========
</TABLE>
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
(9) Business and Credit Concentrations
----------------------------------
The Partnership's eight facilities are located in the southeastern United
States, Texas, Indiana and Massachusetts. The four facilities operated by
HealthSouth (note 6) are located in the southeastern United States and accounted
for approximately $2,367,000 (31%), $2,367,000 (28%) and $2,292,000 (18%) of
Partnership revenues in 1996, 1995 and 1994, respectively. One property leased
to an unaffiliated operator accounted for approximately $1,023,716 (14%) and
$977,000 (12%) of Partnership revenues in 1996 and 1995, respectively.
The Partnership also derives revenue from Medicaid programs funded by the states
of Colorado, California, Michigan and Massachusetts. The Partnership derived 14%
of its revenues from the Colorado state program during 1994 and 15% and 11% of
its revenues from the Michigan state program in 1995 and 1994, respectively. The
Partnership derived 15% of its revenues from the state program in Massachusetts
in 1996.
Receivables due from state Medicaid programs aggregated $438,350 and $116,933 at
December 31, 1996 and 1995, respectively.
The Partnership does not require collateral or other security to support
financial instruments subject to credit risk.
(10) Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments presented below.
(a) Cash and Cash Equivalents, Receivables and Payables
----------------------------------------------------
The carrying amount approximates fair value because of the short maturity
of these instruments.
(b) Mortgage Loans Payable
----------------------
The fair value of the Partnership's mortgage loans payable is calculated by
discounting scheduled cash flows through maturity using discount rates that
are currently available to the Partnership on other borrowings with similar
risk and maturities. Issuance costs and other expenses that would be
incurred in an actual borrowing are not reflected in this amount.
Carrying value Fair value
-------------- ----------
Mortgage loans payable $ 7,207,414 7,436,177
=========== =========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000789283
<NAME> CAPITAL SENIOR LIVING COMMUNITY, L.P.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10670263
<SECURITIES> 8275920
<RECEIVABLES> 537985
<ALLOWANCES> (164822)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19349863
<DEPRECIATION> (6773340)
<TOTAL-ASSETS> 32189611
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27236636
<TOTAL-LIABILITY-AND-EQUITY> 32189611
<SALES> 0
<TOTAL-REVENUES> 16958804
<CGS> 0
<TOTAL-COSTS> 13667787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185314
<INCOME-PRETAX> 3105703
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3105703
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>