SCHEDULE 14C INFORMATION
(Rule 14c-101)
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
/ / Preliminary information statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
/X/ Definitive information statement
Capital Senior Living Communities, L.P.
--------------------------------------------
(Name of Registrant as Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Beneficial Unit Certificates
----------------------------------
(2) Aggregate number of securities to which transaction applies:
1,117,692
---------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
A filing fee of $14,000 was calculated by multiplying one-50th of one
percent by the aggregate cash proceeds expected to be received by the
Registrant ($70,000,000) at the time the Preliminary Information Statement
was filed.
(4) Proposed maximum aggregate value of transaction:
$73,895,242
-----------------
(5) Total fee paid: $14,000
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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September 19, 1997
For Information Purposes
No Reply Necessary
Dear BUC Holders:
In recent reports to the BUC Holders of Capital Senior Living Communities,
L.P. (the "Partnership"), we informed you of our continuing efforts to enhance
the value of your investment. We are extremely pleased to provide to you the
attached Information Statement with its enclosed information which we believe
constitutes a major step in meeting these goals.
The Partnership originally was formed in 1986. The Partnership's original
investment objectives had been to acquire and hold mortgage loans and make
distributions of tax exempt interest. Your General Partner began its association
with the Partnership in 1990 and assumed management duties of the Partnership in
March 1991. At that time, the Partnership faced severe economic problems. As you
know, the owners of the real estate securing the Partnership's mortgage loans
defaulted and jeopardized your investment. In 1990, net income plummeted to a
loss of $1.75 per BUC. As a result, the Partnership faced a severe cash flow
crisis and asset devaluation. Then, in 1991, pursuant to a negotiated settlement
in which it accepted deeds in lieu of foreclosure, the Partnership took control
of the real property and senior living facilities underlying the mortgage loans.
Part of this settlement included surrendering of the mortgage loans to the
government issuers.
The General Partner concluded that the Partnership's economic condition
necessitated a change in investment objectives. Accordingly, instead of selling
the Partnership's properties at what the General Partner believed to be the
bottom of the market, you consented in 1992 to a series of amendments to the
Partnership Agreement as part of a comprehensive proposal to restructure the
Partnership.
The General Partner began immediately to restructure the management of the
Partnership in light of the Partnership's new role as an operating Partnership.
New cost and quality control mechanisms were established. The senior living
facilities were refurbished. The General Partner's progress in enhancing your
investment is depicted by its increasing the net income per BUC from a loss of
$0.32 in 1992 to net income of $2.53 per BUC in 1996.
As a continuation of that restructuring, the General Partner has been
exploring ways to enhance BUC Holder returns and improve long-term value to the
Partnership. The General Partner believes it is in the best interests of the
Partnership that once optimization of asset value is reached, these assets be
converted to cash and reinvested. The General Partner now believes it has found
a way to achieve those objectives. The next step in accomplishing the full
potential for your Partnership investment, in the General Partner's opinion,
involves the sale of substantially all of the assets of the Partnership to an
affiliated entity, at their appraised value (the "Sale"). As you will recall,
when the Partnership was formed, it raised
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$28,758,000, net of issuance costs, which were used principally to acquire tax
exempt mortgage loans. It is anticipated that the Sale, if completed, will
result in the Partnership's having unrestricted cash and cash equivalents of
approximately $68,300,000, prior to the deduction of closing costs and brokerage
fees.
The General Partner expects that the Sale will maximize the economic value
of your investments. The General Partner believes that it has maximized the
investment returns which could be provided by the Partnership's current assets.
Accordingly, it believes the continued management of these assets will not
result in as desirable returns to the BUC Holders. Therefore, the General
Partner will attempt to sell these assets and reinvest the proceeds in new
undervalued senior living assets.
The General Partner believes that significant investment opportunities
exist in the under-valued senior living communities and related real estate
assets which may provide attractive investment yields relative to their risk.
Although no assurance can be made, upon full reinvestment of the proceeds of the
Sale, the General Partner believes that the Partnership's ongoing business plan
is more likely to result ultimately in cash distributions to you.
Before deciding to proceed with the Sale, various alternatives were
considered in order to maximize BUC Holder returns, including continued
management of the Partnership's assets, as well as liquidation of the
Partnership. Each of these alternatives is discussed in the Information
Statement and should be reviewed. The General Partner concluded ultimately that
the Sale offered the greatest potential to increase the long term value of the
BUCs. The Information Statement also describes an amendment to the Partnership
Agreement which is necessary for the Partnership to continue its business in
meeting these investment objectives. The Information Statement contains
important information about the Sale, including the fees that the General
Partner and its affiliates will receive as part of the Sale.
The General Partner and its affiliates own approximately 66.46% of the
outstanding BUCs, and have confirmed that they will approve the Amendment and
the Sale. Therefore, the Partnership is not soliciting your approval of the
Amendment or the Sale. The Partnership is nevertheless pleased to enclose the
attached Information Statement which describes the Sale and the Partnership's
plans which are designed to enhance the future of your investment.
Thank you for your time and consideration.
Very truly yours,
Retirement Living Communities, L.P.
Your General Partner
<PAGE>
This is an Information Statement only, which is being mailed to all
holders of record as of the close of business on June 1, 1997 (the "BUC
Holders") of Beneficial Unit Certificates ("BUCs") of Capital Senior Living
Communities, L.P., a Delaware limited partnership (the "Partnership"), on or
about September 19, 1997, is furnished in accordance with the requirements of
Regulation 14C under the Securities Exchange Act of 1934, as amended, by
Retirement Living Communities, L.P., an Indiana limited partnership (the
"General Partner").
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The Partnership
The Partnership (formerly known as Retirement Living Tax-Exempt Mortgage
Fund Limited Partnership) was formed on December 17, 1985, under the Delaware
Revised Uniform Limited Partnership Act ("DRULPA"), and will continue until
December 31, 2016, unless terminated earlier under certain provisions of the
Partnership Agreement. The Partnership is a "small business issuer" as defined
by the rules of the Securities and Exchange Commission. The address of the
principal executive offices of the Partnership is 14160 Dallas Parkway, Suite
300, Dallas, Texas 75240, and the telephone number at such address is (972)
770-5600.
In 1986, the Partnership issued to the public a total of 1,264,000 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 originally was formed by an unaffiliated party 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 or ownership or both 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. The owners of the Projects defaulted on the Mortgage Loans and,
effective, September 11, 1991, through a negotiated settlement with the current
General Partner (the "Negotiated Settlement"), the owners of the Projects
transferred the following assets to a 99%-owned subsidiary of the Partnership:
(i) the five Projects securing the Mortgage Loans; (ii) 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
consummated on December 6, 1991); and (iii) an approximate 12% interest in
Encore Limited Partnership, a New York limited partnership ("Encore"). The
Partnership's interest in Encore was subsequently diluted to a 3% interest after
the reorganization of Encore in December, 1995. Additionally, in order to
acquire the Projects, the Partnership surrendered the Bonds to the government
issuers for cancellation.
<PAGE>
As a result, in 1991 the Partnership became a direct owner of the Projects
and other assets rather than a mortgage holder. The Partnership's original
investment objectives had been to acquire and hold the Mortgage Loans and make
distributions of tax exempt interest. The events described above necessitated a
change in these investment objectives. Accordingly, instead of selling the
Partnership's properties at what the General Partner believed to be the bottom
of the market, the General Partner, pursuant to a consent solicitation dated
November 30, 1992, solicited the BUC Holders' consent (the "1992 Solicitation")
to a series of amendments to the Partnership Agreement as part of a
comprehensive proposal to restructure the Partnership. Specifically, the General
Partner obtained the consent of the BUC Holders to amend the Partnership
Agreement to provide the Partnership with a broad purpose clause, which allows
the Partnership to acquire, improve and sell or otherwise deal in real estate
and related activities. The Partnership's new objectives became the holding of
its properties as long-term investments which may be sold at any time, depending
upon the General Partner's judgment of the anticipated remaining economic
benefits of continued ownership. In addition, the Partnership Agreement was
amended to remove provisions requiring mandatory quarterly cash distributions.
These amendments allowed the Partnership to utilize its funds for a variety of
purposes, including acquisition and development of real estate projects.
Therefore, pursuant to these amendments, the Partnership adopted a policy of
reinvesting proceeds from its disposition of assets in its business.
The Partnership sold two multi-family residential apartment complexes on
November 1, 1996 to an unaffiliated third party. The Partnership now directly
owns the four retirement living centers (the "Four Properties") and operates and
manages them through management agreements with an affiliate of the General
Partner. In addition, the Partnership owns limited partnership interests and
notes issued by two affiliated limited partnerships and the 3% interest in
Encore (collectively, the "Securities," and collectively with the Four
Properties, the "Assets"). See "Assets to be Sold in the Sale."
On June 30, 1997, the Partnership entered into a loan agreement with
Lehman Brothers Holdings, Inc., pursuant to which it borrowed $70,000,000 of a
$77,000,000 loan commitment (the "Lehman Loan"). The Partnership entered into
the Lehman Loan because it has a lower interest rate than the interest rate on
the Partnership's other $17,500,000 loan commitment. That loan commitment had an
interest rate of prime plus 1/8 of 1%, while the Lehman Loan bears a floating
rate of interest based on the London Interbank Offered Rate plus 1/2 of 1%. In
addition, the Lehman Loan permits the loan proceeds to be used for the expansion
of the Cottonwood Retirement Community, one of the Partnership's Four
Properties. The Lehman Loan is due and payable on December 31, 1997 (unless paid
earlier). The Partnership has pledged all of its assets to secure the Lehman
Loan. The Partnership has used the loan proceeds to repay $5,538,000, including
accrued interest, it had borrowed under the $17,500,000 open end mortgage
commitment from an unaffiliated mortgage company. In addition, $7,000,000 may be
used in connection with the expansion of Cottonwood Retirement Community, and
$64,500,000 has been used to purchase a ninety-
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day Treasury Bill which bill also secures the Lehman Loan (the "Treasury Bill").
Under the terms of the Lehman Loan, the Treasury Bill is treated as a restricted
cash asset.
The current General Partner began its association with the Partnership in
March of 1990. In March of 1991, it assumed management duties of the
Partnership. At that time, as described above, the Partnership had grave
economic problems. In 1990, net income plummeted to a loss of $1.75 per BUC. As
a result, the Partnership faced a severe cash flow crisis. Then, in 1991,
pursuant to the Negotiated Settlement in which it accepted deeds in lieu of
foreclosure, the Partnership took control of the real property and senior living
facilities underlying the mortgage loans.
The General Partner concluded that the Partnership's economic condition
necessitated a change in investment objectives. Accordingly, instead of selling
the Partnership's properties at what the General Partner believed to be the
bottom of the market, the General Partner transformed the Partnership into an
operating Partnership. The General Partner began immediately to restructure the
management of the Partnership. New cost and quality control mechanisms were
established. The senior living facilities were refurbished.
The General Partner is managed by its general partner, Capital Retirement
Group, Inc., a Texas corporation ("Retirement Group"). The General Partner's
objective when it joined the Partnership was stated in 1992 Annual Report to
investors:
It is the intent of management to effectively manage and operate the
facilities, make necessary capital improvements/repairs to remain
competitive, and stabilize operations and expenses to maximize the
investors return.
The following chart, which is derived from the Partnership's audited
financial statements, reflects the General Partner's progress in meeting this
objective.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Net
Income $(2,211,610) $ (399,524) $ 541,454 $ 1,048,055 $ 1,198,914 $ 1,630,699 $ 3,105,703
Net
Income
per BUC $ (1.75) $ (0.32) $ 0.43 $ 0.83 $ 0.95 $ 1.29 $ 2.53
</TABLE>
As a continuation of that restructuring, the General Partner has been
exploring ways to enhance BUC Holder returns and improve long-term value to the
Partnership. The General Partner believes it is in the best interests of the
Partnership that once optimization of asset value is reached, these assets be
converted to cash. The General Partner now believes
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it has found a way to achieve those objectives. The next step in accomplishing
the Partnership's full potential, in the General Partner's opinion, involves the
sale of all of the assets of the Partnership to an affiliated entity, at their
appraised value. When the Partnership was formed in 1986, it raised $28,758,000,
net of issuance costs, which were used principally to acquire tax exempt
mortgage loans. The sale will result in the Partnership having unrestricted cash
and cash equivalents of approximately $68,300,000, prior to the deduction of
closing costs and brokerage fees. The net sale proceeds will be invested in new
undervalued senior living communities and related real estate assets.
Information Statement
This Information Statement is being provided to you by the General Partner
of the Partnership, for use in connection with:
(i) the amendment of the Second Amended and Restated Agreement of
Limited Partnership, dated as of December 24, 1992 (the "Partnership
Agreement"), by and between the General Partner and Retirement
Living Fiduciary Corporation, an Indiana corporation ("RLFC"), as
limited partner, in order to allow for the sale of all or
substantially all of the assets of the Partnership without effecting
the dissolution of the Partnership (the "Amendment"); and
(ii) the sale of substantially all of the assets (the "Sale") of the
Partnership to Capital Senior Living Corporation, a Delaware
corporation (the "Buyer"), which sale will be effected on the date
the Buyer has consummated its initial public offering, which is
expected to occur prior to November 1997.
The Partnership Agreement provides that RLFC, the sole limited partner of
the Partnership, will vote its limited partnership interest as directed by the
BUC Holders. Accordingly, the approval of a majority of the BUC Holders is
required (i) to amend the Partnership Agreement, and (ii) to approve of the sale
of all or substantially all of the assets of the Partnership. The General
Partner expects to reinvest the Sale proceeds in real estate and real estate
related assets.
The General Partner and its affiliates own approximately 66.46% of the
outstanding BUCs, and have confirmed that they will approve the Amendment and
the Sale. Consequently, the Partnership is not soliciting your approval of the
Amendment or the Sale. This document is being provided to you for information
purposes only. The Amendment will take effect on or about October 10, 1997 (more
than twenty days from the date hereof) and the Sale will be consummated after
that date. No meeting of the BUC Holders will be held.
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General Partner
The General Partner of the Partnership is Retirement Living Communities,
L.P., 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 Retirement Group, an
affiliate of Senior Housing. The address of the principal executive offices of
the General Partner 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 sole limited
partner of the Partnership is RLFC.
The Partnership has no officers and directors. It is managed and
controlled by the General Partner.
As of September 18, 1997, the General Partner and its affiliates own
742,818 BUCs, representing approximately 66.46% of the total BUCs outstanding.
Capital Senior Living Corporation
The Buyer, Capital Senior Living Corporation, is an affiliate of the
General Partner. Its principal executive offices are at 14160 Dallas Parkway,
Suite 300, Dallas, Texas 75240 and its telephone number is (972) 770-5600.
The Buyer is a Delaware corporation which has been formed as a vehicle for
combining the assets of various related partnerships subsequent to an initial
public offering of its shares of Common Stock. The Buyer will be engaged in the
ownership, development and management of senior living communities and related
real estate assets.
Retirement Group, the general partner of the Partnership's General
Partner, is a privately owned corporation initially organized on August 23,
1995. Its principal business activity has been overseeing the management of real
property 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.
It is expected that Messrs. Stroud and Beck will collectively own
approximately 48.6% of the Buyer, and will be executive officers and members of
its Board of Directors.
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Amendment of the Partnership Agreement
The General Partner believes it is in the best interests of the
Partnership and the BUC Holders to permit the Partnership to sell the Assets to
the Buyer, and reinvest the proceeds in new undervalued senior living
communities and related real estate assets without triggering a dissolution
event. Section 8.01(a)(ii) of the Partnership Agreement, however, provides that
the Partnership shall dissolve upon the sale or other disposition of all or
substantially all of the assets of the Partnership. Since the General Partner
believes that it is in the best interests of the BUC Holders not to dissolve the
Partnership, but rather, to continue to operate the Partnership as a going
concern, the General Partner has recommended that the Partnership Agreement be
amended to delete subitem (ii) of Section 8.01(a). As a result, following
adoption of the Amendment, the Sale will not trigger a dissolution event.
The Sale of Assets Transaction
Summary of the Material Terms of the Sale.
The General Partner began to pursue a sale of the Partnership's Assets in
1997. The Partnership and the Buyer entered into an Asset Purchase Agreement,
dated as of July 8, 1997 (the "Purchase Agreement"), between the Partnership, as
seller, and the Buyer, as buyer, pursuant to which the Partnership will sell the
Assets of the Partnership at a price equal to the appraised value of the Assets,
which independent third party appraisers have determined to be $73,895,242. The
Partnership will not sell the $64,500,000 Treasury Bill as part of the Sale. The
proceeds of the Sale are presently estimated by the General Partner to be
approximately $68,300,000, prior to the deduction of closing costs and brokerage
fees. The Purchase Agreement provided for a purchase price of $70,000,000, which
price will be adjusted upward to equal the appraised value of the Assets. The
Purchase Agreement will be terminated if the Buyer is unable to consummate its
initial public offering.
The Purchase Agreement requires the Partnership to deliver the Assets free
and clear of any liens or encumbrances, except that the Buyer will assume the
Lehman Loan. The assumption of the Lehman Loan by the Buyer will result in the
Partnership's not being required to treat the Treasury Bill as a restricted cash
asset. As a result, upon consummation of the Sale, the Partnership will have
unrestricted cash and cash equivalents of approximately $68,300,000, prior to
the deduction of closing costs and brokerage fees, which will be available for
the acquisition of new undervalued senior living communities and related real
estate assets.
The Buyer expects to engage in an initial public offering of its shares of
common stock, part of the proceeds of which will be used to purchase the Assets
of the Partnership.
The Purchase Agreement provides that the Buyer will assume all liabilities
(other than those which will constitute a breach of any representation or
warranty made by the
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Partnership) associated with the Assets. In addition, the Buyer will assume the
liabilities related to proratable items which are not due and payable on the
consummation of the Sale for which it has received a credit, and all obligations
with respect to security deposits or patient trust funds which are transferred
to the Buyer.
The Purchase Agreement provides that the Sale will close on the earlier of
November 30, 1997 or the date of the consummation of the Buyer's initial public
offering.
Assets to be Sold in the Sale.
The following assets are the Assets to be sold pursuant to the Purchase
Agreement.
As of September 18, 1997, the Partnership has a 55.05% ownership in
HealthCare Properties, L.P., a Delaware limited partnership ("HealthCare
Properties"), an affiliate of the General Partner. The general partner of
HealthCare Properties is also an affiliate of the General Partner. The
Partnership paid approximately $8,880,127 for this ownership interest.
HealthCare Properties owns a portfolio of eight nursing home facilities. The
Purchase Agreement provides that the Partnership will sell to the Buyer
approximately 55% but not to exceed 56% of the ownership interest in HealthCare
Properties.
As of September 18, 1997, the Partnership has a 30.58% ownership of
outstanding Pension Notes of NHP Retirement Housing Partners I L.P., a Delaware
limited partnership ("NHP"), an affiliate of the General Partner. The general
partner of NHP is also an affiliate of the General Partner. The Partnership paid
approximately $10,727,000 for these Pension Notes. NHP owns a portfolio of five
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.
In addition, the Partnership owns a 3.1% ownership of limited partnership
interests in NHP, for which it paid $1,364. The Purchase Agreement provides that
the Partnership will sell to the Buyer the 3.1% ownership interest in NHP, and
approximately 31% but not to exceed 32% of NHP's outstanding Pension Notes.
The Partnership's 3% interest in Encore, which it received in the
Negotiated Settlement, will also be sold. Encore owns three properties known as
The Carillons in Sun City, Arizona, Hamlet Hills Retirement Center in Chagrin
Falls, Ohio, and Westwood Retirement Center in Fort Walton Beach, Florida. The
General Partner believes the value of its interest in Encore is nominal.
In addition to the foregoing Securities, the Partnership will sell to the
Buyer the Four Properties, which consist of the following senior living
retirement communities and associated real estate assets: Cottonwood Retirement
Community, The Harrison Retirement Community, Towne Centre Retirement Community
and Canton Regency Retirement Community. The Partnership will sell its fee
interest in the real estate on which the senior living communities are built. It
will also sell all fixtures on the land, and all vehicles,
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inventory, records, permits, trade names and goodwill associated with the Four
Properties. For a description of these properties, see "Disposition of Property"
below.
Consideration to be Paid in the Sale.
The Purchase Agreement provides that the Assets will be sold at their
appraised value. In addition to the appraisals described below, the General
Partner believes that, based upon its knowledge of sales of comparable real
estate and real estate related assets, the Sale is fair the BUC Holders from an
economic point of view. The General Partner's independent determination was
based on certain projections and estimates of adjusted cash flow of the Assets,
inspections of each real property, its knowledge of certain competing properties
in the same markets as each property and conditions in each local market, and
the historical and budgeted operations of each property. The General Partner
also reviewed the historical operating statements, assets and liabilities,
future prospects, operating expectations, current cash flow estimates, other
factors influencing the value and cash flow of each property, industry trends
and outlook, market conditions for sales or acquisition of Assets.
Since the amount to be paid to the Partnership will be equal to the
independently appraised value of the Assets, the General Partner believes that
the Sale is fair to the BUC Holders from an economic point of view.
The Partnership engaged Senior Living Valuation Services, Inc., a
California corporation ("Senior Living Valuation"), an unaffiliated appraiser,
to determine the appraised value of the Four Properties and the Partnership's
investment in NHP. In addition, in March 1997, the Partnership had engaged
HealthCare Property Appraisers ("HealthCare Appraisers"), an unaffiliated
appraiser, to appraise the value of the Partnership's investment in HealthCare
Properties.
With respect to the value of the Partnership's investment in HealthCare
Properties, the General Partner determined that it would utilize an appraisal
prepared by HealthCare Appraisers in March 1997. The General Partner believes
HealthCare Appraisers to be specialists in making appraisals of this kind. The
General Partner paid HealthCare Appraisers approximately $24,000 (and its out of
pocket expenses) in connection with its appraisal. There have been no material
relationships between HealthCare Appraisers and the General Partner and its
affiliates. The General Partner has determined that the March 1997 appraisal
continues to reflect the current appraised value of HealthCare Properties.
HealthCare Appraisers valued the Partnership's investment in HealthCare
Properties by appraising the respective properties owned by it. HealthCare
Appraisers appraised these properties by utilizing a cost approach, which is
based upon a component cost breakdown that estimates the replacement costs for a
property's improvements. Depreciation is deducted from the direct and indirect
replacement costs and the result is added to the estimated value of the land.
HealthCare Appraisers also utilized an income approach in which the subject
properties were analyzed from the standpoint of a potential investor who would
be most
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interested in its income stream. In addition, HealthCare Appraisers utilized a
sales comparison approach, in which it reviewed a considerable number of sales
of former medical facilities that have been converted to other uses.
In 1997, the Partnership entered into discussions with Senior Living
Valuation, who is a financial advisor specializing in the appraisals of this
type, with a view toward retaining it to assist the Partnership in selling the
Assets. The General Partner selected Senior Living Valuation because it is a
specialist in making these types of appraisals and is familiar with the assets
to be appraised. There have been no material relationships between Senior Living
Valuation and the General Partner or its affiliates. Senior Living Valuation
provided an appraisal (the "Senior Living Valuation Appraisal") on August 6,
1997.
The Partnership paid Senior Living Valuation approximately $55,000, plus
actual expenses not to exceed $1,250 in connection with its appraisal. No
portion of its fees was contingent on the valuation of the assets or
consummation of the Sale. The Buyer will reimburse the Partnership for one-half
of the Senior Living Valuation Appraisal fees. The General Partner placed the
following restrictions and conditions on scope of Senior Living Valuation's
investigation. The Senior Living Valuation Appraisal must be completed in a
professional manner and comply with the requirements of the Uniform Standards of
Professional Practice established by The Appraisal Institute. Senior Living
Valuation will make a visual inspection of the properties to observe how this
type of property is considered in the open real estate market as it would relate
to market value. Each inspection will be of a general nature and will not
include a detailed inspection of the site or the structure(s). Some of the
excluded items are a detailed inspection of the structure(s) as to its
condition, the floor load, electric power capacity, air conditioning, heat and
ventilating system, structural impediments, code violations (including
earthquake), soil condition, toxic waste or any similar effects of toxic
materials affecting the property. Senior Living Valuation will assume (i)
responsible ownership and competent management of each property; (ii) that there
are no hidden or unapparent conditions affecting each property that will render
it more or less valuable; (iii) full compliance with all applicable federal,
state and local zoning and environmental regulations and laws (unless
noncompliance is stated, defined and considered in the Senior Living Valuation
Appraisal); and (iv) that all required licenses, certificates of occupancy and
other governmental consents have been or can be obtained and renewed for any use
on which the value estimates in the Senior Living Valuation Appraisal are based.
Senior Living Valuation utilized the following approaches in valuing the
Assets.
Senior Living Valuation appraised the assets under an income
capitalization approach. This approach analyzes the assets' capacity to generate
income (or other monetary benefit) and convert this capacity into an indication
of market value. This approach is predicated upon the assumption that there is a
definite relationship between the amount of income a property will earn and its
market value. Further, it is based upon the principle that value is created by
the expectation of benefits derived in the future. Since the properties have a
high occupancy with short-term leases, Senior Living Valuation also utilized a
direct capitalization
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method. Direct capitalization analysis is based on all overall capitalization
rate applied to the each of the properties' stabilized net operating income. The
procedure allows for the estimate of market value in one direct step, through
the capitalization of the stabilized net income by a market derived overall
capitalization rate.
Senior Living Valuation also considered the sales comparison approach.
This approach compares the assets to other properties that have recently sold.
In addition, Senior Living Valuation utilized the cost approach. In this
approach, the cost to replace improvements are estimated. Deductions will be
made for accrued depreciation, and the result will be combined with the
estimated value of the underlying land.
Senior Living Valuation determined a fair market value for the
Partnership's investment in NHP based upon the fair market valuation of the
respective properties owned by NHP, adjusted for the characteristics of the NHP
securities owned by the Partnership. Characteristics considered were liquidation
preferences, whether secured or unsecured, accrued interest balance, and legal
rights to control decisions of NHP's management.
Reasons for the Sale.
The General Partner has recommended the Sale because it believes that the
BUC Holders will maximize the economic value of their investments in connection
with the Sale. The General Partner believes that it has maximized the investment
returns which could be provided by the Partnership's current assets.
Accordingly, it believes the continued management of these assets will not
result in as desired returns to the BUC Holders. Therefore, the General Partner
has determined to sell these assets and reinvest the proceeds in new assets.
The General Partner also believes that significant investment
opportunities exist in the under-valued real estate and related markets which
may provide attractive investment yields relative to their risk. Such risks,
nevertheless, may be significant and should be considered in connection with
real estate investments. See "Certain Factors Associated with Real Estate
Investments" below.
Although no assurance can be made, upon full investment of the proceeds of
the Sale, the General Partner believes that the Partnership's ongoing business
plan is more likely to result ultimately in cash distributions to each BUC
Holder. Presently, the Partnership is not making any cash distributions.
Depending on the investment decisions made, market conditions at the time
investments are made, and how quickly the Partnership can invest the Sale
proceeds, the General Partner believes that the investment of the proceeds from
the Sale will provide enhanced returns to the BUC Holders.
The Partnership Agreement gives the Partnership a broad purpose clause,
which allows the Partnership to engage in any real estate and other business
activities which are permitted under law. The General Partner currently intends
that a significant portion of the
10
<PAGE>
Partnership's new investments will be the owning and operating of senior living
communities and related real estate assets. This strategy is consistent with the
Partnership's present business and the Partnership Agreement.
Alternatives to the Sale.
Before deciding to recommend the Sale, the General Partner considered
alternatives to the proposed Sale in an effort to achieve maximum BUC Holder
return and to give a choice of investment to the BUC Holders. These alternatives
were (i) continued management of the Partnership's existing assets, including,
from time to time, the sale of or one or more of its real estate assets and the
sale of its other assets and (ii) liquidation of the Partnership after the Sale.
Set forth below are the conclusions of the General Partner regarding its belief
that the Sale is more beneficial to the BUC Holders than the alternatives.
Continuation of the Partnership.
An alternative to the Sale would be to continue the Partnership as it
currently exists. Continuing the Partnership without a change has a number of
benefits, including the following:
o the Partnership would continue to own the same assets and have the
same liabilities, and would maintain its existing investment
objectives, consistent with the guidelines, restrictions and
safeguards contained in the Partnership Agreement; and
o while there would be no immediate change in the cash distribution
policy (which currently provides that the Partnership does not make
any cash distributions), it is possible that sometime in the future
the Partnership might be in a position to resume making cash
distributions.
In addition, continuing the Partnership without change avoids the
disadvantages inherent in the Sale. These disadvantages include, among others,
the uncertain market value of the Assets to be sold and the fundamental change
in the underlying investments of the Partnership caused by the Sale.
Despite these benefits, the General Partner rejected this alternative
because it concluded that maintaining the Partnership as it currently exists may
have potentially negative results when compared with the benefits that the
General Partner perceives may be derived from the Sale. To date, BUC Holders
have not been able to realize their intended return on investment. The General
Partner does not believe that the Partnership's current assets will provide
increased returns in the foreseeable future. In addition, although no assurances
can be made, the General Partner believes that the Assets can presently be sold
for a higher price than they may be sold in the future. Therefore, the General
Partner believes that this is an optimum time to sell the Assets.
11
<PAGE>
Liquidation of the Partnership.
The General Partner also explored the option of liquidating the
Partnership. Although the General Partner and its affiliates would receive
approximately 66.46% of the net liquidation proceeds, the General Partner
concluded, however, that if the Partnership were liquidated after the Sale, the
BUC Holders would receive less value than they may ultimately receive if the
Partnership continues as a going concern. The liquidation value of the
Partnership would be the Sale proceeds, and although no assurance can be given,
the General Partner believes that if the Partnership continues as an operating
entity, the value of the BUCs should increase and there is a better chance for
the BUC Holders to recoup their original investment in the Partnership with
enhanced returns. Accordingly, the General Partner rejected this alternative.
Effect of the Amendment and the Sale on BUC Holders' Rights
There will be no material differences in the rights of the BUC Holders as
a result of the Sale, because the proceeds from the Sale will be reinvested in
other investments consistent with the guidelines prescribed by the Partnership
Agreement. See "Reasons for the Sale" above. Consequently, other than with
respect to the Amendment, the BUC Holders will have the same rights currently
afforded them under the Partnership Agreement.
Accounting Treatment of the Transaction
The Sale will be accounted for as a sale of all or substantially all of
the assets of the Partnership.
Federal Income Tax Consequences
The Partnership is classified as a partnership for federal income tax
purposes. Accordingly, the Partnership is not itself subject to federal income
tax. It files an annual partnership information return with the IRS and reports
the results of operations using the method of accounting selected by the General
Partner. Each BUC Holder's distributive share of the Partnership's income, gain,
losses, deductions and credits are reported separately on such BUC Holder's
personal income tax return. Each BUC Holder's distributive shares of the
Partnership's taxable income or gain is taxed to such BUC Holder regardless of
whether such BUC Holder receives any distribution of cash or assets from the
Partnership. Thus, in any particular year, a BUC Holder's taxable income from
the Partnership, and under certain circumstances, even the tax on that income,
could exceed the amount of distributions, if any, such BUC Holder receives from
the Partnership in that year.
The Partnership will recognize gain on the sale of the Assets to the
extent the amount realized on the Sale exceeds the Partnership's adjusted basis
in the Assets. The amount realized on the Sale will include not only the cash
purchase price paid by the Buyer, but also the amount of any of the
Partnership's liabilities assumed by the Buyer in connection with
12
<PAGE>
the sale. For this purpose, the Buyer will be considered to have assumed a
nonrecourse liability if the buyer acquires the property subject to the
liability.
As of December 31, 1996, the Partnership's aggregate adjusted basis in the
Assets was $13,504,827. Generally, the adjusted basis of a property reflects its
original cost reduced to reflect depreciation deductions taken with respect to
the property.
The General Partner expects that the Partnership will recognize a gain on
the sale of the Assets and that a portion of that gain will be attributable to
the Buyer's assumption of liabilities encumbering the Assets. As indicated
above, the Partnership will not pay tax on this gain, but instead, each BUC
Holder will be taxable on the BUC Holder's distributive share of the gain.
Following the sale of the Assets, the Partnership will make cash
distributions to each BUC Holder in an amount that will be intended to
approximate the federal income tax liability that the BUC Holder will be
expected to incur with respect to the BUC Holder's distributive share of the
gain recognized on the Partnership's sale of Assets.
13
<PAGE>
Pro Forma Financial Information
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
6/30/97
December 31 June 30, 1997 ProForma(1)
----------- ------------- -----------
ASSETS 1996
- ------ ----
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT, net $ 12,576,523 $ 30,880,583 $ 0
OTHER ASSETS:
Cash and cash equivalents 10,463,887 12,545,226 67,828,043
Cash, restricted 206,376 169,046 0
Accounts receivable, net of allowance for
doubtful accounts of
$4,420,476 in 1997 and $164,822 in 1996 373,163 1,784,254 836,917
Prepaid expenses and other 92,302 150,411 44,980
Deferred financing charges, less
accumulated amortization of
$375,551 in 1997 and $311,938 in 1996 201,240 137,828 0
Investments in limited partnerships 8,275,920 9,621,412 0
------------ ------------ ------------
Total assets $ 32,189,611 $ 55,288,760 $ 68,709,940
============ ============ ============
LIABILITIES AND PARTNERS'
CAPITAL
LIABILITIES:
Accrued expenses and other liabilities $ 1,303,833 $ 2,639,448 $ 1,775,098
Note payable -- 257,948 0
Customer deposits 248,458 12,446,423 0
------------ ------------ ------------
Total liabilities 1,552,291 15,343,819 1,775,098
------------ ------------ ------------
DEFERRED INCOME 3,400,684 -- 0
MINORITY INTEREST -- 11,090,370 0
PARTNERS' CAPITAL:
General partner 72,526 98,313 1,240,721
Limited partner 1 1 1
Beneficial unit certificates, 1,264,000
issued and 1,117,692 outstanding 28,426,464 30,979,364 67,917,227
Repurchased beneficial unit certificates (1,262,355) (2,223,107) (2,223,107)
------------
Total partners' capital 27,236,636 28,854,571 66,934,842
------------ ------------ ------------
Total liabilities and partners' capital $ 32,189,611 $ 55,288,760 $ 68,709,940
============ ============ ============
</TABLE>
- ------------------------------
(1) Gives effect to the Sale as if the Lehman Loan and the Sale occurred on June
30, 1997, and is based on the assumption that the Assets will be sold for
$73,895,224 and the brokerage fee will be $2,940,000. The pro forma column also
gives effect to the assumption of the Lehman Loan by the Buyer.
14
<PAGE>
Certain Factors Associated with Real Estate Investments
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 continue to 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. To the extent that the
Partnership uses Sale proceeds to invest in the 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, it will face a very competitive market. The
Partnership's profitability therefore may depend 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 expects to carry insurance covering all Partnership
properties it will purchase. Generally, insurance coverage is for the
replacement cost of all buildings, loss of rents, loss of contents, and general
liability. There are certain types of losses (generally of a catastrophic
nature, including floods), however, 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.
15
<PAGE>
Environmental Hazards.
Owners and operators of real properties are faced with 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.
Federal or State Regulatory Requirements
No federal or state regulatory requirements must be complied with and no
approvals from federal or state agencies must be obtained.
Reports
The Partnership has received appraisals regarding the Assets. The
appraisals were given by unaffiliated third party appraisers, which are
specialists in making valuations of this type.
Material Contracts
The terms of the Sale will be contained in the Purchase Agreement. See
"The Sale of Assets Transaction."
Financial Information
This Information Statement is accompanied by a copy of the Partnership's
latest Form 10-KSB, for the fiscal year ended December 31, 1996, and by the most
recent 10-QSB, for the quarter ended June 30, 1997. Reference to the
Partnership's financial statements may be made to these documents.
16
<PAGE>
Disposition of Property
The following table sets forth summary information concerning the Four
Properties owned by the Partnership as of September 18, 1997, which are to be
disposed of in the Sale:
<TABLE>
<CAPTION>
No. of Units Occupancy
Project Name/Location at December 31, 1996 12/31/96 12/31/95 12/31/94
- --------------------- -------------------- -------- -------- --------
<S> <C> <C> <C> <C>
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
Merrillville, Indiana 34- assisted living
64- nursing 92% 95% 95%
Canton Regency Retirement Community 147- residential
Canton, Ohio 34- assisted living
50 - nursing 94% 94% 94%
</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. Loans made under this facility would have an
interest rate of prime plus 0.5% and will be mature on July 29, 1998. The
Partnership had borrowed $5,500,000 under this commitment, which was repaid with
a portion of the proceeds of the Lehman Loan. It is expected that this loan
commitment will be terminated at the consummation of the Sale.
Cottonwood Retirement Community - Cottonwood, Arizona.
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.
17
<PAGE>
On December 10, 1996, The Partnership entered into contract with Capital
Senior Development, Inc., an affiliate of the General Partner, 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 May 3, 1997, expenditures for
construction in process is $349,400. The Purchase Agreement provides that the
Buyer will assume the Partnership's rights and obligations under this contract.
The Cottonwood market is limited. The closest competition is a project
located about 30 miles away.
The Harrison Retirement Community - Indianapolis, Indiana.
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 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.
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. The
property presently has an occupancy rate of 89%.
Towne Centre Retirement Community - Merrillville, Indiana.
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.
18
<PAGE>
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.
The local Merrillville market is small. The occupancy rate of Towne Centre
is currently 96%. 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.
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 from $1,203 to $1,332
for studios (39 units), from $1,337 to $1,604 for one-bedrooms (90 units), and
from $2,139 to $2,273 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.
The occupancy rate of Canton is presently 97%. There are two competitive
facilities in the Canton market. Canton Regency's good reputation and strong
commitment to service, however, have allowed Canton Regency to maintain a high
occupancy level during 1996.
Leases.
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.
19
<PAGE>
Appraisal Rights
Under DRULPA and the Partnership Agreement, no dissenter's or appraisal
rights (that is, rights of non-consenting BUC Holders to exchange their BUCs for
payment of their fair market value) are available to any BUC Holder, regardless
of whether such BUC Holder has consented to the Amendment or the Sale.
Voting Securities and Principal Holders Thereof
Beneficial Unit Certificates Outstanding.
The number of BUCs outstanding is as of September 18, 1997 is 1,117,692.
The Partnership's sole limited partner is RLFC, and under the Partnership
Agreement, RLFC will vote its limited partnership interests as directed by the
BUC Holders. Each BUC is entitled to one vote.
The following table sets forth certain information as of September 18,
1997 concerning the beneficial ownership, as such term is defined in Rule 13d-3
of the Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of management and persons who own more than 5% of the
outstanding BUCs.
Name and address Amount and nature
of beneficial owner of beneficial owner Percent of class
- ------------------- ------------------- ----------------
Retirement Living Communities, 580,161(1) 45.89%
L.P.
General Partner
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
Janet Sue Beck(2) 14,497 1.5%
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
Janet Sue Beck Separate 56,349 4.46%
Property(2)
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
Jeffrey L. Beck(3) 10,482 0.83%
Chief Executive Officer and
Director
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
20
<PAGE>
Capital Trust(4) 16,943 1.34%
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
James A. Stroud Separate 39,404 3.12%
Property
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
The Stroud Children's Trust II (5) 24,980 1.98%
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
General Partner and affiliates as a 742,818 66.46%
group
- --------------------
(1) These BUCs are owned by Retirement Living Communities, L.P. Jeffrey L.
Beck and James A. Stroud are each executive officers and directors of
Capital Retirement Group, Inc., which is the sole general partner of the
Retirement Living Communities, L.P. Messrs. Beck and Stroud disclaim
beneficial ownership of these BUCs.
(2) Janet Sue Beck is the spouse of Jeffrey L. Beck. Mr. Beck disclaims
beneficial ownership of these BUCs.
(3) Janet Sue Beck, the spouse of Jeffrey L. Beck, disclaims beneficial
ownership of these BUCs.
(4) James A. Stroud is the beneficiary of Capital Trust.
(5) The Stroud Children's Trust II is a trust established for the benefit of
the children of James A. Stroud. Mr. Stroud disclaims beneficial ownership
of these BUCs.
Changes in Control
As of the date of this Information Statement, the Partnership knows of no
changes in control affecting the Partnership since January 1, 1996.
Interest of Certain Persons in the Sale of the Assets
Affiliates of the General Partner will receive additional benefits because
of the Sale, which benefits are consistent with the Partnership Agreement. Since
the Partnership will be able to utilize the proceeds it receives from the Sale
to acquire additional real estate assets, affiliates of the General Partner may
receive acquisition fees in connection with such acquisitions in an amount not
to exceed 2% of the purchase price of the real property. In addition, it is
expected that an affiliate of the General Partner will receive a brokerage fee
of approximately $2,940,000 of the proceeds in connection with the sale of the
Assets.
21
<PAGE>
Moreover, it is possible that the General Partner will engage the Buyer or other
affiliates to manage any real estate assets it acquires. Furthermore, the Buyer
will consent to the continued management and administration of the Four
Properties by Capital Senior Living, Inc. ("CSL"), an entity which is an
affiliate of both the Partnership and the Buyer. CSL will continue to receive a
management fee of approximately 5% of gross rental revenue plus a charge of
$1.00 per resident day in the nursing center and per occupied apartment day for
the independent living facility as compensation for all accounting and
consulting services in connection with its services for any additional
properties that are acquired by the Partnership with the Sale proceeds.
Under the Partnership Agreement, the General Partner or its affiliates can
enter into transactions with the Partnership only if the terms of any such
transaction are no less favorable to the Partnership than could be obtained from
an unaffiliated third party for comparable services, goods or properties (as the
case may be). The Partnership Agreement contains other provisions to assure the
fairness of such transactions. For example, in the case of any real property,
(i) if sold from the General Partner or an affiliate to the Partnership, the
price paid by the Partnership shall be no greater than the value of such real
property according to an appraisal prepared within twelve (12) months before the
selling date by an independent appraiser, and (ii) if sold to the General
Partner or an affiliate by the Partnership, the price paid to the Partnership
shall be no less than the value of such real property according to an appraisal
prepared within twelve (12) months before the selling date by an independent
appraiser. Any real estate commissions cannot exceed the amount of a competitive
real estate commission which would be payable on sales of comparable property in
the geographic area of the real properties being sold. Similarly, any
acquisition fee incurred in connection with the purchase of real property cannot
exceed 2% of the purchase price of the real property.
In addition, management fees to the General Partner or its affiliates for
properties owned by the Partnership are limited to the amount of (i) in the case
of retirement living center properties or senior housing facilities, $1.00 per
resident-day and 5% of the gross revenues of the property; (ii) in the case of
residential multi-family properties, 5% of the gross revenues of the property;
and (iii) in the case of any property not in either of the preceding two
categories, an amount set by the General Partner, so long as the terms of any
such arrangement are no less favorable to the partnership than could be obtained
from an unaffiliated third party for comparable management services in the
particular geographic area.
Additional Information
This Information Statement is accompanied by copies of the Partnership's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996 and its
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997, each as
filed with the Securities and Exchange Commission. The information in these
reports is incorporated herein by reference. The exhibits to such reports are
not included with this Information
22
<PAGE>
Statement, but are available without charge to any person entitled to receive
this Information Statement, upon written request, from the General Partner,
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240, Attention: Capital Senior
Living Communities, L.P. A requested exhibit will be furnished by first-class
mail, or other equally prompt means, within one business day of such request.
All other reports filed by the Partnership pursuant to Section 13(a) or 15(d) of
the Exchange Act since December 31, 1996 are incorporated herein by reference.
23
<PAGE>
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
------------------
to
------------
Commission file number 0-14752.
-------
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1665759
-----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
- -----------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
----------------
Securities registered pursuant to Section 12(b) of the Act: None
----------
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates
----------------------------
(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
--- ---
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
---
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.
------
Transitional small business disclosure format (check one): Yes No X
--- ---
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
-----------------------
General
- -------
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
- ---------------
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
- -------------------------------
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
- -----------------------------------
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
- -------------------------
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
- ---------
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
- ----------------------
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
- ---------
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
- ----------------------------------------
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
- ---------------------------
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
- ----------------------------
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
- -----------------------------------------------------
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
- ---------------------------------------------------------
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
- ---------------------------------------------------------
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
- --------------------------------------------------
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
- ------
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
-----------------
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
---------------------------
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
- ---------------------
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.
23
<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
=========== =========
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period
From to
---------------------------- ---------------------------------
Commission file number 0-14752.
-------
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
(Exact name of Small Business Issuer as Specified in Its Charter)
DELAWARE 35-1665759
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
(Address of Principal Executive Offices)
(972) 770-5600
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
Transitional Small Business Disclosure Format Yes No X .
------ -------
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL SENIOR LIVING COMMUNITIES, LP
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
June 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
ASSET
- -----
PROPERTY AND EQUIPMENT, Net $ 30,880,583 $ 12,576,523
OTHER ASSETS:
Cash and cash equivalents 12,545,226 10,463,887
Cash, restricted 169,046 206,376
Accounts receivable, net of
allowance for doubtful accounts
of $4,420,476 in 1997 and $164,822
in 1996 1,784,254 373,163
Prepaid expenses and other 150,411 92,302
Deferred charges, less accumulated
amortization of $375,551 in 1997
and $311,938 in 1996 137,828 201,440
Investment in limited partnerships
(Note 4) 9,621,412 8,275,920
----------- ------------
Total assets $55,288,760 $ 32,189,611
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Accrued expenses and other
liabilities $ 2,639,448 $ 1,303,833
Customer deposits 257,948 248,458
Notes payable 12,446,423 -
----------- ------------
Total liabilities 15,343,819 1,552,291
----------- ------------
See notes to financial statements
1
<PAGE>
DEFERRED INCOME (Note 4) - 3,400,684
MINORITY INTEREST 11,090,370 -
PARTNERS' CAPITAL:
General partner 98,313 72,526
Limited partner 1 1
Beneficial unit certificates,
1,264,000 issued and 1,117,692
outstanding 30,979,364 28,426,464
Repurchased beneficial unit
certificates (2,223,107) (1,262,355)
------------ ------------
Total partners' capital 28,854,571 27,236,636
------------ ------------
Total liabilities and partners'
capital $ 55,288,760 $ 32,189,611
============ ============
See notes to financial statements
2
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months ended June 30,
1997 1996
---- ----
RENTAL AND OTHER INCOME
Multi-family $ - $ 323,838
Independent 1,899,952 1,811,293
Assisted Living 422,666 398,072
Nursing 3,044,773 1,222,782
Facility lease income 1,059,749 -
Other 221,215 221,555
----------- -----------
Total rental and other income 6,648,355 3,977,540
EXPENSES:
Salaries, wages and benefits 2,256,889 1,433,670
Operating and other administrative expenses 2,390,958 1,578,706
Depreciation and amortization 471,721 410,853
----------- -----------
Total expenses 5,119,568 3,423,229
----------- -----------
Income from operations 1,528,787 554,311
OTHER INCOME (EXPENSE):
Interest income 645,502 98,741
Interest expense (212,615) (56,385)
Income on investments - 433,520
Minority interest (156,275) -
---------- ----------
Total other income (expense) 276,612 475,876
---------- ----------
NET INCOME $1,805,399 $1,030,187
========== ==========
See notes to financial statements
3
<PAGE>
NET INCOME ALLOCATION:
General partner $ 18,054 $ 10,302
Beneficial unit certificate holders 1,787,345 1,019,885
---------- ----------
Total $1,805,399 $1,030,187
========== ==========
NET INCOME PER BENEFICIAL UNIT
CERTIFICATE $ 1.56 $ .83
========== ==========
OUTSTANDING BENEFICIAL UNIT
CERTIFICATES 1,117,692 1,226,708
========== ==========
See notes to financial statements
4
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Six Months ended June 30,
1997 1996
---- ----
RENTAL AND OTHER INCOME
Multi-family $ - $ 647,588
Independent 3,747,265 3,607,723
Assisted Living 853,078 804,820
Nursing 5,455,527 2,433,406
Facility lease income 2,157,973 -
Other 461,410 438,044
----------- -----------
Total rental and other income 12,675,253 7,931,581
EXPENSES:
Salaries, wages and benefits 4,506,782 2,889,453
Operating and other administrative expenses 4,652,228 3,181,565
Depreciation and amortization 943,443 818,314
----------- -----------
Total expenses 10,102,453 6,889,332
----------- -----------
Income from operations 2,572,800 1,042,249
OTHER INCOME (EXPENSE):
Interest income 787,696 204,539
Interest expense (386,347) (112,959)
Income on investments - 459,043
Minority interest (395,462) -
----------- -----------
Total other income (expense) 5,887 550,623
----------- -----------
NET INCOME $ 2,578,687 $ 1,592,872
=========== ===========
See notes to financial statements
5
<PAGE>
NET INCOME ALLOCATION:
General partner $ 25,787 $ 15,929
Beneficial unit certificate holders 2,552,900 1,576,943
----------- -----------
Total $ 2,578,687 $ 1,592,872
=========== ===========
NET INCOME PER BENEFICIAL UNIT
CERTIFICATE $ 2.23 $ 1.29
=========== ===========
OUTSTANDING BENEFICIAL UNIT
CERTIFICATES 1,117,692 1,226,708
=========== ===========
See notes to financial statements
6
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Repurchased
Beneficial Beneficial
Unit Unit Limited General
Certificates Certificates Partner Partner Total
BALANCE,
December 31, 1996 $ 28,426,464 $ (1,262,355) $ 1 $ 72,526 $27,236,636
Net Income 2,552,900 - - 25,787 2,578,687
Repurchased
Beneficial
Unit
Certificates - (960,752) - - (960,752)
------------ ------------ ------- -------- -----------
BALANCE,
June 30, 1997 $ 30,979,364 $ (2,223,107) $ 1 $ 98,313 $28,854,571
============ ============ ======= ======== ===========
See notes to financial statements
7
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
For the Six Months
Ended June 30,
--------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,578,687 $ 1,592,872
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 826,128 737,742
Amortization of deferred financing
charges 117,315 80,572
Provision for bad debt 28,061 16,500
Amortization of deferred income - (35,011)
Equity in earnings of investee - (398,508)
Minority interest 395,462 -
Changes in assets and liabilities,
net of effects of acquisitions:
Cash, restricted 37,330 -
Accounts receivable (644,918) 77,063
Prepaid expenses and other 27,186 (6,895)
Accrued expenses and other
liabilities 142,308 214,322
Customer Deposits 9,490 15,175
----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,517,049 2,293,832
----------- ------------
See notes to financial statements
8
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired upon consolidation of HCP 8,995,455 -
Additions to property and equipment (553,533) (185,195)
Investments in limited partnerships (14,155,889) (2,599,229)
----------- ------------
NET CASH USED IN
INVESTING ACTIVITIES (5,713,967) (2,784,424)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on note 6,000,000 -
Payments on notes payable (760,991) (24,982)
Deferred charges - (20,352)
Repurchase of beneficial unit certificates (960,752) (447,504)
----------- ------------
NET CASH PROVIDED (USED) IN
FINANCING ACTIVITIES 4,278,257 (492,838)
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,081,339 (983,430)
CASH AND CASH EQUIVALENTS, Beginning of Period 10,463,887 9,743,330
----------- ------------
CASH AND CASH EQUIVALENTS, End of Period $12,545,226 $ 8,759,900
=========== ============
See notes to financial statements
9
<PAGE>
CAPITAL SENIOR LIVING COMMUNITIES, L.P.
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1997
-------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Principals of Consolidation
- ---------------------------
The accompanying consolidated balance sheet, as of June 30, 1997, includes the
accounts of the Partnership, its 99%-owned subsidiary, Retirement Partnership,
Ltd., and HealthCare Properties, L.P. (HCP). HCP includes the accounts of HCP
and its wholly owned subsidiaries, Danville Care, Inc., Foothills Care, Inc.,
Countryside Care, Inc., Countryside Care, L.P., and Cambridge Nursing Home
Limited Liability Company. 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.
On June 30, 1997, the Partnership had increased its ownership in HCP to 55%. In
the accompanying consolidated financial statements, HCP is consolidated as
though a controlling financial interest in HCP had been acquired by the
Partnership at January 1, 1997. At December 31, 1996 the Partnership owned
approximately 31% of HCP's limited partner units and accounted for its
investment in HCP on the equity method. Preacquisition earnings for 1997
applicable to HCP are included in minority interest. HCP is a Delaware limited
partnership established for the purpose of acquiring, leasing, and operating
existing or newly constructed long-term health care properties. One property is
operated by HCP and seven properties are leased to qualified operators who
provide specialized health care services. Capital Realty Group Senior Housing,
Inc. (CRGSH) is the general partner.
The financial information has been prepared in accordance with the Partnership's
customary accounting practices and has not been audited. In the opinion of
management, the information presented reflects all adjustments necessary for a
fair statement of interim results. All such adjustments are of a normal and
recurring nature. The financial statements should be read in conjunction with
the consolidated financial statements and the footnotes thereto included in the
Partnership's annual report filed in Form 10-KSB for the year ended December 31,
1996.
Property and Equipment
- ----------------------
The Partnership provides for depreciation and amortization on property and
equipment using the straight-line method by charges to operations in amounts to
allocate the cost of the property and equipment over their estimated useful
lives.
The carrying value of property and equipment is reviewed if the facts and
circumstances suggest that it may be impaired. The consolidation of HCP at
January 1, 1997 includes a reserve for impaired value of $2,185,381. For the six
months ending June 30, 1997, no additional reserve for impaired value has been
provided.
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 is recognized in the period
in which the unit rental and/or food services relate.
10
<PAGE>
Revenue from the two Projects (Towne Centre and Canton Regency) which offer
assisted living, intermediate, and skilled health care (in addition to
retirement living), is recognized as services are performed. The Towne Centre
health care 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 rates which are lower than private pay rates. Patient
service revenue for Medicaid patients is recorded at the reimbursement rates.
The Towne Centre and Canton Regency health care centers (the "Centers") are also
providers of services under the Medicare program.
The Centers are entitled to reimbursement under the foregoing program in amounts
which approximate the lower of cost or charges for caring for these patients.
During the period, the Centers received payments from this program on an
estimated basis. Any differences between estimated and actual reimbursements are
recognized in the subsequent year.
2. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Partnership had $19,046 and $56,376 in certificates of deposit at June 30,
1997 and December 31, 1996 respectively, restricted for utility deposits. The
certificates of deposit mature one year from the original purchase date.
In conjunction with the Partnership's increased mortgage loan commitment on June
30, 1995 (see LIQUIDITY AND CAPITAL RESOURCES), a compensating balance of
$150,000 was established with the mortgage company.
3. TRANSACTIONS WITH RELATED PARTIES:
---------------------------------
In accordance with the Partnership Agreement, the general partner, Retirement
Living Communities, L.P. ("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. In addition, an
affiliate of RLC is managing the assets of the Partnership and of HCP. CRGSH, an
affiliate of RLC, also receives reimbursements and fees from HCP.
In addition, the Partnership and HCP has no employees. An affiliate of RLC makes
gross payroll deposits and health insurance premium payments on behalf of the
properties owned by the Partnership and HCP, which are reimbursed by the
Partnership, and is required to fund any excess health insurance claims not
covered by the Partnership's health premiums or related insurance policy.
Reimbursements and fees paid to the general partner and affiliates of the
general partner from the Partnership and HCP are as follows:
Six months ended Six months ended
June 30, 1997 June 30, 1996
Salary and benefit reimbursements $ 4,259,624 2,692,041
Administrative reimbursements 280,329 193,574
Asset management fees 222,289 -
Property management fees 683,677 501,607
General partner management fees 45,802 -
------------ ------------
$ 5,491,721 3,387,222
============ ============
In connection with the extension of the Silver Lakes mortgage, an affiliate of
RLC received a 1% financing fee of $20,352 in the first quarter of 1996.
In the second quarter of 1997, the Partnership received a loan from two
affiliates of the general partner totaling $500,000. The loan was repaid in the
second quarter of 1997 and paid accrued interest at 10% of $3,014.
11
<PAGE>
In addition, a 50% shareholder of the general partner of 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 NHP Retirement Housing Partners I,
L.P. is an affiliate of RLC. See Note 4.
As of July 8, 1997, the Partnership entered into an asset purchase agreement
with an affiliate of RLC pursuant to which the Partnership has agreed to sell
substantially all of its assets, other than working capital, to such affiliate
conditioned upon, among other things, the funding of such affiliate's initial
public offering. (See LIQUIDITY AND CAPITAL RESOURCES)
4. ACQUISITION OF INVESTMENTS
--------------------------
During 1997, 1996 and 1995, the Partnership made various purchases of limited
partnership interests in HCP and paid $4,925,267, $3,200,685 and $308,825,
respectively. At June 30, 1997, the Partnership was committed to purchase
$397,312 in additional limited partnership interests of HCP. As of June 30,
1997, the Partnership has cumulatively paid and committed $8,832,089 for a 55%
ownership in HealthCare Properties, L.P.
In the second quarter of 1996, 9.36% in limited partnership interests in
HealthCare Properties, L.P. was purchased from CRGSH, 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. In June 1997, the Partnership exceeded 50%
ownership of HCP and changed its method of accounting from the equity method to
a consolidated basis, effective January 1, 1997.
During 1997, 1996 and 1995, the Partnership made various purchases of
outstanding Pension Notes of NHP Retirement Housing Partners I, L.P. and paid
$8,833,310, $199,158 and $587,580, respectively. As of June 30, 1997, the
Partnership has cumulatively paid $9,620,048 for a 27.9% 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
accrued interest on the Pension Notes at 7% through March 31, 1997 and at 10.5%
from April 1, 1997 through June 30, 1997, 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.
5. DISPOSITION OF PROPERTY
-----------------------
On November 5, 1996, the Partnership sold the Lakeridge and Silver Lakes
Apartments to an unrelated party at a combined sales price of $4,793,000, paid
in cash. After payment of the mortgage loan on the Silver Lakes Apartments and
refund of its escrow balance, the Partnership received cash of approximately
$2,549,000 on the sale. Due to the sale of Silver Lakes and Lakeridge,
Partnership total revenues for the six months ended June 30, 1997 would have
decreased approximately $647,588, and there would not have been a significant
impact to net income.
Item 2. MANAGEMENT'S DISCUSSION AND OR PLAN OF OPERATIONS
This discussion should be read in conjunction with the financial statements of
Capital Senior Living Communities, L.P. (the "Partnership") included in this
Report.
As of June 30, 1997, the Partnership's assets included four retirement projects
(Harrison, Cottonwood Village, Canton Regency, and Towne Centre), a 3% interest
in Encore Limited Partnership, a 55% limited partnership interest in HealthCare
Properties, L.P., 27.9% of the outstanding pension notes of NHP Retirement
Housing Partners I, L.P., a 3.1% limited partnership interest in NHP Retirement
Housing Partners I, L.P., and a 99% interest in Retirement Partnership, Ltd.
(the "Partnership Subsidiary").
12
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The Partnership's primary source of funds is net rental income from the
ownership and management of the four real estate projects owned by the
Partnership.
FIRST SIX MONTHS OF 1997 COMPARED WITH FIRST SIX MONTHS OF 1996
- ---------------------------------------------------------------
Rental and other income for the six months ended June 30, 1997 and 1996 was
$12,675,253 and $7,931,581, respectively. Rental and other income increased
$4,743,672, or 59.8% from the six months ended June 30, 1996 to 1997. The
inclusion of HCP revenues in 1997 from January 1, 1997 contributed $4,653,268,
or 58.7% of this increase, as HCP was not consolidated in 1996. Of this amount,
$2,495,295 in nursing income and $2,157,973 in facility lease income was
attributable to the HCP consolidation. Multi-family income of $647,588 decreased
from 1996 to 1997 due to the sale of the Silver Lakes and Lakeridge Apartments
in November 1996. Independent, assisted living, and other income increased from
1996 to 1997 due to higher rents and increased occupancies at the Partnership's
properties. Apart from consolidated HCP income, nursing income increased
$526,826 from 1996 to 1997 and was mainly attributable to prior year Medicare
cost report settlements. Interest income for the six months ended June 30, 1997
and 1996, was $787,696 and $204,539, respectively. Interest income increased
$583,457 from the six months ended June 30, 1996 to 1997 primarily as a result
of $163,635 attributable to the consolidation of HCP and $419,822 associated
with the Partnership's increased investment in NHP Pension Notes and its accrual
of a portion of deferred interest on these Notes. No income was recorded for
income on investments for the six months ended June 30, 1997 due to the
consolidation of HCP. During the six months ended June 30, 1996, income on
investment of $459,043 was recognized, of which $25,523 was received from the
Partnership's investment in Encore Limited Partnership and $433,520 recognized
on equity participation and amortization of deferred income relating to the
Partnership's investment in HealthCare Properties, L.P. Operating expenses are
maintained by property and by natural expense classification, but are not
allocated by revenue type. Salaries, wages, and benefits of $4,506,782 and
$2,889,453 were paid by the Partnership for the six months ended June 30, 1997
and 1996, respectively. The increase in such payments of $1,617,329, or 56% from
1996 to 1997 was attributable to $1,633,039 of HCP salary costs upon
consolidation and a decrease of $15,710 in Partnership salaries, wages and
benefits for the six months ended June 30, 1997. Operating and other
administrative expenses increased $1,470,663 from 1996 to 1997, or 46.2%, and
was mainly attributable to $1,496,364 of HCP operating expenses upon
consolidation and a decrease of $25,701 in Partnership operating and other
administrative expenses for the six months ended June 30, 1997. Depreciation and
amortization for 1997 was $943,443 and $818,314 in 1996. The increase in
depreciation and amortization expense of $125,129, or 15.3% from 1996 to 1997
was due to $553,011 of HCP depreciation expense upon consolidation and a
decrease of $427,882 in Partnership depreciation resulting from the sale of the
Silver Lakes and Lakeridge Apartments in November, 1996. Interest expense
increased $273,388 from 1996 to 1997, of which $343,823 was HCP interest expense
upon consolidation and a decrease of $70,435 in Partnership interest expense
resulting from the sale of the Silver Lakes Apartments in November 1996.
Minority interest of $395,462 for the six months ended June 30, 1997 is the
result of consolidation of HCP.
For the three months ended June 30, 1997 as compared with the three months ended
June 30, 1996, the Partnership's revenue was impacted by the same shifts of
revenue as discussed above with the exception of other income decreasing $340
for the comparable period from 1996 to 1997. Similarly, a comparison of second
quarter 1997 operating expenses versus second quarter 1996 reflects the same
variances as discussed above.
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.
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LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The General Partner believes cash and cash equivalents of $12,545,226 at June
30, 1997 is adequate for the working capital needs of the Partnership. These
reserves 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, and fund future acquisitions or development
of real estate projects.
The Partnership's business is no longer the ownership of tax-exempt bonds.
Instead, since 1991 the Partnership has held and operated real properties. This
has adversely impacted the tax-exempt nature of the Partnership's operations in
that it caused the operations of the Partnership to be fully taxable for federal
income tax purposes and will require the individual BUC holders 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 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.
On July 29, 1994, the Partnership obtained a $12,000,000 open-end mortgage loan
commitment from a non-affiliated mortgage company, and pledged the Cottonwood,
Harrison, Towne Centre and Canton Regency Retirement Community as collateral. On
June 30, 1995, the Partnership increased its mortgage loan commitment from
$12,000,000 to $17,500,000. The Partnership borrowed $5,500,000 under this loan
commitment in the second quarter of 1997, which was repaid on July 1, 1997. At
June 30, 1997, mortgage loans for HCP amounted to $6,946,423. These mortgage
loans bear interest ranging from 6.8% to 10.75% and mature from 1997 to 2012.
One note, with a balance outstanding of $686,542, was due on June 30, 1997. HCP
is currently negotiating the extension of this note until December 1, 2001.
On June 30, 1997, the Partnership entered into a $77,000,000 mortgage loan
agreement with Lehman Brothers and pledged the Cottonwood, Harrison, Towne
Centre, and Canton Regency retirement communities and its investment in HCP and
NHP as collateral. The loan agreement matures December 31, 1997. On July 1,
1997, $70,000,000 became outstanding under this loan agreement; $5,500,000 was
used to repay an outstanding mortgage loan commitment and $64,500,000 was used
to fund the liquidity requirement under the loan agreement through the purchase
of three-month U.S. Treasury bills. The U.S. Treasury bills were sold under a
repurchase agreement with a term equal to their maturity. Interest costs are
based on 30-day LIBOR plus 50 basis points.
As of July 8, 1997, the Partnership entered into an asset purchase agreement
with an affiliate of RLC pursuant to which the Partnership has agreed to sell
substantially all of its assets, other than working capital, to an affiliate.
This sale is conditional, among other things, upon the funding of such
affiliate's initial public offering. The purchase price should be the appraised
value of the assets being purchased, which purchase price should be paid
primarily through assumption of the Partnership's loan with Lehman Brothers. If
this agreement is consummated, this could result in substantial gain to the
Buckholders.
PARTNERSHIP PROPERTIES
The following table sets forth summary information concerning the four
income-producing real properties owned by the Partnership as of June 30, 1997.
As discussed above, the Lakeridge and Silver Lakes Apartments were sold on
November 5, 1996.
Number of Units At Occupancy
Project Name/Location June 30, 1997 06/30/96 06/30/97
--------------------- ------------- -------- --------
Cottonwood Retirement 65 - residential 94% 100%
Community
Cottonwood, Arizona
The Harrison Retirement 124 - residential 84% 92%
Community
Indianapolis, Indiana
Towne Centre Retirement 147 - residential 94% 94%
Community 34 - assisted living
Merrillville, Indiana 64 - nursing
Canton Regency Retirement 147 - residential 97% 97%
Community 34 - assisted living
Canton, Ohio 50 - nursing
PART II OTHER INFORMATION
Item 6. (a) Exhibits and Reports on Form 8-K
Exhibit No. Description of Exhibit
27 Financial Data Schedule required by Item 601 of
Regulation S-B filed herewith.
(b) No reports on Form 8-K have been filed by the registrant during
the quarter ended June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant 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, L.P.
General Partner
By: CAPITAL RETIREMENT GROUP, INC.
General Partner
Date: August 13, 1997 By: /s/ Keith Johannessen
-----------------------------
Keith Johannessen
President
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant 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, L.P.
General Partner
By: CAPITAL RETIREMENT GROUP, INC.
General Partner
Date: August 13, 1997 By: /s/ Keith Johannessen
-----------------------------
Keith Johannessen
President
17
