- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 0-17651
HIGH CASH PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3347257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
High Cash Partners, L.P.
(Sierra Marketplace)
c/o CB Commercial Real Estate Group, Inc.
5190 Neil Road, Suite 100
Reno, Nevada 89502-8500
(Address of principal executive offices)
(212) 350-9900
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
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<PAGE>
HIGH CASH PARTNERS, L.P.
FORM 10-Q - SEPTEMBER 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1998 and December 31, 1997..............1
STATEMENTS OF OPERATIONS - For the three months
ended September 30, 1998 and 1997 and for the nine
months ended
September 30, 1998 and 1997.........................................2
STATEMENT OF PARTNERS' EQUITY - For the nine months
ended September 30, 1998............................................3
STATEMENTS OF CASH FLOWS - For the nine months
ended September 30, 1998 and 1997...................................4
NOTES TO FINANCIAL STATEMENTS........................................5-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................7-9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................10
SIGNATURES....................................................................11
<PAGE>
PART I - FINANCIAL INFORMATION
This report contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places herein and include statements
regarding the intent, belief or current expectations of the Partnership,
primarily with respect to the future operating performance of the Partnership or
related developments. Any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and actual results and
developments may differ from those described in the forward-looking statements
as a result of various factors, many of which are beyond the control of the
Partnership.
ITEM 1 - FINANCIAL STATEMENTS
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
September 30, December 31,
1998 1997
------------- ------------
ASSETS
Real estate, net $ 15,336,893 $15,551,179
Cash and cash equivalents 4,063,245 3,052,039
Tenant receivables, net 71,745 29,737
Other Assets 89,045 53,739
Prepaid insurance premiums 39,331 29,511
------------- ------------
$ 19,600,259 $18,716,205
============= ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 12,571,320 11,040,481
Accounts payable and accrued expenses 82,195 127,680
Due to affiliates 3,303 2,890
Tenants' security deposits payable 57,779 54,579
------------- ------------
Total liabilities 19,214,597 17,725,630
Commitments and contingencies
Partners' equity
Limited partners' equity (96,472 units
issued and outstanding) 381,805 980,669
General partners' equity 3,857 9,906
------------- ------------
Total partners' equity 385,662 990,575
------------- ------------
$ 19,600,259 $18,716,205
============= ============
See notes to financial statements.
1
<PAGE>
<TABLE>
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 512,577 $ 661,520 $1,772,928 $ 1,994,399
Interest income 46,201 27,416 126,282 73,170
Other income 200 1,390 2,217 5,320
---------- ---------- ---------- -----------
558,978 690,326 1,901,427 2,072,889
---------- ---------- ---------- -----------
Costs and expenses
Mortgage loan interest 525,101 469,654 1,530,839 1,365,665
Operating 137,975 138,466 374,484 469,626
Depreciation and amortization 83,649 77,535 257,278 299,599
Partnership management fees 75,369 75,369 226,107 226,107
Property management fees 19,140 19,846 51,905 59,834
Administrative 22,647 31,383 65,727 68,527
Write-down for impairment - - - 6,475,500
---------- ---------- ---------- -----------
863,881 812,253 2,506,340 8,964,858
---------- ---------- ---------- -----------
Net loss $ (304,903) $(121,927) $ (604,913) $(6,891,969)
=========== ========== ========== ============
Net loss attributable to
Limited partners $ (301,854) $(120,708) $ (598,864) $(6,823,049)
General partners (3,049) (1,219) (6,049) (68,920)
---------- ---------- ---------- -----------
$ (304,903) $(121,927) $( 604,913) $(6,891,969)
=========== ========== ========== ============
Net loss per unit of limited
partnership interest (96,472 units
outstanding) $ (3.13) $ (1.25) $ (6.21) $ (70.73)
=========== ========== ========== ============
</TABLE>
See notes to financial statements.
2
<PAGE>
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
----------- ----------- ----------
Balance, January 1, 1998 $ 9,906 $ 980,669 $ 990,575
Net loss for the nine months ended
September 30, 1998 (6,049) (598,864) (604,913)
----------- ----------- ----------
Balance, September 30, 1998 $ 3,857 $ 381,805 $ 385,662
=========== =========== ==========
See notes to financial statements.
3
<PAGE>
<TABLE>
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<CAPTION>
For the nine months ended
September 30,
-----------------------------------
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net loss $ (604,913) $ (6,891,969)
Adjustments to reconcile net loss to net cash
provided by operating activities
Write-down for impairment - 6,475,500
Deferred interest expense 1,530,839 1,365,665
Depreciation and amortization 257,278 299,599
Changes in assets and liabilities
Tenant receivables (42,008) (140,174)
Other assets (52,137) (1,301)
Prepaid insurance premiums (9,820) 71,266
Accounts payable and accrued expenses (45,485) 8,194
Due to affiliates 413 (74,427)
Tenants' security deposits payable 3,200 -
-------------- ----------------
Net cash provided by operating activities
1,037,367 1,112,353
-------------- ----------------
Cash flows from Investing activities
Additions to real estate (26,161) -
-------------- ----------------
Cash flows from financing activities
Distributions to partners - (305,007)
-------------- ----------------
Net increase in cash and cash equivalents 1,011,206 807,346
Cash and cash equivalents, beginning of period 3,052,039 1,774,565
-------------- ----------------
Cash and cash equivalents, end of period $ 4,063,245 $ 2,581,911
============== ================
</TABLE>
See notes to financial statements.
4
<PAGE>
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction with
the financial statements, related footnotes and discussions contained in
the High Cash Partners, L.P. (the "Partnership") annual report on Form 10-K
for the year ended December 31, 1997. The results of operations for the
nine months ended September 30, 1998 are not necessarily indicative of the
results to be expected for the full year.
2. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES
On June 13, 1997, Resources High Cash, Inc. ("RHC") and Presidio AGP Corp.
("AGP") sold their general partnership interests in the Partnership to
Pembroke HCP LLC ("Pembroke HCP") and Pembroke AGP Corp. ("Pembroke AGP"),
respectively. In the same transaction, XRC Corp., the parent company of
RHC, sold its 8,361 Units to Pembroke Capital II, LLC, an affiliate of
Pembroke HCP and Pembroke AGP. Subsequently, Pembroke Capital II LLC
acquired beneficial ownership of an aggregate of an additional 4,442 Units
in the secondary market.
Prior to the sale of the general partnership interest in the Partnership to
Pembroke HCP and Pembroke AGP, Wexford Management LLC ("Wexford") had
performed management and administrative services for Presidio, XRC and
XRC's direct and indirect subsidiaries, as well as for the Partnership.
Following the sale, an affiliate of Pembroke HCP was engaged to perform
administrative services for the Partnership. During the quarter ended
September 30, 1998, $9,000 in reimbursable payroll expenses was paid to the
affiliate of Pembroke HCP for services performed during the quarter.
The Partnership had been a party to a supervisory management agreement with
Resources Supervisory Management Corp. ("Resources Supervisory"), an
affiliate of RHC and AGP, pursuant to which Resources Supervisory performed
certain property management functions. Resources Supervisory performed such
services through June 13, 1997. Effective June 13, 1997, the Partnership
terminated this agreement and entered into a similar agreement with
Pembroke Realty Management LLC ("Pembroke Realty"), an affiliate of
Pembroke HCP and Pembroke AGP. A portion of the property management fees
payable to Resources Supervisory and Pembroke Realty were paid to an
unaffiliated management company, which had been engaged for the purpose of
performing the property management functions that were the subject of the
supervisory management agreement. For the quarters ended September 30, 1998
and 1997, Pembroke Realty was entitled to receive $19,140 and $19,846,
respectively, of which $15,950 and $16,538, respectively, was payable to
the unaffiliated management company. No leasing activity compensation was
paid to Pembroke Realty for the quarters ended September 30, 1998 or 1997.
Current fees of $3,303 payable to Pembroke Realty at September 30, 1998
were paid in the subsequent quarter.
5
<PAGE>
2. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES (continued)
For managing the affairs of the Partnership, the Managing General Partner
is entitled to an annual partnership management fee equal to $301,475. For
each of the quarters ended September 30, 1998 and 1997, the Managing
General Partner was entitled to a partnership management fee of $75,369.
The general partners are allocated 1% of the net income or losses of the
Partnership, which amounted to a net loss of $(3,049) and $(1,219) in the
quarters ended September 30, 1998 and 1997, respectively. They also are
entitled to receive 1% of distributions.
3. REAL ESTATE
Real estate, which is the Partnership's sole asset, is summarized as
follows:
September 30, December 31,
1998 1997
--------------- ---------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,826,875 12,800,714
--------------- ---------------
19,494,064 19,467,903
Accumulated depreciation (4,157,171) (3,916,724)
--------------- ---------------
$ 15,336,893 $ 15,551,179
=============== ===============
The land, building and improvements that comprise the Partnership's sole
asset are collateralized by a mortgage loan payable. In performing its
quarterly impairment review of the Partnership's property, prior management
determined that the aggregate undiscounted cash flows from the property
over the anticipated holding period were below its net carrying value at
March 31, 1997 and, therefore, an impairment existed. At that time, prior
management estimated the fair value of the property to be approximately
$15,875,000. Consequently, a write-down for impairment of $6,475,500 was
recorded as of March 31, 1997, of which $2,201,670 was allocated to land
and $4,273,830 was allocated to building and improvements. No write-down
for impairment was required during the three months ended September 30,
1998.
4. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
September 30, December 31,
1998 1997
--------------- ---------------
Supervisory Management Fee $ 3,303 $ 2,890
=============== ===============
6
<PAGE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's sole property is a community shopping center located in
Reno, Nevada containing approximately 233,000 square feet of net leasable
area.
The Partnership uses working capital reserves set aside from the net
proceeds of its public offering in 1989 and undistributed cash flow from
operations as its primary measure of liquidity. As of September 30, 1998,
working capital reserves amounted to approximately $4,000,000, which may be
used to fund capital expenditures, insurance, real estate taxes and loan
payments. All expenditures made during the quarter ended September 30, 1998
were funded from cash flow from operations.
At September 30, 1998, the total amount outstanding on the Partnership's
mortgage loan payable to Resources Accrued Mortgage Investors 2 L.P. ("RAM
2") was $19,071,320, which included deferred interest payable of
$12,571,320. The mortgage does not permit a prepayment before March 1,
1999, and, therefore, the Partnership may not be able to refinance the
mortgage before that date. At March 1, 1999, the total amount outstanding
on the mortgage is expected to be approximately $20,000,000. If the value
of the property does not exceed $20,000,000 at March 1, 1999, the
Partnership may not be able to refinance the mortgage at that time. The
mortgage matures on February 28, 2001. At that time, the total amount
outstanding on the mortgage is expected to be approximately $25,000,000. If
the value of the property at that time does not exceed $25,000,000, the
Partnership may lose its entire investment in the property. In that
connection, in the first quarter of 1997, the value of the property was
written down to $15,875,000. See "Write-Down for Impairment" below.
The mortgage further requires the Partnership to provide RAM 2 with a
current appraisal of the Partnership's property upon RAM 2's request. If it
is determined, based upon the requested appraisal, that the sum of (i) the
principal balance of the mortgage loan plus all other then outstanding
indebtedness secured by the property and (ii) all accrued and unpaid
interest on the mortgage at 6.22% per annum, compounded monthly (that sum,
the "Measurement Amount"), exceeds 85% of the appraised value, an amount
equal to such excess would become immediately due and payable to RAM 2.
To date, the lender has not requested an appraisal. There can be no
assurance that, if the lender requests an appraisal, 85% of the appraised
value will equal the Measurement Amount. At September 30, 1998, the
Measurement Amount was approximately $11,820,000, which was approximately
$1,674,000 less than 85% of the $15,875,000 value to which the property was
written down in the first quarter of 1997. As interest on the mortgage
accrues, the Measurement Amount will increase, and, therefore, unless the
value of the property increases sufficiently from the value to which it was
written down in the first quarter of 1997, the Measurement Amount
eventually will exceed 85% of the appraised value of the property.
Until November 1997, Levitz Furniture Corporation ("Levitz") had occupied
approximately 23% of the space of the Partnership's property (i.e.,
approximately 53,000 out of approximately 233,000 square feet of net
leasable area). In November 1997, Levitz, which had filed for protection
under Chapter 11 of the Bankruptcy Code, vacated its space. Levitz ceased
paying rent to the Partnership as of April 2, 1998.
The vacancy at the Levitz space has resulted in a loss of income to the
Partnership, and may adversely affect the surrounding tenants, particularly
in light of the limited visibility those tenants have
7
<PAGE>
to the main thoroughfare. See "Real Estate Market" below. The Partnership
is actively seeking a substitute tenant. However, there can be no assurance
the Partnership will succeed in finding a substitute tenant promptly or on
terms comparable to those under the Levitz lease. In addition, the
Partnership expects to make substantial expenditures in order to secure a
substitute tenant and in connection with a new lease.
The level of leasing activity cannot be predicted, particularly in light of
the Levitz situation, and therefore, the amount of further capital
expenditures arising from leasing activity is uncertain. There can be no
assurance the Partnership will have sufficient liquidity both to make such
capital expenditures, and to make the payments that may be required under
the terms of the RAM 2 loan. If there is a default on the RAM 2 loan, the
Partnership would be materially and adversely affected. Consequently, the
Partnership has declared no distribution payable for the nine months ended
September 30, 1998 and will not declare any distribution for the
foreseeable future in order to build up cash reserves.
Real Estate Market
A substantial decline in the market value of the Partnership's property
reflects real estate market conditions in the vicinity of the property.
Recently built shopping centers in the vicinity have increased competition
for tenants. This competitive factor, together with the fact that much of
the unleased space in the Partnership's property (including the Levitz
space) has only limited visibility to the main thoroughfare and the fact
that the space occupied by Levitz is expected to be vacant for at least
some period, have hindered the lease-up of new space. As a result, the
Partnership's investment in its property is at risk.
Write-Down for Impairment
The Partnership's property is reflected in the Partnership's financial
statements at the lower of depreciated cost or estimated fair value. A
write-down for impairment with respect to the Partnership's property may be
recorded from time to time based upon quarterly reviews of the property. In
performing this review, management considers the estimated fair value of
the property based upon undiscounted future cash flows, as well as other
factors, such as the current occupancy situation in the region where the
property is located. Because this determination of estimated fair value is
based upon future economic events, the amounts ultimately realized upon a
disposition of the property may differ materially from the value reflected
in the Partnership's financial statements. A write-down for impairment is
inherently subjective and is based upon management's best estimate of
current conditions and assumptions about expected future conditions.
In the first quarter of 1997, prior management determined that the
aggregate undiscounted cash flows from the property over the anticipated
holding period were below the value of the property reflected in the
Partnership's financial statements at March 31, 1997 and, therefore, an
impairment existed. At that time, prior management estimated the fair value
of the property to be approximately $15,875,000. Consequently, a write-down
for impairment of $6,475,500 was recorded at March 31, 1997.
No additional write-down for impairment has been required since March 31,
1997. However, the Partnership may provide for additional write-downs in
the future and such write-downs could be material.
8
<PAGE>
Results of Operations
Three months ended September 30, 1988 compared to three months ended
September 30, 1997
The Partnership realized a net loss of $304,903 for the three months ended
September 30, 1998 compared to a net loss of $121,927 for the corresponding
1997 period, a change of $182,976. The change was primarily a result of a
decrease in rental revenue caused by Levitz ceasing paying rent as of April
2, 1998, as well as an increase in mortgage loan interest expense.
Revenues decreased from 1997 to 1998 primarily due to the loss of Levitz as
a tenant, as well as other decreases in base rentals.
Costs and expenses increased from 1997 to 1998 primarily due to an increase
in mortgage loan interest expense, which was partially offset by a decrease
in administrative expenses.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the zero coupon mortgage.
Administrative expenses decreased primarily due to a decrease in legal
fees.
Nine months ended September 30, 1998 compared to nine months ended
September 30, 1997
The Partnership realized a net loss of $604,913 for the nine months ended
September 30, 1998 compared to a net loss of $6,891,969 for the
corresponding 1997 period, a change of $6,287,056. The change was primarily
a result of the write-down for impairment recorded in March 1997 on the
Partnership's property.
Revenues decreased from 1997 to 1998 due to the loss of Levitz as a tenant,
as well as other decreases in base rentals.
Costs and expenses decreased from 1997 to 1998 primarily due to the
write-down for impairment recorded in 1997. Decreases in operating and
depreciation expenses were partially offset by an increase in mortgage loan
interest expense. Operating expenses decreased as a result of lower
insurance and repairs and maintenance costs. Depreciation expense decreased
as a result of the impairment recorded in March 1997. Mortgage loan
interest expense increased due to the compounding effect from the deferral
of the interest expense on the zero coupon mortgage.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
By: Pembroke Companies, Inc.,
Managing Member
Dated: November 13, 1998 By: /s/ Lawrence J. Cohen
---------------------
Lawrence J. Cohen
President and Principal
Financial and Accounting Officer
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,063,245
<SECURITIES> 0
<RECEIVABLES> 71,745
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,134,990
<PP&E> 19,494,064
<DEPRECIATION> (4,157,171)
<TOTAL-ASSETS> 19,600,259
<CURRENT-LIABILITIES> 143,277
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 385,662
<TOTAL-LIABILITY-AND-EQUITY> 19,600,259
<SALES> 1,772,928
<TOTAL-REVENUES> 1,901,427
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 975,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,530,839
<INCOME-PRETAX> (604,913)
<INCOME-TAX> 0
<INCOME-CONTINUING> (604,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604,913)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
