<PAGE>
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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 June 30, 1999
-------------
Commission file number 0-17651
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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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HIGH CASH PARTNERS, L.P.
FORM 10-Q - JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1999 and December 31, 1998...............1
STATEMENTS OF OPERATIONS - For the three months ended
June 30, 1999 and 1998 and for the six months ended
June 30, 1999 and 1998.......................................2
STATEMENT OF PARTNERS' EQUITY (DEFICIT)- For the six
months ended June 30, 1999...................................3
STATEMENTS OF CASH FLOWS - For the six months
ended June 30, 1999 and 1998.................................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
June 30, December 31,
1999 1998
------------ ------------
ASSETS
Real estate, net $ 15,195,605 $ 15,358,165
Cash and cash equivalents 938,072 4,270,688
Tenant receivables, net 41,241 63,653
Other assets 105,138 114,174
Prepaid insurance premiums 9,409 27,523
------------ ------------
$ 16,289,465 $ 19,834,203
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 14,237,521 13,117,279
Accounts payable and accrued expenses 71,631 93,429
Due to affiliates 3,002 -
Tenants' security deposits payable 58,867 58,867
------------ ------------
Total liabilities 20,871,021 19,769,575
------------ ------------
Commitments and contingencies
Partners' equity (deficit)
Limited partners' equity (deficit)(96,472
units issued and outstanding) (4,535,741) 63,981
General partners' equity (deficit) (45,815) 647
------------ ------------
Total partners' equity (deficit) (4,581,556) 64,628
------------ ------------
$ 16,289,465 $ 19,834,203
============= ============
See notes to financial statements.
1
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<TABLE>
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<CAPTION>
For the three months For the six months
ended ended
--------------------- -----------------------
June 30, June 30,
--------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 624,378 $ 665,070 $1,179,162 $1,260,351
Interest income 25,822 42,269 68,962 80,081
Other income - 467 10,741 2,017
---------- ---------- ----------- -----------
650,200 707,806 1,258,865 1,342,449
---------- ---------- ----------- -----------
Costs and expenses
Mortgage loan interest 564,815 509,113 1,120,241 1,005,738
Operating 129,574 126,209 264,938 236,509
Depreciation and amortization 90,168 89,146 180,338 173,629
Partnership management fees 75,369 75,369 150,738 150,738
Property management fees 18,014 15,078 35,584 32,765
Administrative 30,200 27,316 53,210 43,080
---------- ---------- ----------- -----------
908,140 842,231 1,805,049 1,642,459
---------- ---------- ----------- -----------
Net loss $(257,940) $(134,425) $ (546,184) $ (300,010)
========== ========== =========== ===========
Net loss attributable to
Limited partners $(255,361) $(133,081) $ (540,722) $ (297,010)
General partners (2,579) (1,344) (5,462) (3,000)
---------- ---------- ----------- -----------
$(257,940) $(134,425) $ (546,184) $ (300,010)
========== ========== =========== ===========
Net loss per unit of limited partners
interest (96,472 units outstanding) $ (2.65) $ (1.38) $ (5.60) $ (3.08)
========== ========== =========== ===========
</TABLE>
See notes to financial statements.
2
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HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
(Deficit) (Deficit) (Deficit)
----------- ------------ ------------
Balance, January 1, 1999 $ 647 $ 63,981 $ 64,628
Net loss for the six months ended
June 30, 1999 (5,462) (540,722) (546,184)
Distributions (41,000) (4,059,000) (4,100,000)
----------- ------------ ------------
Balance, June 30, 1999 $ (45,815) $(4,535,741) $(4,581,556)
=========== ============ ============
See notes to financial statements.
3
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HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the six months ended
June 30,
--------------------------
1999 1998
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $ (546,184) $ (300,010)
Adjustments to reconcile net loss to net cash
provided by operating activities
Deferred interest expense 1,120,242 1,005,738
Depreciation and amortization 180,338 173,629
Changes in assets and liabilities
Tenant receivables 22,412 (172,897)
Other assets (8,742) (12, 788)
Prepaid insurance premiums 18,114 20,438
Accounts payable and accrued expenses (21,798) (41,080)
Due to affiliates 3,002 (2,777)
Tenants' security deposits payable - 3,400
------------ -----------
Net cash provided by operating activities 767,384 673,653
------------ -----------
Cash flows from Investing activities
Additions to real estate - (5,784)
------------ -----------
Cash flows from financing activities
Distributions to partners (4,100,000) -
------------ -----------
Net (decrease) increase in cash and cash equivalents (3,332,616) 667,869
Cash and cash equivalents, beginning of period 4,270,688 3,052,039
------------ -----------
Cash and cash equivalents, end of period $ 938,072 $3,719,908
============ ===========
See notes to financial statements.
4
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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, 1998. The results of operations for the six months ended
June 30, 1999 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 5,312 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 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 June 30, 1999, $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 June 30, 1999 and 1998, Pembroke Realty was
entitled to receive $18,014 and $15,078, respectively, of which $15,012 and
$12,565, respectively, was payable to the unaffiliated management company. No
leasing activity compensation was paid to Pembroke Realty for the quarters
ended March 31, 1999 or 1998. Current fees of $3,002 payable to Pembroke
Realty at June 30, 1999 were paid in the subsequent quarter.
5
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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 June 30, 1999 and 1998, 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 losses of $2,579 and $1,344 in the quarters
ended June 30, 1999 and 1998, respectively. They also are entitled to receive
1% of distributions, which amounted to $41,000 and $0 in the quarters ended
June 30, 1999 and 1998, respectively.
3. REAL ESTATE
Real estate, which is the Partnership's sole asset, is summarized as follows:
June 30, December 31,
1999 1998
-------------- --------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,932,876 12,932,876
-------------- --------------
19,600,065 19,600,065
Accumulated depreciation (4,404,460) (4,241,900)
-------------- --------------
$ 15,195,605 $ 15,358,165
============== ==============
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, 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, 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 June 30, 1999 or 1998.
4. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
June 30, December 31,
1999 1998
-------------- --------------
Supervisory Management Fee $ 3,002 $ -0-
============== ==============
6
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5. DISTRIBUTIONS
In May 1999, the Partnership effected a cash distribution of $4,100,000 in
the aggregate, or $42.07 per Unit, to Unitholders of record on May 11, 1999.
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 June 30, 1999, working capital
reserves amounted to approximately $913,000, which may be used to fund
capital expenditures, insurance, real estate taxes and loan payments. All
expenditures made during the quarter ended June 30, 1999 were funded from
cash flow from operations.
At June 30, 1999, the total amount outstanding on the Partnership's mortgage
loan payable to Resources Accrued Mortgage Investors 2 L.P. ("RAM 2") was
$20,737,521, which included deferred interest payable of $14,237,521. The
mortgage did not permit a prepayment before March 1, 1999, and, therefore,
the Partnership was not able to refinance the mortgage before that date. It
is believed that the value of the property is not sufficient to enable the
Partnership to refinance the mortgage at this 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 June 30, 1999, the Measurement Amount was
approximately $12,383,000, which was approximately $1,111,000 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
7
<PAGE>
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. The vacancy at the Levitz space, as well as a vacancy in an
additional, significant space previously occupied by Good Guys, also may have
adversely affected the surrounding tenants and the Partnership's ability to
attract new tenants, particularly in light of the limited visibility those
tenants have 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,
if a substitute tenant is obtained, the Partnership expects to make
substantial expenditures in order to secure the substitute tenant and in
connection with a new lease.
The level of leasing activity cannot be predicted, particularly in light of
the Levitz and Good Guys situations, 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. In May 1999, the
Partnership effected a cash distribution of $4,100,000 in the aggregate, or
$42.07 per Unit, to Unitholders of record on May 11, 1999.
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 and
an additional, significant space previously occupied by Good Guys) has only
limited visibility to the main thoroughfare and the fact that the spaces
occupied by Levitz and Good Guys are 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.
8
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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.
Inflation
Inflation has not had a material impact on the Partnership's operations or
financial condition in recent years and is not expected to have a material
impact in the foreseeable future.
Year 2000
Costs associated with the year 2000 conversion are not expected to have a
material effect on the Partnership.
Results of Operations
Three months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
The Partnership realized a net loss of $257,940 for the three months ended
June 30, 1999 compared to a net loss of $134,425 for the corresponding 1998
period, a change of $123,515. The change was primarily a result of a decrease
in rental income, as well as an increase in mortgage loan interest expense.
Revenues decreased from 1998 to 1999 due to the timing of tenant real estate
tax billings.
Costs and expenses increased from 1998 to 1999 primarily due to an increase
in mortgage loan interest expense.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the zero coupon mortgage.
Six months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
The Partnership realized a net loss of $546,184 for the six months ended June
30, 1999 compared to a net loss of $300,010 for the corresponding 1998
period, a change of $246,174. The change was primarily a result of a decrease
in rental income, as well as an increase in mortgage loan interest expense.
Revenues decreased from 1998 to 1999 due to the loss of Levitz as a tenant,
as well as other decreases in base rentals.
Costs and expenses increased from 1998 to 1999 primarily due to an increase
in mortgage loan interest expense.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the zero coupon mortgage.
Operating expense increased as a result of higher real estate taxes and
utility expenses.
9
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None.
10
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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: August 13, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 938,072
<SECURITIES> 0
<RECEIVABLES> 155,788
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,093,860
<PP&E> 19,600,065
<DEPRECIATION> 4,404,460
<TOTAL-ASSETS> 16,289,465
<CURRENT-LIABILITIES> 133,500
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (4,581,556)
<TOTAL-LIABILITY-AND-EQUITY> 16,289,465
<SALES> 1,179,162
<TOTAL-REVENUES> 1,258,865
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 684,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,120,241
<INCOME-PRETAX> (546,184)
<INCOME-TAX> 0
<INCOME-CONTINUING> (546,184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (546,184)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
