- --------------------------------------------------------------------------------
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 March 31, 1999
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
---- ----
- --------------------------------------------------------------------------------
<PAGE>
HIGH CASH PARTNERS, L.P.
FORM 10-Q - MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1999 and December 31, 1998.............1
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1999 and 1998 ....................................2
STATEMENT OF PARTNERS' EQUITY - For the three months
ended March 31, 1999........................................3
STATEMENTS OF CASH FLOWS - For the three months
ended March 31, 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
March 31, December 31,
1999 1998
------------------ ------------------
ASSETS
Real estate, net $ 15,276,885 $ 15,358,165
Cash and cash equivalents 4,589,407 4,270,688
Tenant receivables, net 65,323 63,653
Other assets 114,026 114,174
Prepaid real estate taxes 63,626 -0-
Prepaid insurance premiums 21,216 27,523
------------------ ------------------
$ 20,130,483 $ 19,834,203
================== ==================
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 13,672,705 13,117,279
Accounts payable and accrued expenses 84,867 93,429
Deferred revenue 35,000 -0-
Due to affiliates 2,661 -0-
Tenants' security deposits payable 58,867 58,867
------------------ ------------------
Total liabilities 20,354,100 19,769,575
------------------ ------------------
Commitments and contingencies
Partners' equity (deficit)
Limited partners' equity (deficit)
(96,472 units issued and outstanding) (221,382) 63,981
General partners' equity (deficit) (2,235) 647
------------------ ------------------
Total partners' equity (deficit) (223,617) 64,628
------------------ ------------------
$ 20,130,483 $ 19,834,203
================== ==================
See notes to financial statements.
1
<PAGE>
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the three months ended
March 31,
-----------------------------------
1999 1998
---------------- ---------------
Revenues
Rental income $ 554,784 $ 595,281
Interest income 43,140 37,812
Other income 10,741 1,550
---------------- ---------------
608,665 634,643
---------------- ---------------
Costs and expenses
Mortgage loan interest 55,426 496,625
Operating 135,359 110,300
Depreciation and amortization 90,169 84,483
Partnership management fees 75,369 75,369
Property management fees 17,570 17,687
Administrative 23,017 15,764
---------------- ---------------
96,910 800,228
---------------- ---------------
Net loss $ (288,245) $ (165,585)
================ ===============
Net loss attributable to
Limited partners $ (285,363) $ (163,929)
General partners (2,882) (1,656)
---------------- ---------------
$ (288,245) $ (165,585)
================ ===============
Net loss per unit of limited partnership
interest (96,472 units outstanding) $ (2.96) $ (1.70)
================ ===============
See notes to financial statements.
2
<PAGE>
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 three
months ended March 31, 1999 (2,882) (285,363) (288,245)
------------- ------------- ------------
Balance, March 31, 1999 $ (2,235) $ (221,382) $ (223,617)
============= ============= ============
See notes to financial statements.
3
<PAGE>
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
---------------------------------
1999 1998
--------------- ---------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating
activities
Net loss $ (288,245) $ (165,585)
Adjustments to reconcile net loss to net
cash provided by operating activities
Deferred interest expense 555,426 496,625
Depreciation and amortization 90,169 84,483
Changes in assets and liabilities
Tenant receivables (1,670) (35,240)
Other assets (8,741) (2,138)
Prepaid real estate taxes (63,626) (60,148)
Prepaid insurance premiums 6,307 7,469
Accounts payable and accrued expenses 8,562) (18,291)
Deferred revenue 35,000 -0-
Due to affiliates 2,661 58
--------------- ---------------
Net cash provided by operating
activities 318,719 307,233
--------------- ---------------
Net increase in cash and cash
equivalents 318,719 307,233
Cash and cash equivalents, beginning
of period 4,270,688 3,052,039
--------------- ---------------
Cash and cash equivalents, end of period $ 4,589,407 $ 3,359,272
=============== ===============
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, 1998. The results of operations for the
three months ended March 31, 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 5,278 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 March 31, 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 March 31, 1999 and
1998, Pembroke Realty was entitled to receive $17,570 and $17,687,
respectively, of which $14,642 and $14,739, 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 $2,661 payable to Pembroke Realty at March 31, 1999 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 March 31, 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 $2,882 and $1,656 in the quarters
ended March 31, 1999 and 1998, 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:
March 31, 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 (4,323,180) (4,241,900)
--------------- ----------------
$ 15,276,885 $ 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 March 31, 1999 or
1998.
4. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
March 31, December 31,
1999 1998
--------------- ----------------
Supervisory Management Fee $ 2,661 $ -0-
=============== ================
6
<PAGE>
5. SUBSEQUENT EVENT
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. As a consequence, immediately after the distribution, the Partnership
had approximately $500,000 in cash and cash equivalents.
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 March 31, 1999,
working capital reserves amounted to approximately $4,500,000, which may be
used to fund capital expenditures, insurance, real estate taxes and loan
payments. All expenditures made during the quarter ended March 31, 1999
were funded from cash flow from operations.
At March 31, 1999, the total amount outstanding on the Partnership's
mortgage loan payable to Resources Accrued Mortgage Investors 2 L.P. ("RAM
2") was $20,172,705, which included deferred interest payable of
$13,672,705. 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. 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 March 31, 1999, the Measurement
Amount was approximately $12,192,000, which was approximately $1,302,000
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 also may have adversely affected the surrounding
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 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.
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. As a consequence, immediately after the distribution, the Partnership
had approximately $500,000 in cash and cash equivalents.
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.
8
<PAGE>
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 March 31, 1999 compared to three months ended March 31,
1998
The Partnership realized a net loss of $288,245 for the three months ended
March 31, 1999 compared to a net loss of $165,585 for the corresponding
1998 period, a change of $122,660. The change was primarily a result of a
decrease in rental income caused by Levitz ceasing to pay rent as of April
2, 1998, as well as an increase in mortgage loan interest expense.
Revenues decreased from 1998 to 1999 due to the loss of Levitz, which was
partially offset by an increase in real estate tax reimbursements.
Costs and expenses increased from 1998 to 1999 primarily due to increases
in mortgage loan interest expense and operating expenses.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the zero coupon mortgage. Operating
expenses increased as a result of higher repairs and maintenance costs.
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: May 17, 1999 By: /s/ Lawrence J. Cohen
-----------------------------------
Lawrence J. Cohen
President and Principal
Financial and Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,589,407
<SECURITIES> 0
<RECEIVABLES> 264,191
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,853,598
<PP&E> 19,600,065
<DEPRECIATION> 4,323,180
<TOTAL-ASSETS> 20,130,483
<CURRENT-LIABILITIES> 181,395
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (223,617)
<TOTAL-LIABILITY-AND-EQUITY> 20,130,483
<SALES> 554,784
<TOTAL-REVENUES> 608,665
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 341,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 555,426
<INCOME-PRETAX> (288,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (288,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288,245)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
