SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-----------
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- -------
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1996
--------------
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: 33-11863
--------
HARBOR AMERICAN HEALTH CARE TRUST, INC.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
MARYLAND 86-0576027
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2990 N. SWAN ROAD, STE. 228, TUCSON, ARIZONA 85712
---------------------------------------------------
(Address of principal executive offices)
ISSUER'S TELEPHONE NUMBER: (520) 326-2000
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
------- -------
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON
STOCK AS OF MARCH 31, 1996 IS 397,600.
-------------- -------
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: YES NO X
----- -----
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
----------- ---------
ASSETS:
- -------
<S> <C> <C>
Real Estate Properties:
Land $ 466,301 $ 466,301
Building and improvements, net
of accumulated depreciation
of $3,884,942 and $3,847,408
at March 31, 1996 and
December 31, 1995, respectively 4,472,159 4,509,693
Loan costs, net 4,102 5,860
Prepaid expenses 11,502 16,432
Rent and other receivables 66,820 77,796
Cash and Cash equivalents 165,465 198,061
---------- ----------
TOTAL ASSETS $5,186,349 $5,274,143
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
Mortgage notes payable $5,034,968 $5,068,685
Accounts payable and accrued
expenses 156,629 191,238
---------- ----------
TOTAL LIABILITIES 5,191,597 5,259,923
========== ==========
Stockholders' Equity:
Common stock, $.01 par value,
10,000,000 shares authorized;
issued and outstanding,
397,600 shares 3,976 3,976
Paid in capital 3,652,823 3,652,823
Distributions in excess of net
earnings (3,662,047) (3,642,579)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (5,248) 14,220
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,186,349 $5,274,143
========== ==========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENTS OF EARNINGS AND DISTRIBUTIONS
IN EXCESS OF NET EARNINGS
For the Three Months Ended March 31, 1996 and March 31, 1995
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
REVENUES:
- ---------
<S> <C> <C>
Rental income $ 177,555 $ 221,207
Miscellaneous income 1,000
Interest income 2,487 3,691
---------- ----------
181,042 224,898
---------- ----------
EXPENSES:
- ---------
Depreciation and amortization 39,292 48,602
Interest expense 115,337 127,269
Advisory and other fees 9,870 7,770
Directors fees and expenses 7,300 12,304
Other operating expenses 28,711 36,402
---------- ----------
Total expenses 200,510 232,347
---------- ----------
INCOME/(LOSS) BEFORE EXTRAORDINARY
ITEM (19,468) (7,449)
EXTRAORDINARY ITEM - gain on
extinguishment of debt ---------- ----------
NET INCOME (LOSS) ($19,468) ($7,449)
========== ==========
NET INCOME (LOSS) PER SHARE ($0.05) ($0.02)
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 397,600 397,600
========== ==========
Distributions in excess of
earnings - beginning of period ($3,642,579) ($3,825,600)
Net income/(loss) (19,468) (7,449)
Distributions during the period ---------- ----------
Distributions in excess of
earnings - end of period ($3,662,047) ($3,833,049)
=========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATIONS:
- ---------------------------
<S> <C> <C>
Net income/(loss) ($19,468) ($7,449)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 39,292 48,602
Changes in assets and liabilities:
Contract, rents and other
receivables 10,976 31,857
Prepaid expenses 4,930
Accounts payable and accrued
expenses (34,609) (45,778)
---------- ----------
Net cash provided by (used in)
operating activities 1,121 27,232
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Increase in loan costs (5,500)
---------- ----------
Net cash provided by (used in)
investing activities 0 (5,500)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Payments on long-term borrowings (33,717) (50,862)
---------- ----------
Net cash provided by (used in)
financing activities (33,717) (50,862)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (32,596) (29,130)
CASH AND CASH EQUIVALENTS -
Beginning of year 198,061 106,979
---------- ----------
CASH AND CASH EQUIVALENTS -
End of year $165,465 $77,849
========== ==========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
Notes to Financial Statements
For the Three Months Ended March 31, 1996
and the Year Ended December 31, 1995
NOTE 1: ORGANIZATION
- ----------------------
Harbor American Health Care Trust, Inc. (the "Trust") is a Real
Estate Investment Trust ("REIT"). The affairs of the Trust are
managed by its Advisor, Harbor American Capital Group, a
California Limited Partnership (the "Advisor"). The Trust
engages in acquiring and leasing health care facilities (nursing
homes and intermediate care mental retardation developmental
disabled nursing facilities) under long-term leases.
The Trust's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. The Trust has three properties, one in Florida and
two in Colorado. The Florida Property and one Colorado Property
are leased. Therefore, the cash flow available to pay operating
expenses is limited.
Management's plans include continuing to seek sources to
refinance the loan on the Florida Property and/or to sell the
Florida Property, developing alternative uses to retain the
economic viability of the Colorado Properties, and minimizing
operating costs. On the sale of the Florida Property, the State
of Florida will require refunding, from available net sale
proceeds, amounts paid under Medicare and Medicaid to the extent
of depreciation recapture approximating $565,000.
The financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts or the amount of
liabilities that might be necessary should the Trust be unable to
continue as a going concern.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
a. BUILDINGS AND IMPROVEMENTS - Depreciation of these assets
--------------------------
is computed by the straight-line method over the useful
lives of the assets which have been estimated to be 20 to 40
years. The Trust periodically evaluates the net realizable
value of its properties and provides a valuation allowance
when it becomes probable there has been a permanent
impairment of value.
b. LOAN COSTS - Loan costs have been deferred and are being
----------
amortized using the straight-line method over the term of
the related borrowing.
c. REVENUE RECOGNITION - Rental income from operating leases
-------------------
is recognized as earned over the life of the lease
agreements.
d. INCOME TAXES - The Trust qualifies as a REIT under the
------------
provisions of the Internal Revenue Code. As such, the Trust
is not subject to federal income taxes on amounts
distributed to stockholders provided distributions to
stockholders are at least 95% of the Trust's real estate
investment trust taxable income and the Trust meets certain
other conditions.
e. USE OF ESTIMATES - Management has made certain estimates
----------------
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from
those estimates.
5
<PAGE>
NOTE 3: REAL ESTATE PROPERTIES AND LEASES
- -------------------------------------------
At March 31, 1996 and December 31, 1995 the Trust owned three
nursing homes (the "Properties"), two of which are located in
Colorado (the "Colorado Properties"), and one in Florida (the
"Florida Property").
THE MICHIGAN PROPERTY
On March 9, 1994, the Trust sold the Marshall Manor property.
The sale resulted in a loss of $150,280.
Included in the caption "Rent and other receivables" is the
discounted contract balance of $70,314 at March 31, 1996 and
$81,290 at December 31, 1995 resulting from the sale of the
Marshall Manor facility. The contract, requiring quarterly
payments of $12,500, has been discounted using an implicit
interest rate of 7.5% and results in principal maturities of
$45,153 and $36,137 in 1996 and 1997, respectively. The contract
is subordinated to other debt secured by the Marshall Manor
property.
THE COLORADO PROPERTIES
Effective October 1, 1992, the Trust entered into three year
operating leases on the two Colorado Properties (the Country View
and New Life facilities) with Res-Care, Inc. ("Res-Care"). The
lessee had the option to renew the leases for three, one-year
terms. Res-Care did not elect to renew the lease for the Country
View facility. Therefore, that lease expired on September 30,
1995. Rather than exercising the first of three one-year options
to extend the lease term for the New Life facility, Res-Care
negotiated with the Trust for an additional thirty-month term
expiring March 31, 1998.
The lease provides for a basic rent equal to 115% of the annual
fair rental allowance as determined by the State of Colorado, to
be adjusted by the percentage decrease or increase in the "client
base" at the facility, resulting in an "adjusted monthly rent."
Beginning October 1, 1995, the base monthly rent for the New Life
facility approximates $12,439 per month. The base monthly rent
will be adjusted annually upon the issuance of a new annual fair
rental allowance by the State of Colorado.
The State of Colorado is interpreting certain federal guidelines
pertaining to active treatment of mentally retarded,
developmentally disabled ("MRDD") patients, such as those
receiving care at the Colorado Properties. The State's
interpretation of said guidelines is requiring these patients to
be moved into private housing which has resulted in all patients
being moved out of the Country View facility. It is Res-Care's
intent to likewise move the New Life patients into private
housing by March 31, 1998. The client base for the purposes of
determining rental payments includes patients who have been moved
into private housing.
Previously, it was management's belief that the Colorado
Properties would have to be used for purposes other than the
present MRDD use after the expiration of the initial three year
lease terms. Accordingly, the carrying value of the Colorado
Properties was reduced to the undiscounted cash flows expected to
be realized from the properties by a charge to operations in 1992
of $1,721,000 ($4.33 per share) and an additional $770,000 in
1993 ($1.94 per share).
6
<PAGE>
THE FLORIDA PROPERTY
Effective May 1, 1993, the Trust entered into a five year lease
with a Successor Lessee. The Successor Lessee has the option to
renew for five year terms. The lease provides for monthly
rentals consisting of an equity component of $7,000 and a debt
component equal to the amount of the Trust's mortgage payment.
Commencing January 1, 1995, additional rents may be carried,
equal to 5% of the incremental net patient revenue increase over
the 1994 base year. No additional rent has been earned or paid
to date.
Minimum annual lease payments expected to be received by the
Trust on all leased properties during the lease terms are as
follows:
<TABLE>
YEAR ENDED DECEMBER 31, FLORIDA COLORADO
PROPERTY PROPERTIES TOTAL
-------- ---------- -----
<S> <C> <C> <C>
1996 $ 547,915 $149,275 $ 697,190
1997 547,915 149,275 697,190
1998 182,600 37,319 219,929
---------- -------- ----------
Total $1,278,430 $335,869 $1,614,299
========== ======== ==========
</TABLE>
The Colorado Properties' rentals are based on the adjusted
monthly rent at the inception of the Lease. The Florida Property
rental includes a debt component equal to the debt service on the
Trust's existing mortgage loan.
The Trust is contingently liable for unpaid property taxes which
are the contracted obligation of the lessees. Unpaid property
taxes approximated $68,000 at March 31, 1996.
NOTE 4: MORTGAGE NOTES PAYABLE
- --------------------------------
<TABLE>
3/31/96 12/31/95
------- --------
<S> <C> <C>
Bank mortgage note - Florida
Property, payable in monthly
installments of $38,660, including
interest at 10.25%, through
October 1996, at which date the
unpaid balance is due $3,365,470 $3,394,708
Bank mortgage note - Colorado
Properties, interest at 8.50%;
payable in monthly installments
of $18,111, including interest,
through February 28, 1996, at
which date the unpaid balance is
due in full. Management is
currently negotiating an extension
of the loan 1,669,498 1,673,977
---------- ----------
Total mortgage notes payable $5,034,968 $5,068,685
========== ==========
</TABLE>
7
<PAGE>
The bank mortgage notes on the Colorado and Florida Properties
are secured by first mortgages and assignments of the leases and
rents thereunder. The bank mortgage note on the Colorado
Properties is also secured, to the extent of $800,000, by a
second mortgage on the Florida Property. The bank mortgage note
on the Florida Property is due and payable on October 31, 1996
and the bank mortgage note on the Colorado Properties is due and
payable on February 28, 1996.
In the event the bank elects not to extend the terms of the loans
beyond their due dates and exercises its right to call the loan,
the Trust would seek alternative sources of financing or
liquidate the properties to satisfy the debt. There is no
assurance that the Trust, if required to liquidate the property,
would be able to realize the carrying value of the property. No
provision for loss, if any, that may result upon the resolution
of the status of the mortgage loans has been made in the
accompanying financial statements.
NOTE 5: RELATED PARTY TRANSACTIONS
- ------------------------------------
The Trust has entered into agreements with the Advisor, and
affiliates of the Advisor, to provide various services to the
Trust in exchange for fees, as follows:
a. Advisory fees at an annual rate of .3% of average invested
assets, as defined; additional fees may be paid based on
earnings.
b. Property management, acquisition and disposition fees to be
paid based upon contractual agreements between the parties.
c. Incentive advisory service fees, payable annually in an
amount equal to 5% of the cash available for distribution to
stockholders for the fiscal year. The Advisor has agreed to
subordinate its incentive advisory fee to a cumulative
noncompounding return to the stockholders of 12% on average
adjusted invested capital beginning November 3, 1990, one
year after the termination of the initial public offering.
The Trust has paid no incentive advisory fees to date.
d. Mortgage servicing fees, at varying rates dependent upon the
types of loans serviced. The Trust has paid no mortgage
servicing fees to date. In June 1995, the Trust paid an
affiliate of the Advisor $8,817 as a fee for services
rendered in connection with the extension of the Bayshore
loan.
Leasing transactions with related parties are described in Notes
3 and 4.
In 1993, the Successor Lessee of the Florida Property made a
$47,921 payment of interest which had been accrued on the related
mortgage loan. This amount is being amortized over the term of
the lease. The unamortized portion ($18,362 at March 31, 1996
and $22,357 at December 31, 1995) has been included in the
balance sheet in the caption "Accounts payable and accrued
expenses."
NOTE 6: CASH RESERVES AND DISTRIBUTIONS TO STOCKHOLDERS
- ---------------------------------------------------------
Under the terms of the public offering, at least 5% of paid-in
capital is required to be set aside to pay for normal repairs,
replacements, working capital and contingencies. At March 31,
1996, the Trust has not met this requirement.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
-----------------------------------------------
OPERATION
---------
(a) Not Applicable
--------------
(b) Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
- -----------------------------------
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1996
----------------------------------------------------
Operations for the fiscal quarter ended March 31, 1996
reflect rental income and interest income. The rental income is
a result of the lease of the three long term care facilities
owned by the Trust. Two of these facilities are leased on long
term leases and one of the leases is leased to an affiliate of
the Advisor, Harbor American Capital Group, a California Limited
Partnership. Such affiliation results from common ownership by
James R. Sellers of Heritage Advisory Corporation, (the Managing
General Partner of the Advisor) and the lessee of the Florida
Property. This lessee is Bayshore Healthcare Services, Inc.
("BHS"). Two of the nursing homes are located in Colorado (the
"Colorado Properties"), and one is located in Florida (the
"Florida Property").
The Colorado Properties are New Life Care Center ("New
Life") and Country View Care Center in Longmont, Colorado
("Country View"). New Life is leased to Res-Care, Inc. of
Louisville, Kentucky ("Res-Care"). Res-Care has kept its lease
payments current since inception of the leases (the "Colorado
Leases") on October 1, 1992. The mortgage payments on the
Colorado Properties are current.
Effective October 1, 1992, the Trust entered into three year
operating leases on the two Colorado Properties (the Country View
and New Life facilities) with Res-Care. The lessee had the
option to renew the leases for three, one-year terms. Res-Care
did not elect to renew the lease for the Country View facility.
Therefore, that lease expired on September 30, 1995. Rather than
exercising the first of three one-year options to extend the
lease term for the New Life facility, Res-Care negotiated with
the Trust for an additional thirty-month term expiring March 31,
1998.
The Trust has been seeking alternate uses for the Country
View Property but has not yet finalized any arrangement. If it
is unable to do so, the value of the property could be impaired.
The Trust has reached agreement, but not yet finalized
documentation, with PNC Bank, Kentucky, Inc. ("PNC"), its lender
on the Colorado Properties. Under the agreement, the loan will
be extended to October 20, 1996 and monthly payments of interest
only at the rate of 8.25% per annum will be made on the 20th of
each month. The monthly lease payment from New Life to the Trust
is approximately equivalent to the modified extended monthly
mortgage payment due from the Trust to PNC. Finalizing of the
documentation reflecting this extension is imminent. This loan
has been previously extended with PNC three other times.
The Florida Property is leased to BHS and all lease payments
are current. The Trust is obligated to PNC Bank under a first
mortgage loan on the Florida Property which is current in its
mortgage payments through April 20, 1996. Effective March 24,
1996, the Trust entered into a modification of the Bayshore loan
with PNC Bank that provided for extension of said loan to October
31, 1996. By said date the Trust intends to either secure other
financing or sell the property.
For the three months ending March 31, 1996, rental income in
the amount of $177,555 was received as compared with the period
ending March 31, 1995, for which $221,207 was received, a
decrease of 20%. This decrease was due to the loss of income
resulting from the termination of the Res-Care lease of the
Country View property. Interest income results from the Trust's
funds being temporarily invested in such short term investments
as savings accounts and certificates of deposits issued by the
Trust's banks, PNC and BankOne Arizona of Tucson, Arizona, and in
investments in Treasury bills purchased directly from the Federal
Reserve. Such income was $3,691 in the comparable quarter in
1995 but decreased to $2,487 in the current quarter due to lower
interest rates.
Gross revenues of $181,042 for the quarter ended March 31,
1996 in comparison with $224,898 for the quarter ended March 31,
1995 were primarily derived from the net lease rentals received
from the Properties. A net loss of $19,468 for the quarter ended
March 31, 1996 compares with a net loss of $7,449 for the quarter
ended March 31, 1995. This increase in net loss from first
quarter 1995 to first quarter 1996 was due to the loss of income
resulting from the termination of the Res-Care lease of the
Country View property.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash flows from operations were $1,121 in the first quarter
of 1996 compared with $27,232 in the first quarter of 1995. The
quarterly decrease is attributed to the reduction in income due
to the lease termination at Country View by Res-Care and the
ensuing and continuing vacancy.
PART II OTHER INFORMATION
ITEMS 1, 2, 3, 4, 5 AND 6. NOT APPLICABLE
--------------
<PAGE>
SIGNATURE
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.
Date: May 7, 1996
HARBOR AMERICAN HEALTH CARE TRUST, INC.
BY: /s/ F. Dale Markham
--------------------------------
F. Dale Markham
President and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000810836
<NAME> HARBOR AMERICAN HEALTH CARE TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 165,465
<SECURITIES> 0
<RECEIVABLES> 66,820
<ALLOWANCES> 0
<INVENTORY> 4,102
<CURRENT-ASSETS> 0
<PP&E> 4,938,460
<DEPRECIATION> 3,884,942
<TOTAL-ASSETS> 5,186,349
<CURRENT-LIABILITIES> 156,629
<BONDS> 5,034,968
0
3,976
<COMMON> (3,662,047)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,186,349
<SALES> 0
<TOTAL-REVENUES> 181,042
<CGS> 0
<TOTAL-COSTS> 200,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,337
<INCOME-PRETAX> (19,468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,468)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
