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, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-17695
HealthCare Properties, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 62-1317327
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification Number)
14160 Dallas Parkway, Ste 300 Dallas, Texas 75240
- -------------------------------------------------------------------------------
(Address of principal executive office)
(214) 770-5600
(Registrant's telephone number, including area code)
Indicate by check mark 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 at least the past 90 days. YES x NO
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
BALANCE SHEETS
March 31, 1996 December 31, 1995
-------------- -----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 8,028,629 $ 7,606,857
Accounts receivable, less allowance
for doubtful accounts of $3,660,352
and $3,489,937 169,794 210,409
Prepaid Expenses and other 117,970 129,714
Deferred charges, less accumulated
amortization of $762,674 and
$734,146 585,524 614,051
Property and improvements, net 24,879,463 25,251,255
---------- ----------
Total assets $ 33,781,380 $ 33,812,286
= ========== = ==========
LIABILITIES AND PARTNERSHIP EQUITY
Accounts payable and accrued
expenses $ 1,585,677 $ 1,526,209
Operating facility accounts payable 75,944 83,194
Mortgage loans payable-in-default 2,068,539 2,068,539
Mortgage loans payable 7,584,874 7,707,062
--------- ---------
Total liabilities 11,315,034 11,385,004
Partnership equity - 4,172,457 and
4,172,457 Partnership units
outstanding 22,466,346 22,427,282
---------- ----------
Total liabilities and equity $ 33,781,380 $ 33,812,286
= ========== = ==========
See notes to financial statements.
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Three months ended Three months ended
March 31, 1996 March 31, 1995
---------------- ---------------
Revenues:
<S> <C> <C>
Rental $ 1,219,335 $ 1,327,610
Net patient services 578,512 1,036,765
------- ---------
1,797,847 2,364,375
--------- ---------
Expenses:
Facility operating expenses 548,166 969,823
Depreciation 378,980 475,194
Lease default expenses 40,071 62,243
Administrative and other 415,480 365,468
Bad debts 170,415 168,415
------- -------
1,553,112 2,041,143
--------- ---------
Income from operations 244,735 323,232
------- -------
Other Income (expenses):
Interest income 56,187 35,224
Interest expenses (233,331) (411,995)
Amortization (28,527) (48,181)
-------- --------
(205,671) (424,952)
--------- ---------
Net Income (Loss) $ 39,064 $ (101,720)
= ====== = =========
NET EARNINGS (LOSS) PER UNIT $ .01 $ (.02)
= === = =====
WEIGHTED AVERAGE
NUMBER OF UNITS 4,172,457 4,172,457
========= =========
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF PARTNERSHIP EQUITY (DEFICIT)
Limited General
Partners Partners Total
Allocation of Net Earnings
<S> <C> <C> <C>
(Loss) 98% 2% 100%
=== == ====
EQUITY (DEFICIT) at
December 31, 1994 $ 21,489,281 $ (312,332) $ 21,176,949
Net Income 960,336 289,997 1,250,333
------- ------- ---------
EQUITY (DEFICIT) at
December 31, 1995 22,449,617 (22,335) 22,427,282
Net Income 38,283 781 39,064
------ --- ------
EQUITY (DEFICIT) at
March 31, 1996 $ 22,487,900 $ (21,554) $ 22,466,346
= ========== = ======== = ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
Three months ended Three months ended
March 31, 1996 March 31, 1995
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ 39,064 $ (101,720)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Bad debts 170,415 168,415
Depreciation and amortization 407,507 523,375
Changes in assets and liabilities:
Accounts receivable (129,800) (362,924)
Prepaid expenses 11,744 39,429
Accounts payable &
accrued expenses 52,218 (99,761)
------ --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 551,148 166,814
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and improvement (7,188) (213)
------- -----
NET CASH USED IN
INVESTING ACTIVITIES (7,188) (213)
------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable (122,188) (114,752)
--------- ---------
NET CASH USED
FINANCING ACTIVITIES (122,188) (114,752)
--------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 421,772 51,849
CASH AND CASH EQUIVALENTS
Beginning of Period 7,606,857 5,606,274
--------- ---------
CASH AND CASH EQUIVALENTS
End of Period $ 8,028,629 $ 5,658,123
= ========= = =========
See notes to financial statements.
</TABLE>
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Three months ended March 31, 1996
(Unaudited)
A. ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary have been included. Operating
results are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. The financial statements should be read in
conjunction with the consolidated financial statements and the footnotes thereto
included in Registrant's annual report on Form 10-K for the year ended December
31, 1995.
B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER Effective July 1, 1993, Capital Realty Group Senior Housing, Inc.
("CRGSH") replaced Jacques-Miller, Inc. and Jacques and Associates, L.P. as the
sole General Partner of HealthCare Properties, L.P. (the "Registrant").
Personnel working at the Property sites and certain home office personnel who
perform services for the Registrant are employees as of February 1, 1995 of
Capital Senior Living, Inc. (CSL), an affiliate of CRGSH and prior to February
1, 1995 were employees of CRGSH. The Registrant reimburses CRGSH or CSL for the
salaries, related benefits, and overhead reimbursements of such personnel as
reflected in the accompanying financial statements. Reimbursements and fees paid
to the general partner and affiliates of the general partner are as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1996 March 31, 1995
---------------- ---------------
<S> <C> <C>
Salary and benefit reimbursements $ 399,433 $ 689,839
Administrative reimbursements 90,223 70,717
Asset management fees 180,000 173,898
Property management fees 40,525 72,439
General partner management fees 11,097 21,878
------ ------
$ 721,278 $ 1,028,771
</TABLE>
C. VALUATION OF RENTAL PROPERTY
The Registrant was originally formed to own health care properties and
to net lease these properties to lessee/operators. However, during 1991 and the
first half of 1992, the Registrant experienced defaults by the lessee/operators
under eight of its property leases. The result of these numerous defaults is
that many of the Registrant's leases have been restructured or terminated as a
result of defaults. Specifically, Cambridge, with a carrying value of
$1,744,289, is in default on its lease payments and its property taxes and is
being operated in the bankruptcy proceeding of the lessee. The Foothills
property, with a carrying value of $2,122,179, was deeded to the lender in lieu
of foreclosure on July 19, 1995. Diablo/Tamarack, with a carrying value of
$2,071,332, was deeded to the lender in lieu of foreclosure on August 1, 1995.
Countryside, with a carrying value of $1,750,961, was in default with its
lender, and was sold on May 1, 1996 and the lender was paid off in an agreed
upon settlement.
As a result of the market conditions in the real estate industry and
the historically unsatisfactory operating performance of certain of the rental
properties, the carrying values of the Foothills, Countryside, and
Diablo/Tamarack properties were written down $3,458,384 to the related
non-recourse debt value on these properties at December 31, 1993. At December
31, 1994, the Partnership concluded that the carrying value exceeded estimated
fair value on the Cambridge facility. As a result, the carrying value of the
Cambridge facility was written down $2,185,381 to an estimated fair market
value.
The balance sheet of the Registrant as of March 31, 1996, shows total
assets of $33,781,380, total liabilities of $11,315,034, and Registrant equity
of $22,466,346.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Registrant commenced an offering to the public on August 31, 1987, of
depository units representing beneficial assignments of limited partnership
interests ("Units"). On October 14, 1987, Registrant commenced operations,
having previously accepted subscriptions for more than the specified minimum of
120,000 Units. As of August 30, 1989, the offering was closed except for Units
for sale to existing investors under the terms of a distribution reinvestment
plan. As of March 31, 1996, Registrant had sold Units aggregating approximately
$ 43.4 million. Due to the suspension of the distribution reinvestment plan,
Registrant does not anticipate any additional inflow of investment.
Originally, the Registrant had purchased eight nursing homes and four
rehabilitation centers for a combined price of approximately $ 51.0 million. At
that time, Registrant's capital resources consisted of ownership interests in
these facilities subject to mortgage debt in the aggregate amount of
approximately $16.9 million which mortgage debt was secured by eight of its
properties in amounts equal to 40% - 60% of Registrant's purchase price of the
respective property. Most of these loans were non-recourse to Registrant.
As of March 31, 1996, Registrant owns five nursing homes and four
rehabilitation centers. Five of these properties have mortgage debt.
As of March 31, 1996, Registrant had cash and cash equivalents aggregating
approximately $8,029,000. The cash and cash equivalents will be used for working
capital, negative cash flow, balloon notes due by 1996, emergency reserves, and
other restructuring requirements.
Potential additional sources of liquidity for Registrant include
collection of outstanding receivables and/or revenue participation related to
various leased facilities, collection on defaulted rent and/or damage
settlements related to leases in default, new mortgage financing on one or more
of Registrant's unencumbered assets, and a potential sale of one or more of the
Registrant's assets.
Registrant's general policy is to maintain sufficient cash and cash
equivalents to address disruptions of its lease revenues and to have adequate
additional funds for investment in existing assets for improvements. To the
extent that Registrant deems it necessary to take over the operations of any of
its facilities currently under long term net lease, such action would require
additional investment in working capital for operating reserves, capital
expenditures and related debt payments. As a consequence of prior defaults,
Registrant suspended cash distributions on July 1, 1991, pending successful
resolution of the various problems within its portfolio. Due to the uncertainty
of the timing and conditions under which the Liquidity Reserve (which was
suspended in March of 1991) might be reactivated, on August 15, 1991, Registrant
ceased accepting additional liquidation requests. As required by the Partnership
Agreement for Limited Partners to be paid their portion for federal income
taxes, a $250,000 cash distribution was made in June 1993. Future cash
distributions will be dependent upon improved operational income and successful
refinancing on certain Registrant mortgages. The Units are not publicly traded
and as a result the liquidity of each Limited Partner's individual investment is
limited.
Discussion of Three Months Ending March 31, 1996
Rental revenues for the three months ended March 31, 1996, decreased
$108,275 from the comparable three months ended March 31, 1995, due to the sale
of Heritage Manor on July 5, 1995 and the termination of its corresponding
rental revenues. Net patient services for the three months ended March 31, 1996,
decreased $458,253 from the three months ended March 31, 1995, due to the loss
of operations on the Diablo/Tamarack facility on August 1, 1995. Interest income
for the three months ended March 31, 1996 increased $20,963 from the three
months ended March 31, 1995 primarily due to rising interest rates and
increasing cash available for investment.
Facility operating expenses for the three months ended March 31, 1996,
decreased by $421,657 from the comparable 1995 period primarily due to the loss
of operations of the Diablo/Tamarack facility. Depreciation for the three months
ended March 31, 1996, decreased $96,214 from the comparable 1995 period and is
primarily due to the loss of the Diablo/Tamarack and Heritage Manor facilities.
Lease default expense decreased $22,172 for the three months ended March 31,
1996 from the comparable 1995 period due to decreasing legal fees incurred on
the resolution of defaulted leases. Administrative expenses, including fees to
the General Partner, increased $50,012 for the first quarter ended 1996 in
comparison to the first quarter ended 1995 and is primarily due to increased
overhead allocations and professional fees. Bad debt expense for the three
months ended March 31, 1996 increased $2,000 from the comparable 1995 period.
Interest expense and amortization for the three months ended March 31, 1996
decreased by $178,664 and $19,654, respectively, from the comparable 1995
period, and is primarily due to the loss of the Diablo/Tamarack and Heritage
Manor facilities.
Cash and cash equivalents as of March 31, 1996 increased $421,772 over
the balance at December 31, 1995. Increased cash for the three months ending
March 31, 1996 in comparison to 1995 is primarily due to improved operating cash
flow from discontinued operations of the Diablo/Tamarack facility and decreased
interest expense. Net accounts receivable of $169,794 at March 1996 reflected a
decrease of $40,615 over 1995 year-end balances. The decreased accounts
receivable balance at March 31, 1996 is primarily due to account receivable
collections at the Countryside facility.
Accounts payable, accrued expenses, and facility accounts payable balances
increased $52,218 at March 31, 1996, from December 31, 1995 and is primarily due
to accrued interest.
The following is a brief discussion of the status of Registrant's
properties:
Cedarbrook, Cane Creek, Crenshaw Creek and Sandy Brook facilities. Rebound,
Inc. ("Rebound") leased the Cedarbrook, Cane Creek, Crenshaw Creek and Sandy
Brook properties pursuant to a master lease with the Registrant.
- ------------------------------------------------------------------
Effective November 30, 1992, the Registrant and Rebound
reached an amended master lease agreement whereby Rebound agreed to resume
increased rental payments to the Registrant, the terms of the lease were
extended from five to nine years, Registrant gained a 10% ownership position in
Rebound and substantial penalty provisions were placed on Rebound in the event
of default. Additionally, Registrant forgave notes receivable from Rebound and
received a promissory note for $1,900,000 payable over three years that was
convertible on certain default conditions at the option of the Registrant to
additional shares of Rebound. During the second quarter ended June 30, 1993,
Relife, Inc. acquired Rebound resulting in payment of the $1,900,000 promissory
note to the Registrant and sale of Rebound stock for $939,025 in cash. The
master lease negotiated with Rebound will continue uninterrupted, but will be
guaranteed by Relife, Inc. Due to low occupancy of the Sandybrook facility, it
was temporarily closed in 1994 and at this time Registrant cannot determine when
it might reopen. During 1994, Relife, Inc. was acquired by HealthSouth
Rehabilitation Corporation. Rental payments in March and April 1995 were
discontinued by the new ownership causing an interruption in the master lease.
Registrant met with the new ownership and those payments were subsequently made
in the second quarter of 1995. Subsequent to that time period, all payments have
been made on a timely basis.
Two recourse loans, Cedarbrook and Cane Creek, were due in
January 1996 in the aggregate amount of approximately $2,400,000. The
Cedarbrook note was extended through March 31, 1996. Registrant is currently
negotiating with the lender to further extend the Cedarbrook loan.
The lender of the Cane Creek note agreed to extend the loan to
December 1, 2001, pending completion of final paperwork.
Foothills facility. The mortgage loan on Foothills was in
default from April 1992 onward. During December 1994, the Registrant was ordered
to turn over management of the Foothills facility to a court appointed receiver.
On July 19, 1995, the Registrant transferred the property to the lender,
pursuant to a deed in lieu of foreclosure. The documents for this transfer
include a release of all potential liability to the Registrant.
Countryside facility. The mortgage loan on Countryside was
also in default from April 1992 onward. On May 1, 1996, Registrant sold the
Countryside facility to a third party buyer for $2,200,000. With the sale
proceeds, Registrant paid off the lender on Countryside an amount agreed to by
the lender in full settlement of all obligations to the lender. Registrant
netted $26,000 as a result of this agreed upon sale. Registrant also obtained a
full release of all potential liability from the lender.
Diablo/Tamarack facility. The mortgage loan on the
Diablo/Tamarack facility was also in default from April 1992 onward. In November
1994, the lender attempted to appoint a receiver. The Registrant successfully
opposed the Motion and negotiated for a transition of this property which will
not involve ongoing liability to the Registrant. On July 31, 1995, the facility
was deeded to the lender in lieu of foreclosure and a release of all potential
liability to Registrant was obtained.
Cambridge facility The lessee of the Cambridge facility,
Nursing Centers of America-Cambridge ("NCAC"), filed a voluntary petition under
Chapter 11 of the Federal Bankruptcy Code in February of 1992. Registrant
commenced litigation against NCAC seeking full payment of future
------------------
rentals under the lease or the removal of NCAC from the direct operational
control of the facility.
Based on certain interpretations of state regulations, the
Registrant could have become liable for approximately $1,400,000 in connection
with the recovery of prior Medicaid overpayments. Additionally, property taxes
were owed to the City of Cambridge. On May 24, 1993, Registrant reached an
agreement with the bankrupt operator of the Cambridge facility to repossess that
facility pending emergence from Bankruptcy Court. It will be the responsibility
of Registrant to file a bankruptcy plan to take this property out of the
jurisdiction of the bankruptcy Court. In December 1995, Registrant reached a
settlement with the State of Massachusetts and the City of Cambridge with regard
to the outstanding issues facing the Cambridge facility. This settlement was
approved by the United States Bankruptcy Court in Florida in the fourth quarter
of 1995. At this time, the Registrant is preparing documentation to bring the
facility out of bankruptcy.
Heritage Manor facility. The Heritage Manor facility was sold in May
1995 for $3,075,000 and the Partnership netted $1,458,287 after payment of fees
and mortgage balance.
------------------------
Trinity Hills, McCurdy. and Hearthstone facilities The
Registrant's other facility lessees are all current in their lease obligations
to the Registrant. In addition, the Registrant believes it likely that two of
these lessees will pay additional rental amounts to the Registrant during future
years based upon increased revenues at those facilities. However, there can be
no assurance of such increased revenue. Two of these facilities appear to be
generating cash flow sufficient to fund their lease obligations, but Trinity
Hills is, at this time, not generating sufficient cash flow to fund its lease
obligations from property operations. However, the lessee continues to fund the
deficit lease cash flow.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Registrant is engaged in litigation in an attempt to recover damages from
defaulting lessees and their guarantors. Such actions involve claims against
prior operators of the Diablo/Tamarack facility. In certain cases counterclaims
against Registrant have been either threatened or filed. Registrant does not
believe any materially adverse judgments are likely from these counter claims.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
<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 duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: \s\ Keith Johannessen
President
Date: May 14, 1996
<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 duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By:
Keith Johannessen
President
Date: May 14, 1996
<PAGE>
May 10, 1996
Securities and Exchange Commission
450 5th Street N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: HealthCare Properties, L.P.
SEC File Number: 0-17695
Madam or Sir/Madam:
Enclosed please find the following documentation being filed on behalf of
HealthCare Properties, L.P.:
1.One (1) manually executed copy of Form 10-Q for the
quarter ended March 31, 1996; and
2.Seven (7) conformed copies of the Form 10-Q for the
quarter ended March 31, 1996.
Please acknowledge receipt of this filing by stamping and returning the
enclosed copy of this letter in the self-addressed, stamped envelope provided.
If there are any questions regarding this filing, please contact the
undersigned.
Very truly yours,
Pamela Crace
Investor Relations Director
PJC:pb
Enclosures
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000814458
<NAME> Healthcare Properties
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 8,028,629
<SECURITIES> 0
<RECEIVABLES> 3,830,146
<ALLOWANCES> (3,660,352)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,897,060
<DEPRECIATION> (15,017,597)
<TOTAL-ASSETS> 33,781,380
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,466,346
<TOTAL-LIABILITY-AND-EQUITY> 33,781,380
<SALES> 0
<TOTAL-REVENUES> 1,854,034
<CGS> 0
<TOTAL-COSTS> 1,553,112
<OTHER-EXPENSES> 28,527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,331
<INCOME-PRETAX> 39,064
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,064
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
