SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1995, or
[ ] 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 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 No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (214) 770-5600
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Limited Partnership Interest
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 the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The Registrant's outstanding securities consist of units of limited partnership
interests which have no readily ascertainable market value since there is no
public trading market for these securities on which to base a calculation of
aggregate market value.
Documents incorporated by reference. None
Exhibit Index Page : 39
Page 1 of 39
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 8
PART II
Item 5 Market for Registrant's Limited Partnership Interests
and Related Security Holder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants on Accounting 14
and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 14
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners and Management 17
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 36
SIGNATURES 38
<PAGE>
PART I
Item 1. Business
HealthCare Properties, L.P. ("Registrant"), is a Delaware limited
partnership formed in March 1987, for the purpose of acquiring, leasing and
operating, and disposing of existing or newly constructed health care
properties. The General Partner of Registrant is Capital Realty Group Senior
Housing, Inc. ("Capital")
Registrant was originally called Jacques-Miller Healthcare Properties,
L.P., but changed its name to Healthcare Properties, L.P. as of July 1993.
The offering of Registrant's limited partnership interests (the
"Units") terminated on August 31, 1989, although some Units were sold to
existing investors pursuant to Registrant's distribution reinvestment plan (the
"Plan") until July of 1991 when the Plan was suspended. Registrant received
gross proceeds from the offering of $43,373,269 and net proceeds of $38,748,791.
All of the net proceeds of the offering were originally invested in 12
properties (the "Properties") or used for working capital reserves. Registrant
originally partially financed acquisition of eight of its properties with
non-recourse debt. Four properties were initially unleveraged. At December 31,
1995, five properties secure debt and four properties remain unleveraged. See
Item 2. "Properties" and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of Registrant's
properties and their history.
As of December 31, 1995, Registrant had seven properties leased to
unaffiliated operators under triple net leases, whereby the lessee is
responsible for all operating expenses, insurance and real estate taxes.
Additionally, the lessee of an eighth facility, Cambridge, is involved in
Chapter 11 bankruptcy proceedings. See Item 3, E. As a result of the operator's
bankruptcy filing, the General Partner currently operates this property under
authority from the Bankruptcy Court. Additionally, Registrant has a ninth
property, Countryside, leased and operated by a wholly owned subsidiary of
Registrant, Countryside Care, L.P. which operates the Countryside facility.
Countryside, has been in default with the lender since 1992, see Item 3, D.
"Legal Proceedings." The Registrant also had one property, Foothills, leased by
a wholly owned subsidiary of the Registrant through November 30, 1994. Effective
December 1, 1994, Foothills had been operated and managed by an unaffiliated
operator under receivership. On July 19, 1995, the Registrant transferred the
Foothills property to its lender, pursuant to a deed in lieu of foreclosure.
This transfer included a release of all potential liability to the Registrant.
The Registrant also had one property, Diablo/Tamarack, leased by a wholly owned
subsidiary of the Registrant, through July 31, 1995. Effective July 31, 1995,
the Registrant transferred the property to its lender, pursuant to a deed in
lieu of foreclosure. This transfer included a release of all potential liability
to the Registrant. On July 5, 1995, the Registrant sold the Heritage Manor
facility for $3,075,000 and the Registrant netted $1,458,287 after payment of
fees and its mortgage balance.
All of Registrant's triple net leases with unaffiliated operators
require operators to make necessary repairs and Registrant inspects or receives
reports from each facility at least annually to insure that necessary repairs
are made. With respect to Registrant's properties which are not leased,
Registrant receives rental income from these properties net of all such
expenses. Registrant is responsible for capital improvements and debt service
payments under mortgage obligations secured by the properties.
Both the income and expenses of operating the properties owned by
Registrant are subject to factors outside the control of both Registrant and the
operators of the facilities, such as oversupply of similar properties resulting
from overbuilding, increases in unemployment or population shifts, reduced
availability of permanent mortgage funds, changes in taxes and regulations,
including healthcare regulations and zoning laws, or changes in patterns or
needs of users. In addition, there are risks inherent in owning and operating
health care properties because such properties are susceptible to the impact of
economic and other conditions outside the control of Registrant.
For the year ended December 31, 1995, Registrant's Properties accounted
for, in the aggregate, in excess of 99% of Registrant's gross revenues.
Management's plans in regard to Registrant as a whole are to maintain
its nondefaulted properties and hold them for long-term appreciation. For
information on defaulted Properties, see Item 3. Registrant may reinvest net
sale or refinancing proceeds in additional health care properties to continue
Registrant's existence. As noted above, as a result of defaults by a certain
lessee of the Registrant, a subsidiary of the Registrant is operating one
Property at December 31, 1995 and the General Partner is operating another
Property under bankruptcy authority. See Item 6. "Selected Financial Data" and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
The terms of the transactions between Registrant and affiliates of the
General Partner of Registrant are set forth in Item 13 below to which reference
is hereby made for a description of such terms and transactions.
Transaction with Capital
In June 1993, the holders of Units ("Unit Holders") approved the
replacement of the existing general partners of the Partnership, Jacques-Miller,
Inc. ("JMI") and Jacques and Associates, L.P. ("JA"; JA and JMI collectively the
"Prior General Partners"), with Capital as well as various amendments to the
Partnership Agreement of the Partnership (the "Partnership Agreement").
Under the Prior General Partners, the Registrant's original business
focus involved purchasing and/or constructing health care facilities and leasing
these facilities under long-term leases to third party lessee-operators. Under
such long-term leases, the Registrant had no role in the actual operations of
the facilities and primarily expected to receive rent with no other active
involvement. Unfortunately, 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 and were subject to negotiations concerning
further restructure. In certain cases, the Registrant has been unable to make
all of its required mortgage debt payments. Additionally, the lessee-operator
under one leased property, Cambridge, became the subject of proceedings under
Chapter 11 of the United States Bankruptcy Code. As a result, the general
business focus of the Registrant changed during 1992 and 1993 from that of an
owner/lessor to one involving complex lease and mortgage restructurings and
management of lease defaults and restructurings complicated by actual or
threatened bankruptcy proceedings and related litigation, and the assumption of
day-to-day operation of certain of the Registrant's facilities.
Due to significant financial setbacks affecting the Prior General
Partners and their limited resources and the increased demands on the management
of the Registrant as a result of the above mentioned financial difficulties of
certain lessee-operators of the Registrant's facilities and the resulting
financial difficulties of the Registrant, the Prior General Partners determined
that it would be in the best interest of the Registrant to find a substitute
general partner with the interest and financial capability to manage the
Registrant effectively. The Prior General Partners proposed Capital as the
replacement general partner and the Unit Holders approved Capital in June 1993
as the replacement general partner.
Tender Offer
On November 1, 1993, Capital offered to purchase up to 80%
(subsequently reduced to 40%) of the outstanding Units of the Registrant at a
purchase price of $1.00 per unit. On December 3, 1993, the offer was closed with
Capital purchasing approximately 9% of the Units (370,283 Units). See Item 12.
"Security Ownership of Certain Beneficial Owners and Management" for information
on the current ownership of Units by Capital and affiliates.
Competition
The real estate business is highly competitive. Registrant's properties
are subject to competition from similar properties in the vicinity of each
property. In addition, the health care industry segments in which Registrant's
lessees participate are also subject to intense competitive pressures, which may
impact such lessees' ability to generate sufficient revenues to fulfill their
obligations to Registrant under their leases.
Employees
There were no employees of Registrant at December 31, 1995.
Regulatory Matters
Federal, state and local government regulations govern fitness and
adequacy, equipment, personnel and standards of medical care at a health care
facility, as well as health and fire codes. Changes in the applicable
regulations could adversely affect the operations of a property, which could
also affect the financial results of Registrant. Risks of inadequate cost
reimbursements from various government programs such as Medicaid and Medicare
may also impact lessees' ability to fulfill their lease obligations to
Registrant. Any impact from proposed health care legislation is not known at
this time; however, such impact could adversely affect cost reimbursements from
various government programs.
Item 2. Properties
Registrant owns 9 properties at December 31, 1995 including five
nursing homes and four rehabilitation centers purchased between October 1987 and
October 1990. Four facilities were newly constructed when purchased. Five
facilities are security for mortgage loans for amounts equal to approximately
40% to 65% of Registrant's purchase price paid for the facility. Three of these
loans are non-recourse to Registrant while two loans are guaranteed by
Registrant. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<PAGE>
The following table summarizes key information about each of
Registrant's properties:
HEALTHCARE PROPERTIES, L.P.
PROPERTY SUMMARY
<TABLE>
<CAPTION>
CEDARBROOK CANE CREEK CRENSHAW CREEK SANDY BROOK
<S> <C> <C> <C> <C>
Location Nashville, TN Martin, TN Lancaster, SC Mt.Dora, FL
Type Rehab Rehab Rehab Rehab
Date Purchased 10/87 11/87 6/88 9/88
Purchase Price $3,955,000 $4,000,000 $3,900,000 $4,200,000
Original Mortgage Amount $2,000,000 $2,200,000 $0 $0
12/31/95 Mortgage Balance $1,062,237 $987,966 $0
Mortgage Maturity March 31, 1996 December 1, 2001 N/A N/A
End of Lease Term 2001 2001 2001 2001
COUNTRYSIDE TRINITY HILLS HEARTHSTONE MCCURDY
Location S. Haven, MI Ft. Worth, TX Round Rock, TX Evansville, IN
Type Nursing Nursing Nursing Nursing
Date Purchased 8/88 2/88 11/88 9/89
Purchase Price $3,350,000 $2,700,000 $3,625,000 $7,100,000
Original Mortgage Amount $2,100,000 $0 $1,500,000 $4,700,000
12/31/95 Mortgage Balance $2,068,539* $0 $1,373,879 $4,282,980
Mortgage Maturity December 10, 1995 N/A July 1, 1997 April 1, 2012
End of Lease Term N/A 2000 2000 2001
CAMBRIDGE
Location Cambridge, MA
Type Nursing
Date Purchased 9/90
Purchase Price $5,100,000
Original Mortgage Amount $0
12/31/95 Mortgage Balance $0
Mortgage Maturity N/A
End of Lease Term 2002
</TABLE>
* In default at December 31, 1995.
Item 3. Legal Proceedings
A. On April 4, 1991, Registrant initiated the filing of an involuntary Chapter 7
bankruptcy proceeding against SentinelCare of California, Inc. ("SentinelCare"),
the lessee of Registrant's Diablo/Tamarack facility. This action resulted in
Registrant gaining operating control of the Diablo facility on April 29, 1991.
During 1994, the Registrant received net settlement proceeds of $19,075 from the
bankrupt estate of SentinelCare.
In addition to the bankruptcy claims, claims and counterclaims
have been filed by and against Registrant, SentinelCare and their affiliates in
a separate consolidated lawsuit in Virginia. The lawsuit brought by SentinelCare
against Registrant was dismissed with prejudice on July 28, 1992. On January 21,
1992 Registrant won a judgment against Mr. Barry Lieberman (a guarantor of
SentinelCare's lease) in connection with his guaranties and is currently
pursuing efforts to collect on that judgment in the Connecticut courts.
B. During May 1995, the Heritage Manor loan matured. However, on July 5, 1995,
payment on the loan balance of $1,500,000 was made upon the sale of the
property. The sale price of the property was $3,075,000 and the partnership
netted $1,458,287 after payment of fees and mortgage balance.
C. With regards to the Diablo/Tamarack facility, the lender sold the note to a
third party. In November 1994, the new 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.
D. With regards to the Countryside facility, due to the poor overall financial
performance of the facility and the need for additional working capital, the
prior General Partner informed the mortgage lender in April 1992 that all debt
service payments were being suspended and that the respective mortgage
obligations of the Registrant needed to be restructured. Capital has conducted
negotiations concerning such debt restructuring; however, the possibility of
restructuring the debt appears unlikely. The lender has filed suit in Michigan
to appoint a receiver and foreclose on the property. Additionally, the lender
has filed certain claims against the Registrant for damages. The Registrant has
answered and counterclaimed. In October 1995, Registrant entered into a
conditional agreement of sale with a third party buyer. Registrant is
negotiating with the lender to settle the litigation and allow the sale and
fully settle all outstanding litigation. The outcome of this negotiation and
litigation is indeterminate at this time.
E. In December 1991, Registrant initiated litigation in Massachusetts against
NCA-Cambridge, Inc. (NCAC) and Richard Wolfe (NCAC's operator/lessee and a
guarantor of NCAC's lease obligations to Registrant) in an attempt to enforce
certain obligations of NCAC and Wolfe under the terms of NCAC's lease of
Registrant's Cambridge facility. In February 1992, NCAC filed a voluntary
Chapter 11 proceeding in the Southern District of Florida. Registrant
subsequently learned that in addition to NCAC's default under certain terms of
its lease, the State of Massachusetts asserted claims against NCAC regarding
prior Massachusetts Medicaid payments made to NCAC for fiscal years 1988 through
1991. The Massachusetts claims are against NCAC and not against Registrant;
however, Massachusetts has regulations requiring successor operators of a
facility to indemnify the state for its losses suffered in connection with a
prior operator of the same facility. It was therefore possible that Registrant
could have been subject to such liability based on certain interpretations of
state regulations. As a result, the Registrant could have become liable for
approximately $1,400,000 in connection with the recovery of Medicaid
overpayments. Additionally, property taxes were owed to the City of Cambridge in
an amount in excess of $600,000. 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 has
been approved by the United States Bankruptcy Court in Florida. The settlement
eliminated the Registrant's exposure in connection with the $1,400,000 Medicaid
overpayments and allowed the Registrant to advance $590,000 to NCAC for payment
of property taxes. At this time, the Registrant is preparing documentation to
bring the facility out of bankruptcy. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.Market for Registrant's Common Equity and Related Security Holder Matters
At March 15, 1996, there were 2,762 Unit Holders of record in
Registrant owning an aggregate of 4,172,457 Units. There is no public market for
these Units and the General Partner does not currently plan to list the Units on
a national exchange or automated quotation system. Registrant has had a
liquidity reserve feature which, under certain circumstances, permitted Unit
Holders to liquidate their Units. Due to inadequate liquidity of Registrant and
the adverse impact on Unit values caused by defaults of certain of Registrant's
lessees, the General Partner suspended all redemptions pursuant to the liquidity
reserve in March of 1991. Due to the valuation formula required to be used by
Registrant in any such redemptions, it is unlikely that the General Partner will
be able to reinstate the liquidity feature in the foreseeable future.
Pursuant to the terms of the Partnership Agreement, there are
restrictions on the ability of the Unit Holders to transfer their Units. In all
cases, the General Partner must consent in writing to any substitution of an
Unit Holder. The Revenue Act of 1987 contains provisions which have an adverse
impact on investors in "publicly traded partnerships." Accordingly, the General
Partner has established a policy of imposing limited restrictions on the
transferability of the Unit in secondary market transactions. Implementation of
this policy should prevent a public trading market from developing and may
impact the ability of an investor to liquidate his investment quickly. It is
expected that such policy will remain in effect until such time, if ever, as
further clarification of the Revenue Act of 1987 may permit Registrant to lessen
the scope of the restrictions.
Cash distributions of $2,020,538 were made during the first two
quarters of 1991, after which the Prior General Partners suspended all cash
distributions until defaults of certain of Registrant's lessees could be
satisfactorily resolved and Registrant's cash working capital balances
satisfactorily strengthened. As a result of suspending cash distributions
Registrant was able to maintain normal balances of trade accounts payable
despite a severe reduction in rental revenues from defaulting lessees. In 1993,
Capital, as the new General Partner, distributed $250,000 due to an increase in
cash and taxable income from the Rebound restructure described on page 12. The
ability of Registrant to resume any further regular distributions of Operating
Cash Flow is dependent upon improving operational performance of assets operated
by Registrant and increased collection of rental revenues from properties leased
to third party operators. In addition, concerning two loans of the Registrant
which became due in January 1996; one loan was extended to March 31, 1996 and
the lender of the other loan agreed to extend the loan to December 1, 2001,
pending completion of final paperwork. See Item 2. If negotiations for
refinancing the March 31, 1996 loan are unsuccessful, cash reserves of the
Registrant may be required to pay this maturing debt obligation. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<PAGE>
Item 6. Selected Financial Data
HEALTHCARE PROPERTIES, L.P.
(A Delaware Limited Partnership)
December 31, 1995, 1994, 1993, 1992 and 1991
(not covered by Independent Auditors'
Report)
<TABLE>
<CAPTION>
Year Ended December 31
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
1995 1994 1993 1992 1991
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
<S> <C> <C> <C> <C> <C>
Total Assets $33,812,286 $40,914,991 $43,375,924 $45,979,774 $46,630,790
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Mortgage Debt $9,775,601 $16,268,668 $16,713,020 $17,367,461 $18,183,286
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Total
Revenue from
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Operations $8,419,024 $12,574,481 $14,024,311 $9,773,866 $6,350,055
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Weighted
Average
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Number of 4,172,457 4,172,457 4,172,457 4,172,457 4,160,692
Units
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Net Income
(Loss)
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Loss $(2,354,181) $(3,035,459) $(2,395,486) $(598,318) $(1,300,662)
Before
Extraordinary
Item
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
$3,604,514 $0 $0 $0 $0
Extraordinary
Gain
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Net $1,250,333 $(3,035,459) $(2,395,486) $(598,318) $(1,300,662)
Income (Loss)
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Net Income
(Loss)
Per Unit
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Loss
Before $(0.56) $(0.71) $(0.56) $(0.14) $(0.31)
Extraordinary
Item
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
$0.79 $0 $0 $0 $0
Extraordinary
Gain
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Net $0.23 $(0.71) $(0.56) $(0.14) $(0.31)
Income (Loss)
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Net Income
(Loss)
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Tax $(1,692,342) $(393,245) $1,710,132 $(648,013) $(1,101,413)
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Per Unit $(.41) $(.09) $.41 $(0.15) $(0.26)
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
============== ---- ------------- ----- ------------ ---- ------------- ---- ------------ ----- ------------ ====
Cash $0 $0 $250,000 $0 $2,020,538
Distributions
============== ==== ============= ===== ============ ==== ============= ==== ============ ===== ============ ====
Per Unit $0 $0 $.06 $0 $0.48
============== ==== ============= ===== ============ ==== ============= ==== ============ ===== ============ ====
</TABLE>
The above selected financial data should be read in conjunction with
the financial statements and the related notes appearing elsewhere in this
annual report. See Footnote 3. "Property and Improvements" to Consolidated
Financial Statement for discussion of property dispositions.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1995 Compared to 1994 and 1993
Registrant ended 1995 with cash and cash equivalents of $7,606,857 as
compared with $5,606,274 at December 31, 1994. Cash and cash equivalents
primarily increased in 1995 due to the sale proceeds from the Heritage Manor
facility of $1,458,287 which is net of the payment of its mortgage balance of
$1,500,000 and fees. Cash and cash equivalents increased in 1994 due to: (1)
increased cash flow resulting from operations; and (2) the receipt of $560,000
in settlement claims. The overall 1994 increase in cash and cash equivalents was
offset by an approximate $449,000 increase in purchase of property and
improvements.
Accounts receivable at December 31, 1995 were approximately $210,000 as
compared to $567,000 at December 31, 1994. This decrease is primarily from
uncollectible accounts receivable resulting from the transfer of the Foothills
facility. Accounts payable and accrued expenses for 1995 were approximately
$1,526,000 at December 31, 1995, as compared to $3,106,000 at December 31, 1994.
This decrease resulted largely from the reduction of accrued interest and
property taxes on the transfer of the Foothills and Diablo/Tamarack facilities
to the noteholders in lieu of foreclosure on July 19 and 31, respectively.
Operating facility accounts payable of approximately $83,000 at December 31,
1995, and $363,000 at December 31, 1994, related to the Diablo/Tamarack,
Countryside and Foothills facilities. Corresponding decreases from December 31,
1994 to 1995 in property and improvements, deferred charges, operating facility
accounts payable and mortgage loans primarily relates to the sale of Heritage
Manor and the transfer of the Diablo/Tamarack and Foothills properties.
Rental revenues were approximately $5,100,000 in 1995 compared to
approximately $5,297,000 in 1994, and approximately $5,347,000 in 1993. The
decrease of rental revenues from 1994 to 1995 is due to the termination of lease
revenue from Heritage Manor upon its sale on July 5, 1995. Rental revenues were
relatively unchanged in 1994 as compared to 1993.
Patient revenues of approximately $3,269,000 for the year ended
December 31, 1995, approximately $6,699,000 for the year ended December 31,
1994, and approximately $6,238,000 for the year ended December 31, 1993, related
to the operations at the Countryside, Diablo/Tamarack, and Foothills facilities.
The decrease in patient revenues for 1995 as compared to 1994 resulted from the
aforementioned transfers of the Diablo/Tamarack and Foothills facilities in
1995. Patient revenues increased from 1993 to 1994 resulting from increased
rental rates from private and third party payors.
During 1995, the net loss on sale/transfer of approximately $1,237,000
and extraordinary gain of approximately $3,605,000 resulted from the sale of
Heritage Manor and transfer of the Diablo/Tamarack and Foothills facilities.
During 1994, other income of $579,075 primarily resulted from the
collection of $560,000 in legal claims from the former operator of the Foothills
and Countryside facilities.
During 1993, income of $1,900,000 resulted from the collection of
previously unrecorded promissory note receivable from Relife, Inc. and a
$539,025 gain recognized from the sale of Rebound, Inc. stock.
Facility operating expenses were approximately $3,238,000 in 1995
compared to approximately $6,597,000 in 1994, and approximately $6,151,000 in
1993. The decrease in facility operating expenses in 1995, compared to 1994,
resulted from the transfer of the Foothills and Diablo/Tamarack facilities on
July 19 and 31, respectively. The increase in facility operating expenses in
1994, compared to 1993, resulted from additional therapies, ancillary, laundry
and travel costs.
Depreciation was approximately $1,722,000 for 1995, $1,912,000 for
1994, and $1,952,000 for 1993. Depreciation decreased in 1995 due to the above
mentioned sale and transfer of properties and was relatively unchanged for the
years ended 1994 and 1993, respectively.
Fees to affiliates were approximately $1,279,000, $1,582,000, and
$1,668,000 for the years ended 1995, 1994, and 1993, respectively. The decrease
of fees to affiliates in 1995 from 1994 resulted from decreased management fees
upon transfer of the Diablo/Tamarack and Foothills facilities. Fees to
affiliates were relatively unchanged from 1994 compared to 1993.
Lease default expenses of approximately $286,000, $453,000, and
$399,000 for the years ended 1995, 1994, and 1993, respectively, decreased in
1995 due to the resolution of the Diablo/Tamarack and Foothills lease defaults
increased in 1994 due to additional real estate tax accruals on the Cambridge
facility.
Administrative and other expenses were approximately $115,000,
$222,000, and $284,000 for the years ended 1995, 1994, and 1993, respectively.
Administrative and other expenses decreased from 1994 to 1995 due to decreased
professional fees, rent and travel expenses. Administrative and other expenses
were relatively unchanged for 1994 compared to 1993.
Bad debt expense was approximately $1,586,000, $920,000, and $786,000
for the years ended 1995, 1994, and 1993, respectively. Bad debt expense
increased in 1995, compared to 1994, primarily due to bad debt allowance
provided on advances made to the NCAC to pay property taxes on the Cambridge
facility and increased in 1994, compared to 1993, due to the uncertainty of rent
collections from the operation of the Cambridge and Foothills facilities.
Interest income was approximately $186,000, $103,000, and $151,000 for
the years ended 1995, 1994, and 1993, respectively. Interest income increased in
1995 from 1994 due to additional interest earned on net proceeds received upon
the sale of Heritage Manor and decreased from 1993 to 1994 due to declining
interest rates.
Amortization was approximately $171,000, $196,000, and $212,000 for the
years ended 1995, 1994, and 1993, respectively. Amortization decreased in 1995
and 1994, compared to the prior year, primarily due to fully amortized deferred
costs for the Diablo/Tamarack, Countryside, and Foothills facilities.
Interest expense was approximately $1,325,000, $1,646,000, and
$1,660,000 for the years ended 1995, 1994, and 1993, respectively. Interest
expense decreased in 1995 from 1994 due to the repayment of the mortgage upon
the sale of Heritage Manor and the transfer of the Diablo/Tamarack and Foothills
mortgages, and decreased in 1994 from 1993 due to adjustments in certain
floating rate mortgage obligations.
The Registrant also owns the Cambridge facility on which management has
concluded the carrying value exceeded estimated fair value. As a result, in the
fourth quarter of 1994, this property which had been carried at $4,185,381 was
written down to the appraised value of $2,000,000.
In 1993, management concluded that the carrying value of three
properties, Foothills, Countryside and Diablo/Tamarack exceeded estimated fair
value. These properties each secured nonrecourse debt, the outstanding balances
of which management also believed exceeded their respective estimated fair
values. As a result, in the fourth quarter of 1993, these properties, which had
been carried at $10,048,605, were written down to their respective nonrecourse
debt values which aggregated $6,590,221.
Statement of Financial Accounting Standards No. 121 - "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("FAS 121") became effective for financial statements for fiscal years beginning
after December 15, 1995. The Registrant will adopt FAS 121 in the first quarter
of 1996. The estimated impact to the Registrant in adopting FAS 121 is
immaterial.
As of December 31, 1995, the Foothills and Diablo/Tamarack facilities
were transferred to the lender, pursuant to a deed in lieu of foreclosure.
See Item 1. "Business", for more detailed information concerning
Registrant's operations during 1995.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Liquidity and Capital Resources
Registrant raised gross proceeds from the offering of over $43,300,000
and purchased twelve properties. In July of 1991, Registrant suspended its
distribution/reinvestment program (DRIP) as a result of the adverse impact on
Unit value caused by defaults of certain of Registrant's lessees. Registrant
consequently does not anticipate additional capital investments by Unit Holders.
Sources for Registrant's liquidity include rental revenues from lessees of
certain of Registrant's properties, operational income from properties operated
by subsidiaries of Registrant, potential proceeds from mortgage financing on one
or more of Registrant's four unleveraged properties, or potential sale proceeds
from any of Registrant's nine properties. For 1996, the Registrant anticipates
sufficient cash flow to meet debt service requirements, including the payoff of
debt maturing at March 31, 1996 if terms are not extended, and cover all other
operational expenses. For further information, see discussion below on each
individual property as well as Item 5, Market for Registrant's Common Equity and
Related Security Holder Matters.
Operations of the 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. The lender of the Cane Creek note agreed to
extend the loan to December 1, 2001, pending completion of final paperwork.
Registrant is currently negotiating with the lender to further extend the
Cedarbrook loan.
Foothills facility. The lender sold the note to a third party. 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. Due to the poor overall financial performance of
the Countryside, Diablo/Tamarack and Foothills facilities and their need for
additional working capital, Registrant informed the mortgage lender for this
facility in April 1992 that all debt service payments were being suspended and
that the mortgage obligations of the Registrant needed to be restructured.
Capital has conducted negotiations concerning such debt restructuring; however,
the possibility of restructuring the debt appears unlikely. The lender has filed
suit in Michigan to appoint a receiver and foreclose on the property.
Additionally, the lender has filed claims against the Registrant for damages. In
October 1995, Registrant entered into a conditional agreement of sale with a
third party buyer. Registrant is negotiating with the lender to settle the
litigation and allow the sale. If the lender refuses to settle, Registrant is
prepared to vigorously defend itself against the claims of the lender.
Diablo/Tamarack facility With regard to the Diablo/Tamarack note, the
lender sold the note to a third party. In November 1994, the new 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. See
Item 3, E.
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 loan matured in May 1995 in
the amount of $1,500,000, however, the payment of the loan was made with
proceeds from the sale of the property on July 5, 1995. The sale price of the
property was $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.
Impact of Inflation
To offset some potential adverse effect of inflation, Registrant has
required each of its unaffiliated tenants to execute "triple-net" leases with
the tenant being responsible for all operating expenses, insurance and real
estate taxes. Such leases generally require additional participating rent
payments based on certain increases in the lessee's collected revenues. To the
extent that Registrant undertakes to operate certain facilities through
wholly-owned subsidiaries, those subsidiaries, and ultimately Registrant, will
be directly exposed to the inflationary pressures on health care industry
operating costs.
Item 8. Financial Statements and Supplementary Data
See the Consolidated Financial Statements with Independent Auditors' Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) The Registrant is a Limited Partnership managed by the
General Partner and has no directors, officers,
or significant employees.
(b) The General Partner of Registrant is:
Capital Realty Group Senior Housing, Inc., ("Capital") a
Texas corporation, that was formed under the laws of the State
of Texas in 1988.
(c) As of December 31, 1995 the officers and directors of Capital,
the General Partner, were:
Name Age Position
Jeffrey L. Beck 51 Chief Executive Officer and Director
James A. Stroud 45 Chief Operating Officer, Secretary and Director
Keith N. Johannessen 39 President
Fred Tanner 40 Executive Vice President
Rob L. Goodpaster 42 National Director of Marketing
Marilyn J. Teel 42 Vice President
David Brickman 37 Vice President
Robert F. Hollister 40 Controller
James A. Stroud, age 45. Mr. Stroud has served as an officer and a
director of Capital since December 1988, most recently serving as Chief
Operating Officer and Secretary since May 1991. He owns 50% (through a trust) of
Capital Realty Group Corporation, the parent of Capital and has served as its
President, Secretary and a Director since February 1988. From 1984 until 1985,
he was Executive Vice-President of Equity Management Corporation, Dallas, Texas,
a full service real estate company. From 1980 to 1983, he was director in charge
of the Tax Department of the law firm of Baker, Glast & Middleton, Dallas,
Texas. From 1978 until 1980, he was an associate with Brice & Mankoff (formerly
Durant and Mankoff), a law firm in Dallas, Texas. Mr. Stroud is a Certified
Public Accountant and a licensed attorney. He received his B.B.A. from Texas
Tech University with highest honors, his J.D. from the University of Texas with
honors, and his L.L.M. in taxation from New York University with honors. While
at New York University, he was a graduate editor of the New York University Tax
Law Review and a Wallace Scholar. Mr. Stroud is a founder and director of the
Assisted Living Facilities Association of America, a member of the Health
Industry Council, President-elect of the National Association for Senior Living
Industries ("NASLI"), and has delivered speeches on health care topics to the
NASLI, National Investment Conference, and the Urban Land Institute.
Jeffrey L. Beck, age 51. Mr. Beck has served as an officer and a director
of Capital since December 1988, most recently serving as Chief Executive Officer
since November 1990. He owns 50% of Capital Realty Group Corporation, the parent
of Capital and has served as its Chief Executive Officer since February 1988.
From 1975 to 1985, he was President of Beck Properties, Inc., which was the
predecessor of Capital. From 1973 to 1974, he was Regional Controller with
Trammell Crow & Company, a real estate company based in Dallas, Texas. Mr. Beck
is Chairman of the Board of Directors of Park Central Bank of Dallas. Mr. Beck
serves as Chairman of the American Senior Housing Association.
Keith N. Johannessen, age 39. Mr. Johannessen became Executive Vice
President of Capital in May 1993 with responsibility for supervising the
day-to-day operations of Capital's retirement communities. In March 1994, Mr.
Johannessen became President of Capital. From September 1992 through May 1993,
Mr. Johannessen was a Senior Manager in the North Central Region for the health
care practice of Ernst & Young LLP, responsible for assisting in the development
and direction of the firm's long term care center consulting projects in the
region as well as on a national basis. From August 1987 through September 1992,
Mr. Johannessen was Executive Vice President with Oxford Retirement Services,
Inc. responsible for the sales, marketing and operations of retirement
communities and nursing homes. From August 1978 to August 1987, Mr. Johannessen
was employed by Life Care Services Corporation in a variety of operations
management positions, from single retirement projects to multi-facility
responsibilities. He is a licensed nursing home administrator and holds a
Bachelor of Arts Degree from Nyack College, New York. Mr. Johannessen is active
in the American Senior Housing Association, National Association for Senior
Living Industries and the American Association of Homes and Services for the
Aging.
Fred Tanner, age 40. Mr. Tanner became Executive Vice President of
Capital in 1994, providing operational support to congregate, assisted living
and nursing facilities. Additionally, he is responsible for the development and
oversight of home health programs. Prior to joining Capital, Mr. Tanner served
in similar operational roles with Greystone Communities from May 1993 to
November 1994 and Central Park Lodges from December 1988 to May 1993. His
experience includes the multiple supervision of both endowment and rental,
including independent, assisted living and nursing care facilities. Mr. Tanner's
involvement in the industry began in 1979 at the Methodist Home for the Aged in
Charlotte, North Carolina. In 1983 he served as an Executive Director of various
retirement communities in Kansas and Tennessee before becoming a Regional
Director of Operations for the Forum Group in Indianapolis, Indiana. Mr. Tanner
is a member of the American Senior Housing Association, where he heads the
committee formulating the association's assisted living regulatory policy. Mr.
Tanner is a graduate of the University of North Texas Center for Studies in
Aging with a M.A. in Gerontology/Retirement Community Administration.
Rob L. Goodpaster, age 43. Mr. Goodpaster became National Director of
Marketing of Capital in December 1992, with overall responsibility for marketing
and lease-up functions of Capital's managed properties. With 19 years of
experience in the industry, Mr. Goodpaster has an extensive background in
retirement housing marketing. His experience includes analyzing demographics,
developing and implementing marketing plans, creating outreach and advertising
programs, hiring and training sales personnel and implementing lead management
and tracking systems. Prior to joining Capital, Mr. Goodpaster was National
Director of Marketing for Autumn America from January 1990 to November 1992.
From 1985 until December 1989, he was President of Retirement Living Concepts,
Inc. where he marketed retirement properties throughout the United States. Mr.
Goodpaster was formerly Vice President, Marketing for U.S. Retirement Corp. from
1984 to 1985 and Vice President, Development for American Retirement Corp. from
1980 to 1984. Mr. Goodpaster is a graduate of Ball State University with a B.S.
in Business Management and Marketing. Mr. Goodpaster is a member of the National
Association of Senior Living Industry and the Texas Association of Retirement
Communities.
Marilyn J. Teel, age 42. Ms. Teel has served as Vice President of
Capital since 1992. Ms. Teel has over 15 years experience in the senior housing
industry. She has had extensive experience in marketing, leasing and management
operations for retirement communities and assisted living facilities. She joined
Capital in 1991 and is currently responsible for overseeing day-to-day property
operations as well as marketing and leasing operations for multiple retirement
communities, assisted living facilities and nursing home facilities. From 1987
through 1988, Ms. Teel was marketing director with OverCash Goodman Company, a
company located in Fort Worth, Texas, providing nursing home and congregate
care. From 1988 until 1991, Ms. Teel was the on-site administrator for various
retirement communities. She is a member of the Texas Association of Retirement
Communities and the National Association of Senior Living Industry.
David Brickman, age 37. Mr. Brickman has served as Vice President and
Counsel of Capital since 1992. Mr. Brickman received his bachelor of Arts degree
from Brandeis University. He holds a J.D. from the University of South Carolina
Law School, an M.B.A. from the University of South Carolina School of Business
Administration and a Masters of Health Administration from Duke University.
Prior to joining Capital in 1992, he served as in-house counsel from 1986
through 1987 with Cigna Health Plan, Inc., from 1987 through 1989 with American
General Group Insurance Company and from 1989 until joining Capital, with LifeCo
Travel Management Company located in Houston, Texas. In addition to his legal
responsibilities, Mr. Brickman is also responsible for asset management
activities, operational activities and investor relations for Capital's
portfolio.
Robert F. Hollister, age 40. Mr. Hollister has served as Controller of
Capital since 1992. Mr. Hollister received his Bachelor of Science in Accounting
from the University of Maryland. His experience includes public accounting as
well as private experience in fields such as securities, construction, and
nursing homes. Prior to joining Capital in 1992, Mr. Hollister was the chief
financial officer and controller for Kavanaugh Securities, Inc. from December
1985 until 1992. Mr. Hollister is the property controller and supervises the
day-to-day accounting and financial aspects of Capital. Mr. Hollister is a
Certified Financial Planner and a member of both local and national professional
accounting organizations.
(d) Based solely upon a review of Forms 3, 4 and 5 and any amendments
thereto furnished to the Registrant pursuant to Rule 16a-3(e) of the SEC rules,
the Registrant is not aware of any failure of any officer or director of Capital
or beneficial owner of more than ten percent of the Units to timely file with
the SEC any Form 3, 4 or 5 relating to the Registrant for 1995 except that the
following persons or entities failed to file in a timely basis the following
reports: Capital filed six late reports on Form 4 reporting fourteen
transactions; Capital Retirement Group, Inc. filed two late reports on Form 4
reporting four transactions; Capital Senior Living Communities, L.P. filed six
late report on Form 4, reporting fourteen transactions; and each of Messrs. Beck
and Stroud filed six late report on Form 4, reporting fourteen transactions.
Item 11. Executive Compensation
The Registrant has no officers or directors. The officers and directors
of the General Partner receive no direct current remuneration from Registrant
nor is it proposed that they receive remuneration in such capacities. Registrant
is required to pay certain fees to the General Partner or its affiliates, make
distributions, and allocate a share of the profits and losses of Registrant to
the General Partner. The relationship of the General Partner (and its directors
and officer) to its affiliates is set forth above in Item 10. Reference is also
made to Note 7 of the Notes to the Consolidated Financial Statements included
herein, for a description of such distributions, allocations and the
compensation and reimbursements paid to the General Partner and certain
affiliates. See Item 13. "Certain Relationships and Related Transactions" for
additional information.
There are no compensatory plans or arrangements resulting from
resignation or retirement of the partners, directors or executive officers of
the General Partner which require payments to be received from Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Aside from Capital owning 9.36% of outstanding Units of Registrant
as of March 15, 1996, and Capital Senior Living Communities, L.P., an affiliate
of Capital, owning 11.33% of outstanding units of Registrant as of March 15,
1996, no other person or group owns more than 5% of Registrant as of March 15,
1996
(b) No partners, officers or directors of the General Partner directly
own any Units at March 15, 1996. However, Messrs. Beck and Stroud (through a
trust) each own indirectly 50% of Capital and they may be deemed beneficial
owners of the Units owned by Capital and Capital Senior Living Communities, L.P.
Capital also owns a 2% interest in the Registrant as the general partner.
Item 13. Certain Relationships and Related Transactions
Under the terms of the Partnership Agreement, Registrant is entitled to
engage in various transactions involving affiliates of the General Partner. The
relationship of the General Partner to its affiliates is set forth in Item 1.
Pursuant to the Partnership Agreement, the General Partner receives a share of
Registrant's profits and losses.
The General Partner and its affiliates are entitled to receive an
Acquisition Fee, as defined in Registrant's Partnership Agreement, for their
services rendered to Registrant in connection with the selection and purchase of
any property by Registrant whether designated as real estate commissions or
other fees, however designated and however treated for tax or accounting
purposes. Aggregate Acquisition Fees payable to all persons in connection with
the purchase of Registrant's properties may not exceed the lesser of: (a) 2% of
the gross proceeds of Registrant's offering; or (b) such compensation as is
customarily charged in similar arm's-length transactions. If there are
insufficient proceeds to pay such fee to the General Partner and their
affiliates, such amount will not be deferred. No amounts were earned in 1995 and
1994 in connection with such services. In connection with any reinvestment of
sale or refinancing proceeds as provided in the Partnership Agreement, the
Registrant will pay a reinvestment acquisition fee of 2% of the price of
additional properties payable from Net Sale or Refinancing Proceeds utilized
solely for the acquisition. No such fees were paid in 1995 or in 1994.
Registrant may pay the General Partner or its affiliates a Regulatory
Approval Fee, as defined in the Partnership Agreement, of up to 6% of the costs
of any newly constructed property which is acquired by Registrant. The services
rendered in connection with such fee will include: obtaining the appropriate
certificates of need, licenses, Medicare and Medicaid clearances, regulatory
approvals of transfer as is necessary, and such other federal, state, local and
other regulatory agency approvals as are necessary, and completion of various
other items which pertain to the commencement of the operation of a newly
constructed health care facility. Said services are expected to continue over
the term for which such Registrant properties are subject to compliance with
regulatory agencies, so as to ensure that the newly constructed property can be
placed into service on a timely basis and remain operational. This fee will not
exceed $1,150,000. The General Partner or its affiliates did not earn any
compensation in 1995 or in 1994 in connection with such services; the Prior
General Partners earned $455,000 since inception.
Registrant may pay to the General Partner or its affiliates, for
services rendered in connection with the refinancing of a Registrant property, a
mortgage placement fee equal to the lesser of: (a) 2% of the refinancing
proceeds of the Registrant property; or (b) fees which are competitive for
similar services in the geographical area where the Registrant property is
located. Amounts earned in 1995 were $0 and $0 in 1994.
Registrant may pay to the General Partner or its affiliates, for
services rendered in connection with the sale of a Registrant property, and
shall be entitled to receive the lessor of: (a) 3% of the sale price of the
Registrant's property, or (b) an amount not to exceed 50% of the standard real
estate commission. Amounts earned by the General Partner in 1995 for the sale of
the Heritage Manor was $92,250.
For property management services, the General Partner or its affiliates
are entitled to receive leasing and property management fees. Since most of
Registrant's properties have long-term, triple-net leases and others have
independent fee management engagements for most services, the General Partner or
its affiliates received 1% of the monthly gross rental or operating revenues,
totaling approximately $80,000 and $113,000 in 1995 and 1994, respectively.
Property management fees paid to the General Partner were approximately $252,000
and $472,000 in 1995 and 1994, respectively. Asset management fees paid to the
General Partner were approximately $712,000 and $731,000 in 1995 and 1994,
respectively.
The General Partner may be reimbursed for its direct expenses relating
to offering and administration of Registrant. The General Partner or its
affiliates received $235,000 and $266,000 reimbursements for such out-of-pocket
expenses in 1995 and 1994, respectively.
In 1994, the Registrant purchased an administrative building, adjacent
to one of its facilities, from Tennessee Cedarbrook Ltd., an affiliate of the
General Partner, for approximately $485,000, based on an independent appraisal.
Tennessee Cedarbrook Ltd. purchased the property from an unrelated party in July
1993 for a purchase price of $423,000.
In addition, a 50% owner of the General Partner, Mr. Beck, is chairman
of the board and an owner of a bank, United Texas Bank of Dallas, where the
Registrant holds the majority of its operating cash accounts.
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
HealthCare Properties, L.P.:
We have audited the accompanying consolidated balance sheets of HealthCare
Properties, L.P. and subsidiaries (a limited partnership) as of December 31,
1995 and 1994, and the related consolidated statements of operations,
partnership equity and cash flows for each of the years in the three-year period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthCare
Properties, L.P. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1996
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 7,606,857 5,606,274
Accounts receivable, less allowance for doubtful accounts of
of $3,489,937 in 1995 and $1,934,335 in 1994 (note 9) 210,409 567,244
Prepaid expenses 129,714 171,853
Property and improvements, net (notes 3, 4 and 5) 25,251,255 33,696,257
Deferred charges, less accumulated amortization of $734,146
in 1995 and $837,348 in 1994 (note 7) 614,051 873,363
------------ ------------
$ 33,812,286 40,914,991
========== ==========
Liabilities and Partnership Equity
Accounts payable and accrued expenses (note 4) $ 1,526,209 3,106,407
Operating facility accounts payable 83,194 362,967
Mortgage loans payable - in default (note 4) 2,068,539 6,590,221
Mortgage loans payable (note 4) 7,707,062 9,678,447
----------- -----------
11,385,004 19,738,042
---------- ----------
Partnership equity (deficit):
Limited partners (4,172,457 units) 22,449,617 21,489,281
General partners (22,335) (312,332)
------------- ------------
22,427,282 21,176,949
Contingencies (notes 2, 3, 4 and 6)
$ 33,812,286 40,914,991
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Revenues (notes 5, 6 and 9):
<S> <C> <C> <C>
Net patient service $ 3,268,800 6,698,751 6,237,907
Rental 5,100,085 5,296,655 5,347,379
Recovery of note receivable - - 1,900,000
Gain on sale of investment - - 539,025
Other income 50,139 579,075 -
----------- ------------ -----------------
8,419,024 12,574,481 14,024,311
--------- ---------- ----------
Expenses:
Facility operating expenses 3,238,004 6,597,068 6,150,899
Depreciation 1,721,605 1,911,876 1,951,854
Fees to affiliates (note 7) 1,279,428 1,581,765 1,667,626
Bad debts 1,585,555 919,737 786,418
Lease default expenses (note 6) 286,108 453,140 399,088
Administrative and other 114,625 222,055 283,760
---------- ------------ ------------
8,225,325 11,685,641 11,239,645
--------- ---------- ----------
Income from operations 193,699 888,840 2,784,666
---------- ------------ -----------
Other income (expense):
Interest income 185,650 102,511 150,984
Interest expense (1,324,845) (1,645,647) (1,660,471)
Amortization (171,265) (195,782) (212,281)
Loss on disposition of operating
properties, net (note 3) (1,237,420) - -
Loss due to reduction of carrying value of
operating properties (note 3) - (2,185,381) (3,458,384)
--------------- ----------- -----------
(2,547,880) (3,924,299) (5,180,152)
--------- ----------- -----------
Loss before extraordinary item (2,354,181) (3,035,459) (2,395,486)
--------- ----------- -----------
Extraordinary gain on disposition of
operating properties (note 3) 3,604,514 - -
--------- ------------------ ------------------
Net income (loss) $ 1,250,333 (3,035,459) (2,395,486)
========= =========== ===========
Allocation of net income (loss):
Limited partners $ 960,336 (2,974,750) (2,347,576)
General partners 289,997 (60,709) (47,910)
---------- ------------- -------------
$ 1,250,333 (3,035,459) (2,395,486)
========= =========== ===========
Per unit:
Loss before extraordinary item
$ (.56) (.71) (.56)
Extraordinary gain
.79 - -
Net income (loss) $ .23 (.71) (.56)
Distributions $ - - .06
Weighted average number of units 4,172,457 4,172,457 4,172,457
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Consolidated Statements of Partnership Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C> <C> <C>
Equity at December 31, 1992 $ 27,061,607 (203,713) 26,857,894
Net loss (2,347,576) (47,910) (2,395,486)
Distributions (250,000) - (250,000)
------------ ------------ ------------
Equity at December 31, 1993 24,464,031 (251,623) 24,212,408
Net loss (2,974,750) (60,709) (3,035,459)
----------- -------- -----------
Equity at December 31, 1994 21,489,281 (312,332) 21,176,949
Net income 960,336 289,997 1,250,333
------------ ------- -----------
Equity at December 31, 1995 $ 22,449,617 (22,335) 22,427,282
========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 1,250,333 (3,035,459) (2,395,486)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,892,870 2,107,658 2,164,135
Bad debts 1,585,555 919,737 786,418
Loss on disposition of operating properties,
net 1,237,420 - -
Extraordinary gain on disposition of
operating properties (3,604,514) - -
Loss due to reduction of carrying value
of operating properties - 2,185,381 3,458,384
Gain on sale of investment - - (539,025)
Recovery of note receivable - _ (1,900,000)
Changes in assets and liabilities,
net of effects of property
dispositions:
Accounts receivable (1,228,720) (850,301) (811,229)
Prepaid expenses 39,406 (11,473) (101,880)
Deferred charges - - (491,030)
Accounts payable and accrued expenses (89,940) 1,018,878 696,077
----------- --------- ----------
Net cash provided by operating
activities 1,082,410 2,334,421 866,364
--------- --------- ----------
Cash flows from investing activities:
Purchases of property and improvements (760) (514,406) (65,278)
Proceeds from sale of property 2,958,287 - -
Cash forfeiture on disposition of property
held in receivership (67,969) - -
Proceeds from sale of investment - - 939,025
Recovery of note receivable - - 1,900,000
Net cash provided by (used in)
investing activities 2,889,558 (514,406) 2,773,747
--------- ---------- ---------
Cash flows from financing activities:
Payments on mortgage loans payable (1,971,385) (444,352) (654,441)
Distributions to limited partners - - (250,000)
--------------- -------------- ----------
Net cash used in financing activities (1,971,385) (444,352) (904,441)
--------- --------- ----------
Net increase in cash and cash equivalents 2,000,583 1,375,663 2,735,670
Cash and cash equivalents at beginning of year 5,606,274 4,230,611 1,494,941
--------- --------- ---------
Cash and cash equivalents at end of year $ 7,606,857 5,606,274 4,230,611
========= ========= =========
Cash paid for interest $ 850,747 981,346 987,106
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Notes to Consolidated Financial Statements
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1) General
HealthCare Properties, L.P., is a Delaware limited partnership which
began operations on October 14, 1987, for the purpose of acquiring,
leasing and operating existing or newly constructed long-term health care
properties. These properties are operated by the Partnership or are
leased to qualified operators who provide specialized health care
services. Effective February 1, 1995, Capital Senior Living, Inc., (CSL),
an affiliate of Capital Realty Group Senior Housing, Inc. (CRG), became
the managing agent for the Partnership replacing CRG, which had been
managing agent since July 1, 1992. At the time CRG began managing the
Partnership, several of the Partnership's properties were in distress due
to defaults by lessees of the respective properties (see note 6).
On June 9, 1993, a Consent Solicitation was circulated to the limited
partners soliciting their consent to certain amendments to the
Partnership Agreement. The results of this solicitation, which became
effective July 1, 1993, were as follows:
o CRG was admitted and substituted as the sole general partner of the
Partnership.
o The name of the Partnership was changed from Jacques-Miller
HealthCare Properties, L.P. to HealthCare Properties, L.P.
o Certain fee and compensation arrangements with the general partner
were revised.
o Certain restrictions on refinancing Partnership debt were removed.
o Retention of the Partnership's operating cash flow for the purpose of
acquiring additional Partnership properties was permitted.
o Restrictions on repurchasing limited partnership units by the
Partnership were eliminated.
Pursuant to a tender offer dated November 1, 1993, CRG acquired 372,199
limited partner units or approximately 9% of the Partnership's limited
partner units, effective December 3, 1993.
The consolidated financial statements as of and for the years ended
December 31, 1995, 1994 and 1993 include the accounts of the Partnership
and its wholly owned subsidiaries, Danville Care, Inc., Foothills, Inc.
and Countryside, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
<PAGE>
At December 31, 1995, 1994 and 1993, the status of the Partnership's
properties was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operated under bankruptcy and managed by CSL 1 1 1
Leased to unaffiliated operators on a triple net basis 7 8 8
Operated by subsidiaries of the Partnership and
managed by CSL 1 2 3
Operated and managed under receivership by
an unaffiliated operator - 1 -
- --- ---
9 12 12
= == ==
</TABLE>
During 1995, one of the Partnership's leased properties was sold to an
unrelated third party and the deeds for two of the Partnership's operated
properties were transferred to the noteholders in lieu of foreclosure
(see note 3).
(2) Summary of Significant Accounting Policies
Property and improvements are stated at cost. The Partnership assesses
market values of individual properties to determine whether events and
circumstances warrant an adjustment to carrying values. These evaluations
are based on internally-developed estimates of expected undiscounted
future cash flows. In the event the carrying value of an individual
property exceeds expected future undiscounted cash flows, the property is
written down to fair value based on either the expected future cash
flows, discounted at a rate which varies based on associated risk or an
independent third-party appraisal. Notwithstanding the above, the
carrying value of a property securing nonrecourse debt is not reduced
below the respective debt balance except to the extent depreciation is
provided subsequent to the writedown.
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
using declining-balance and straight-line methods, as follows: buildings
and improvements, 25 to 31 years; furniture, fixtures and equipment, 5 to
10 years.
The financial statements and federal income tax returns are prepared on
the accrual method of accounting and include only those assets and
liabilities and results of operations which relate to the business of the
Partnership and its wholly owned subsidiaries. No provision has been made
for federal and state income taxes since such taxes are the
responsibility of the individual partners. Although the Partnership's
subsidiaries file federal corporate income tax returns, none of the
subsidiaries had significant net income for financial reporting or income
tax purposes in 1995, 1994 or 1993. Accordingly, no provision has been
made for federal and state income taxes for these subsidiaries in 1995,
1994 or 1993.
<PAGE>
Net income (loss) of the Partnership and taxable income (loss) are
generally allocated 98% to the limited partners and 2% to the general
partners. The net income of the Partnership from the disposition of a
property is allocated (i) to partners with deficit capital accounts on a
pro rata basis (ii) to limited partners until they have been paid an
amount equal to the amount of their Adjusted Investment (iii) to the
limited partners until they have been allocated income equal to their 12%
Liquidation Preference, and (iv) thereafter, 80% to the limited partners
and 20% to the general partners. The net loss of the Partnership from the
disposition of a property is allocated (i) to partners with positive
capital accounts on a pro rata basis and (ii) thereafter, 98% to the
limited partners and 2% to the general partners. Distributions of
available cash flow are generally distributed 98% to the limited partners
and 2% to the general partners, until the limited partners have received
an annual preferential distribution, as defined. Thereafter, available
cash flow is distributed 90% to the limited partners and 10% to the
general partners. During 1993, CRG allocated its general partner
distribution to the limited partners. No distributions were made in 1995
or 1994.
Deferred charges primarily represent initial fees and other costs
incurred in negotiating leases and mortgage loans payable. These costs
are being amortized using the straight-line method over the lives of the
related leases or mortgage loans.
Net patient service revenue is reported at the estimated net realizable
amounts due from residents, third-party payors, and others for service
rendered. Revenue under third-party payor agreements is subject to audit
and retroactive adjustment. Provisions for estimated third-party payor
settlements are provided in the period the related services are rendered.
Differences between the estimated amounts accrued and interim and final
settlements are reported in operations in the year of settlement.
Net patient service revenue consists of amounts earned at a one facility
for the year ended December 31, 1995 and one facility from January 1,
1995 to July 31, 1995. Net patient service revenue consists of amounts
earned at two facilities for the years ended December 31, 1994 and 1993
and one facility from January 1, 1993 through November 30, 1994.
The Partnership records accounts receivable for contingent rentals and
past due rents only when circumstances indicate a substantial probability
of collection. Existing receivables are reserved to the extent collection
is deemed doubtful by the Partnership's management. Deductions to the
allowance for doubtful accounts were $29,953, $32,426 and $-0- for 1995,
1994 and 1993, respectively.
The Partnership classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to
prepare these consolidated financial statements. Actual results could
differ from those estimates.
<PAGE>
(3) Property and Improvements
Property and improvements consist of:
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
---- ----
<S> <C> <C>
Land $ 3,570,802 6,739,171
Buildings and improvements 34,467,946 42,932,875
Furniture, fixtures and equipment 1,851,124 2,244,646
----------- -----------
39,889,872 51,916,692
Allowance for reduction in carrying value of
operating properties (3,026,898) (5,643,765)
----------- -----------
36,862,974 46,272,927
Less accumulated depreciation 11,611,719 12,576,670
---------- ----------
$ 25,251,255 33,696,257
========== ==========
</TABLE>
The following property dispositions occurred during 1995:
<TABLE>
<CAPTION>
Net property Mortgage Net Net gain on
and improvements loans payable Other proceeds disposition
Sale of Heritage Manor
<S> <C> <C> <C> <C> <C> <C>
on July 5, 1995 $ 2,530,645 (1,500,000) 63,857 (1,458,287) 363,785
Deed transferred to
noteholder in lieu of
foreclosure:
Foothills 2,122,178 (2,360,895) (872,587) - 1,111,304
Diablo/Tamarack 2,071,334 (2,160,787) (802,552) - 892,005
--------- ---------- ---------- --------------- ----------
$ 6,724,157 (6,021,682) (1,611,282) (1,458,287) 2,367,094
========= ========= ========= ========= =========
</TABLE>
"Other" consists primarily of accrued interest payable and deferred
charges (prepaid loan fees).
Effective December 1, 1994, the Foothills property was placed in
receivership. The deed to the property was subsequently transferred to
the noteholder in lieu of foreclosure on July 19, 1995. The resulting net
gain is comprised of (1) an ordinary loss of $914,435, representing the
difference between the carrying value and the fair value of the property
and, (2) an extraordinary gain of $2,025,739 representing the difference
between the fair value of the property, and the mortgage loan payable
including accrued interest payable.
The deed to the Diablo/Tamarack property was transferred to the
noteholder in lieu of foreclosure on July 31, 1995. The resulting net
gain is comprised of (1) an ordinary loss of $686,770 representing the
difference between the carrying value and the fair value of the property
and, (2) an extraordinary gain of $1,578,775 representing the difference
between the fair value of the property, and the mortgage loan payable
including accrued interest payable.
<PAGE>
Additionally, the Partnership owns a property, Cambridge, operated under
bankruptcy proceedings (note 6). In 1994, management concluded that the
carrying value of Cambridge exceeded its estimated fair value. As a
result, in the fourth quarter of 1994, this property, which had been
carried at $4,185,381, was written down to $2,000,000.
In 1993, management concluded that the carrying value of three
properties, Foothills, Countryside and Diablo/Tamarack exceeded estimated
fair value. These properties each secured nonrecourse debt, the
outstanding balances of which management also believed exceeded their
respective estimated fair values. As a result, in the fourth quarter of
1993, these properties, which had been carried at $10,048,605, were
written down to their respective nonrecourse debt values which aggregated
$6,590,221 (note 4).
The Partnership is presently negotiating the sale of the Countryside
property with a unrelated third-party investor and the lender holding the
debt secured by the property. The sale is subject to the lender accepting
the sales proceeds offered by the investor as full satisfaction of the
debt, including accrued interest payable. The sale proceeds offered by
the investor are less than the carrying value of the debt and accrued
interest payable. The outcome of these negotiations is not presently
determinable. At December 31, 1995, the carrying value of Countryside's
property and improvements was $1,779,852 which secured a mortgage loan
payable of $2,068,539 and accrued interest payable of $766,972.
Combined operating results for Foothills, Countryside and Diablo/Tamarack
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net patient service revenue $ 3,268,800 6,698,751 6,237,907
--------- --------- ---------
Facility operating expenses 3,238,004 6,597,068 6,150,899
Depreciation 275,815 369,401 378,045
Fees to affiliates 319,454 650,740 435,851
Bad debts 325,921 52,263 112,760
Lease default expenses 120,258 81,014 75,907
---------- ----------- -----------
4,279,452 7,750,486 7,153,462
--------- --------- ---------
Loss from operations $(1,010,652) (1,051,735) (915,555)
========= ========= ==========
Interest expense $ 457,691 664,306 673,365
========== ========== ==========
</TABLE>
<PAGE>
(4) Mortgage Loans Payable
Mortgage loans payable consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C> <C>
Mortgage loans payable - in default (note 3) $ 2,068,539 6,590,221
Mortgage loans payable 7,707,062 9,678,447
--------- -----------
Total mortgage loans payable $ 9,775,601 16,268,668
========= ==========
</TABLE>
Mortgage loans payable (including $6,333,183 and $6,775,796 due to banks
at December 31, 1995 and 1994), bear interest ranging from 6.8% to 10.75%
at December 31, 1995 and 6.8% to 13.125% at December 31, 1994. These
notes are payable in monthly installments of $94,618 at December 31, 1995
and $108,290 at December 31, 1994, including interest. The notes are
secured by properties with net book values aggregating $14,004,632 and
$17,231,664 at December 31, 1995 and 1994, respectively.
Mortgage loans payable - in default, consists of one loan at December 31,
1995, secured by the Countryside property and three loans at December 31,
1994, secured by the Countryside, Foothills and Diablo/Tamarack
properties, respectively. In 1995, notes secured by the Foothills and
Diablo/Tamarack properties were extinguished in connection with the
disposition of the properties securing the notes (see note 3). The
note(s) bear interest at 10.0% at December 31, 1995 and 9.5% to 11.25% at
December 31, 1994. The note(s) are payable in monthly installments of
$20,796 at December 31, 1995 and $66,736 at December 31, 1994, including
interest. The note(s) are secured by property(ies) with net book value(s)
aggregating $1,779,852 and $6,248,417 at December 31, 1995 and 1994,
respectively. The note(s) are in default because of the Partnership's
failure to make required debt service payments when due and because of
the failure of the former lessees to pay required property taxes to the
taxing authorities.
The Partnership had one mortgage loan aggregating $1,062,237 and
$1,219,776 at December 31, 1995 and 1994, respectively, that was in
default as a result of not meeting a debt coverage ratio, as defined.
Despite this default, the lender waived this ratio requirement through
January 1, 1997. Accordingly, this loan balance is classified as
"mortgage loans payable" in the accompanying consolidated balance sheets.
Accrued interest payable related to mortgage loans payable - in default
aggregated $766,972 and $1,842,112 at December 31, 1995 and 1994,
respectively.
The Partnership leases four of its properties under a master lease (see
note 6). The rentals under the master lease provide additional security
for two notes payable used to finance two of the master lease properties.
As consideration for lender approval of the master lease restructuring,
the Partnership reduced the outstanding principal balances of the notes
payable during December 1992 by an aggregate $615,000. Additionally, the
Partnership made an additional $215,000 prepayment on one of these notes
in 1993 and increased the monthly principal payments for both of these
notes by $9,500, effective January 1, 1993. Both of these notes were
callable by the lenders at any time between January 1, 1993 and November
30, 1995; however, the lenders agreed not to exercise their call rights
prior to maturity on January 31, 1996 as long as the Partnership remained
in compliance with the loan agreements. Subsequently, one of the lenders
agreed not to exercise its call right until March 31, 1996. The
Partnership is in the process of negotiating an extension of this note.
The second lender approved an extension of the maturity date of its note
to December 1, 2001.
Presented below is a summary of required principal payments on mortgage
loans payable. The outstanding principal balances of mortgage loans
payable - in default and the note callable on March 31, 1996 are included
in amounts due currently.
1996 $ 3,266,182
1997 1,456,637
1998 127,428
1999 141,470
2000 157,061
2001 and thereafter 4,626,823
---------
$ 9,775,601
(5) Leases
The Partnership leases its property and equipment to tenants under
noncancelable operating leases. The lease terms range from 9 to 12 years
with options to renew for additional five-year terms and options to
purchase the leased property at the current fair market value at the end
of the initial lease term. The leases generally provide for contingent
rentals based on the performance of the property. Contingent rentals
aggregated $165,042, $173,541 and $197,286 in 1995, 1994 and 1993,
respectively.
Minimum rentals for the next four years for leases not in default are
$3,971,328 per year, subject to change based on changes in interest
rates. Minimum rentals for the year 2000 are $3,761,252 and rentals
thereafter aggregate $2,858,629. Property and improvements less
accumulated depreciation attributable to such rentals, amounted to
$21,671,891 and $25,310,338 at December 31, 1995 and 1994, respectively.
(6) Lease Defaults
Prior to 1993, the Partnership experienced defaults by lessees of several
of its properties. In connection with those defaults, the Partnership
assumed operating responsibility for the Countryside and Foothills
properties during 1992.
NCA Cambridge, Inc., the lessee of the Partnership's Cambridge property,
petitioned for Chapter 11 bankruptcy protection in 1992. In May 1993, CRG
began operating Cambridge under the control of the bankruptcy court
pursuant to a settlement agreement with the former lessee; however, the
results of operations of this property have not been included in the
consolidated statements of operations for the three years ended December
31, 1995 as the ultimate disposition of the property is subject to
bankruptcy proceedings. The Partnership anticipates that bankruptcy
proceedings will be resolved in 1996. In connection with this property,
the lessee was overpaid for services to Medicaid patients during the
period the lessee operated the property. Based on certain interpretations
of state regulations, the Partnership could have been liable for
approximately $1,400,000 in connection with the recovery of these
Medicaid overpayments.
During 1995, the Partnership entered into a settlement agreement with the
state of Massachusetts, approved by the bankruptcy court, whereby the
$1,400,000 became a general, unsecured claim of the bankruptcy estate
which will be settled through bankruptcy court proceedings. Additionally,
as part of the settlement agreement with the state, the Partnership
agreed to loan NCA Cambridge, Inc. $590,000 to pay outstanding real
property taxes due on the Cambridge property. The Partnership has fully
reserved for this receivable in the accompanying 1995 consolidated
balance sheet.
Four of the Partnership's remaining properties are subject to a master
lease with a single operator. During 1993, the operator merged with
ReLife, Inc. (ReLife), an unrelated third party, resulting in the
following amendments to the existing lease agreement:
A $1,900,000 note due the Partnership was paid in full and
recognized as a recovery of note receivable in the 1993
consolidated statement of operations.
The Partnership's 561,198 shares of the operator's Class B common
stock were sold to ReLife for $939,025 resulting in a $539,025
gain on sale of investment in the 1993 consolidated statement of
operations.
The lessee was given an option to renew the lease for an
additional nine year period.
ReLife agreed to guarantee the obligations of the lessee under the
second restructuring agreement.
ReLife will pay contingent rentals equal to 4% of the revenue
differential, as defined, effective January 30, 1997.
During 1994 ReLife was acquired by HealthSouth Rehabilitation Corp.
Approximate expenses related to lease defaults are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Property taxes and trade payables $ - 208,000 48,000
Legal and professional fees 286,000 245,000 351,000
------- ------- -------
$ 286,000 453,000 399,000
======= ======= =======
</TABLE>
Delinquent rentals fully reserved by the Partnership as a result of the
defaults approximated $674,000 in 1995, 1994 and 1993.
Other income in 1994 primarily consists of $560,000 in recovered
administrative expenses owed the Partnership from the former operator of
two of the Partnership's properties.
<PAGE>
(7) Related Party Transactions
Approximate fees paid to the general partner and affiliates of the
general partner are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Asset management fees $ 712,000 731,000 734,000
Property management fees 252,000 472,000 436,000
Administrative and other expenses 235,000 266,000 389,000
General partner management fees 80,000 113,000 109,000
----------- ---------- ----------
$ 1,279,000 1,582,000 1,668,000
========= ========= =========
</TABLE>
In 1994 the Partnership purchased an administrative building, adjacent to
one of its facilities, from a partnership owned by the owners of CRG for
approximately $485,000 based on an independent appraisal.
In addition, the Partnership paid CRG fees aggregating approximately
$412,500 and $78,500 in 1993 in connection with amending the master lease
and restructuring related debt, respectively, (see note 6) which amounts
are included in deferred charges in the accompanying consolidated balance
sheets.
In addition, a 50% partner in CRG is chairman of the board of a bank
where the Partnership holds the majority of its operating cash accounts.
In connection with the sale of Heritage Manor, the general partner was
paid fees aggregating $92,250.
(8) Income Taxes
Reconciliation of financial statement basis partners' equity to federal
income tax basis partners' equity is as follows:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1995 1994 1993
---- ---- ----
Total partners' equity - financial statement
<S> <C> <C> <C>
basis $ 22,427,282 21,176,949 24,212,408
Current year tax basis net earnings
over (under) financial statement basis (2,942,675) 2,552,427 3,424,077
Cumulative tax basis net earnings over
financial statement basis 8,079,253 5,526,826 2,102,749
----------- ----------- -----------
Total partners' equity - federal income
tax basis $ 27,563,860 29,256,202 29,739,234
========== ========== ==========
</TABLE>
Because many types of transactions are susceptible to varying
interpretations under federal and state income tax laws and regulations,
the amounts reported above may be subject to change at a later date upon
final determination by the taxing authorities.
<PAGE>
(9) Business and Credit Concentrations
The Partnership's nine facilities are located throughout the continental
United States. The four facilities operated by a common operator (note 6)
are located in the southeastern United States and accounted for
approximately $2,367,000 (28%), $2,292,000 (18%) and $2,292,000 (16%) of
Partnership revenues in 1995, 1994 and 1993, respectively. One property
leased to an unaffiliated operator accounted for approximately $977,000
(12%) of Partnership revenues in 1995.
The Partnership also derives revenue from Medicaid programs funded by the
states of Colorado, California and Michigan. The Partnership derived 14%
and 12% of its revenues from the Colorado state program during 1994 and
1993, respectively, and 15% and 11% of its revenues from the Michigan
state program in 1995 and 1994, respectively. Revenues derived from the
state program of Michigan in 1993 and the state program of California in
1995, 1994 and 1993 were individually less than 10% of the Partnership's
revenues for those years.
Receivables due from state Medicaid programs aggregated $116,933 and
$473,000 at December 31, 1995 and
1994, respectively.
The Partnership does not require collateral or other security to support
financial instruments subject to credit risk.
(10) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments presented below.
(a) Cash and Cash Equivalents, Receivables and Payables
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Mortgage Loans Payable
The fair value of the Partnership's mortgage loans payable is
calculated by discounting scheduled cash flows through maturity
using discount rates that are currently available to the
Partnership on other borrowings with similar risk and maturities.
Issuance costs and other expenses that would be incurred in an
actual borrowing are not reflected in this amount. The fair value
of the mortgage loan in default at December 31, 1995 is not
included in the calculation as it was not considered practicable
to calculate this amount due to the uncertainty surrounding the
repayment terms of this debt (see note 3).
<TABLE>
<CAPTION>
Carrying
value Fair value
<S> <C> <C>
Mortgage loans payable $ 7,707,062 7,641,333
========= =========
</TABLE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following Consolidated Financial
Statements of HealthCare Properties, L.P.
and Subsidiaries are incorporated by
reference as set forth in PART II, Item 8:
Independent Auditors' Report Consolidated
Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations -
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Partnership
Equity - Years ended December 31, 1995,
1994 and 1993 Consolidated Statements of
Cash Flows- Years ended December 31, 1995,
1994 and 1993 Notes to Consolidated
Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they
are inapplicable, not required, or the
information is included in the financial
statements or notes thereto.
(3) Exhibits
Page Nos. in
Exhibit Number This Filing
3 Restated Limited Partnership Agreement is incorporated N/A
by reference to Exhibit A to the Prospectus of
Registrant dated August 31, 1987, as filed with the
Commission pursuant to Rule 424(b).
10 Restructuring Agreement dated November 30, 1992, N/A
between Registrant and Rebound, Inc. with exhibits.
28 Partnership Management Agreement, dated July 29, 1992, N/A
with Capital Realty Group Properties, Inc. as filed
with the Commission in the Third Quarter 10-Q, dated
September 30, 1992.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of fiscal
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HEALTHCARE PROPERTIES, L.P.
By: Capital Realty Group Senior Housing, Inc.,
General Partner
By:
James A. Stroud
Chief Operating Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated.
By: __________________________________ March 29, 1996
James A. Stroud
Chief Operating Officer and Director
(Chief financial, and accounting officer)
By: __________________________________ March 29, 1996
Jeffrey L. Beck
Chief Executive Officer and Director
<PAGE>
EXHIBIT INDEX
Page Nos. in
Exhibit Description This Filing
3 Restated Limited Partnership Agreement is incorporated N/A
by reference to Exhibit A to the Prospectus of
Registrant dated August 31, 1987, as filed with the
Commission pursuant to Rule 424(b)
10 Restructuring Agreement dated November 30, 1992, between N/A
Registrant and Rebound, Inc. with exhibits.
28 Partnership Management Agreement, dated July 29, 1992, N/A
with Capital Realty Group Properties,Inc. as filed with
the Commission in the Third Quarter 10-Q, dated
September 30, 1992.
<PAGE>
March 29, 1995
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:
Enclosed please find Form 10-K for the year ended December 31, 1995 for the
above referenced partnership.
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,
HEALTHCARE PROPERTIES, L.P.
Pamela Crace
Investor Relations Director
PJC/rlt
Enclosure
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at Decebmer 31, 1995 and the consolidated statements
of operations and cash flows for the twelve months ended December 31, 1995
and is qualified in ites entireity by reference to such financial statemetns.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,606,857
<SECURITIES> 0
<RECEIVABLES> 3,700,346
<ALLOWANCES> (3,489,937)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,889,872
<DEPRECIATION> (14,638,617)
<TOTAL-ASSETS> 33,812,286
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,427,282
<TOTAL-LIABILITY-AND-EQUITY> 33,812,286
<SALES> 0
<TOTAL-REVENUES> 8,604,674
<CGS> 0
<TOTAL-COSTS> 8,225,325
<OTHER-EXPENSES> 171,265
<LOSS-PROVISION> 1,237,420
<INTEREST-EXPENSE> 1,324,845
<INCOME-PRETAX> (2,354,817)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 3,604,514
<CHANGES> 0
<NET-INCOME> 1,250,333
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
