SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-17695
-------
HEALTHCARE PROPERTIES, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1317327
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
(Address of principal executive office)
(972) 770-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for at least the past 90 days.
YES x NO
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
BALANCE SHEETS
--------------
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited) (Audited)
----------- ---------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 9,839,845 $ 8,995,455
Accounts receivable, less allowance for doubtful
accounts of $4,270,655 in 1997 and $4,225,811 in 1996 765,302 794,234
Prepaid Expenses and other 61,602 85,295
Property and improvements, net 21,152,138 22,112,619
Deferred charges, less accumulated amortization
of $846,024 in 1997 and $765,409 in 1996 420,564 499,944
---------------- ----------------
$ 32,239,451 $ 32,487,547
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
----------------------------------
Accounts payable and accrued expenses $ 737,675 $ 1,004,204
Operating facility accounts payable 45,616 211,304
Mortgage loans payable 6,822,453 7,207,414
---------------- ----------------
7,605,744 8,422,922
---------------- ----------------
Partnership equity:
Limited partners (4,172,457 units) 24,609,884 24,058,684
General partner 23,823 5,941
---------------- ----------------
24,633,707 24,064,625
---------------- ----------------
$ 32,239,451 $ 32,487,547
================ ================
See notes to financial statements
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
--------------------------
Three months ended, Three months ended,
September 30, 1997 September 30, 1996
------------------ ------------------
Revenues:
<S> <C> <C>
Rental $ 1,056,067 $ 1,115,121
Net patient services 1,173,806 936,423
--------------- ---------------
2,229,873 2,051,544
--------------- ---------------
Expenses:
Facility operating expenses 1,106,318 916,522
Depreciation 340,960 342,901
Lease default expenses 0 45,869
Administrative and other 378,649 250,516
Bad debts 15,000 294,898
--------------- ---------------
1,840,927 1,850,706
--------------- ---------------
Income from operations 388,946 200,838
--------------- ---------------
Other income (expenses):
Interest income 92,821 59,526
Interest expenses (168,828) (178,142)
Amortization (26,913) (28,527)
--------------- ---------------
(102,920) (147,143)
--------------- ---------------
Net income $ 286,026 $ 53,695
=============== ===============
NET EARNINGS PER UNIT $ .07 $ .01
=============== ===============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,172,457 4,172,457
=============== ===============
See notes to financial statements
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
----------------------------
Nine months ended, Nine months ended,
September 30, 1997 September 30, 1996
------------------ ------------------
Revenues:
<S> <C> <C>
Rental $ 3,214,040 $ 3,563,789
Net patient services 3,669,101 1,722,662
--------------- ---------------
6,883,141 5,286,451
--------------- ---------------
Expenses:
Facility operating expenses 3,362,862 1,653,479
Depreciation 1,022,880 1,076,809
Lease default expenses 14,687 104,084
Administrative and other 1,208,760 969,788
Bad debts 43,061 710,407
--------------- ---------------
5,652,250 4,514,567
--------------- ---------------
Income from operations 1,230,891 771,884
--------------- ---------------
Other income (expenses):
Gain on sale 0 387,528
Interest income 256,456 174,067
Interest expenses (512,651) (608,455)
Amortization (80,614) (85,581)
--------------- ---------------
(336,809) (132,441)
--------------- ---------------
Net income before extraordinary item 894,082 639,443
Extraordinary item - gain on extinguishment
of debt 0 952,692
--------------- ---------------
Net income $ 894,082 $ 1,592,135
=============== ===============
NET EARNINGS PER UNIT $ .21 $ .37
=============== ===============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,172,457 4,172,457
=============== ===============
See notes to financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF PARTNERSHIP EQUITY
--------------------------------
Limited General
Partners Partners Total
-------- -------- -----
Allocation of Net Earnings
<S> <C> <C> <C>
(Loss) 98% 2% 100%
=== == ====
EQUITY at
December 31, 1996 $ 24,058,684 $ 5,941 $ 24,064,625
Net Income 341,844 6,976 348,820
-------------- ------------ --------------
EQUITY at
March 31, 1997 $ 24,400,528 $ 12,917 $ 24,413,445
Net Income 254,051 5,185 259,236
-------------- ------------ --------------
EQUITY at
June 30, 1997 $ 24,654,579 $ 18,102 $ 24,672,681
Distributions (325,000) 0 (325,000)
Net Income 280,305 5,721 286,026
-------------- ------------ --------------
EQUITY at
September 30, 1997 $ 24,609,884 $ 23,823 $ 24,633,707
============== ============ ==============
See notes to financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
--------------------------------
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 894,082 $ 1,592,135
Adjustments to reconcile net loss to
net cash provided by operating activities:
Gain on extinguishment of debt 0 (702,692)
Gain on sale 0 (637,528)
Bad debts 43,061 710,407
Depreciation and amortization 1,103,494 1,162,390
Changes in assets and liabilities:
Accounts receivable (14,129) (1,071,427)
Prepaid expenses 23,693 25,802
Deferred charges (1,234) 0
Accounts payable &
accrued expenses (432,217) 494,816
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,616,750 1,573,903
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of property 0 2,246,114
Purchases of property and improvement (62,399) (19,624)
------------- -------------
NET CASH (USED) PROVIDED IN
INVESTING ACTIVITIES
(62,399) 2,226,490
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable (384,961) (2,440,562)
Distributions (325,000) 0
------------- -------------
NET CASH USED IN
FINANCING ACTIVITIES (709,961) (2,440,562)
------------- -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 844,390 1,359,831
CASH AND CASH EQUIVALENTS
Beginning of Period 8,995,455 7,606,857
------------- -------------
CASH AND CASH EQUIVALENTS
End of Period $ 9,839,845 $ 8,966,688
============= =============
See notes to financial statements
</TABLE>
5
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
NOTE TO FINANCIAL STATEMENTS
Nine months ended September 30, 1997
(Unaudited)
A. ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary have been included. Operating
results are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. The financial statements should be read in
conjunction with the consolidated financial statements and the footnotes thereto
included in Registrant's annual report on Form 10-K for the year ended December
31, 1996.
B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
Effective July 1, 1993, Capital Realty Group Senior Housing, Inc. ("CRGSH")
replaced Jacques-Miller, Inc. and Jacques and Associates, L.P. as the sole
General Partner of the Registrant.
Personnel working at the Property sites and certain home office personnel
who perform services for the Registrant are employees of Capital Senior Living,
Inc. (CSL), an affiliate of CRGSH. The Registrant reimburses CSL for the
salaries, related benefits, and overhead reimbursements of such personnel as
reflected in the accompanying financial statements. Reimbursements and fees paid
to the general partner and affiliates of the general partner are as follows:
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
<S> <C> <C>
Salary and benefit reimbursements $ 2,380,491 $ 1,066,835
Administrative reimbursements 171,401 220,019
Asset management fees 345,967 560,477
Property management fees 251,725 117,465
General partner management fees 68,101 48,485
-------------- -------------
$ 3,217,685 $ 2,013,281
============== =============
</TABLE>
Currently, Capital Senior Living Communities, L.P., an affiliate of CRGSH,
holds approximately 56% of the outstanding Units of the Registrant.
C. VALUATION OF RENTAL PROPERTY
Generally accepted accounting principles require that the Registrant
evaluate whether it is probable that the estimated undiscounted future cash
flows of its properties, taken individually, will be less than the respective
net book value of the properties. If such a shortfall exists and is material,
then a write-down is warranted. The Registrant performs such evaluations on an
on-going basis. During the nine months ended September 30, 1997, based on the
Registrant's evaluation of the properties, the Registrant did not believe that
any additional write-down was warranted.
6
<PAGE>
The balance sheet of the Registrant as of September 30, 1997, shows total
assets of $32,239,451, total liabilities of $7,605,744, and Registrant equity of
$24,633,707.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
Registrant commenced an offering to the public on August 31, 1987, of
depository units representing beneficial assignments of limited partnership
interests ("Units"). On October 14, 1987, Registrant commenced operations,
having previously accepted subscriptions for more than the specified minimum of
120,000 Units. As of August 30, 1989, the offering was closed except for Units
for sale to existing investors under the terms of a distribution reinvestment
plan. As of September 30, 1997, Registrant had sold Units aggregating
approximately $43.4 million. Due to the suspension of the distribution
reinvestment plan, Registrant does not anticipate any additional inflow of
investment.
All of the net proceeds of the offering were originally invested in 12
properties or used for working capital reserves. The Registrant partially
financed the acquisition of eight of its original properties with non-recourse
debt. Four properties were initially unleveraged. As of September 30, 1997, four
of the original twelve properties had either been sold or deeded back to the
lender, leaving the Registrant with four properties secured by debt and four
properties unleveraged.
Potential sources of liquidity for Registrant include collection of
outstanding receivables and/or revenue participation related to various leased
facilities, collection on defaulted rent and/or damage settlements related to
leases in default, new mortgage financing on one or more of Registrant's
unencumbered assets, and a potential sale of one or more of the Registrant's
assets.
As of September 30, 1997, Registrant had cash and cash equivalents
aggregating $9,839,845. The cash and cash equivalents will be used for working
capital, emergency reserves, and other restructuring requirements.
Registrant's general policy is to maintain sufficient cash and cash
equivalents to address disruptions of its lease revenues and to have adequate
additional funds for investment in existing assets for improvements. To the
extent that Registrant deems it necessary to take over the operations of any of
its facilities currently under long term net lease, such action would require
additional investment in working capital for operating reserves, capital
expenditures and related debt payments. As a consequence of prior defaults,
Registrant suspended cash distributions on July 1, 1991, pending successful
resolution of the various problems within its portfolio. Due to the uncertainty
of the timing and conditions under which the Liquidity Reserve (which was
suspended in March of 1991) might be reactivated, on August 15, 1991, Registrant
ceased accepting additional liquidation requests. As required by the Partnership
Agreement, for Limited Partners to be paid their portion for federal income
taxes, a $250,000 and $325,000 cash distribution was made in June 1993 and July
1997, respectively. Future cash distributions will be dependent upon improved
operational income and successful refinancing on certain Registrant mortgages.
The Units are not publicly traded and as a result the liquidity of each Limited
Partner's individual investment is limited.
7
<PAGE>
Results of Operations
- ---------------------
Discussion of Nine Months Ending September 30, 1997
---------------------------------------------------
Rental revenues for the nine months ended September 30, 1997, decreased
$349,749 from the comparable nine months ended September 30, 1996, due to the
termination of lease accruals with the prior lessee of the Cambridge facility.
Net patient services for the nine months ended September 30, 1997, increased
$1,946,439 from the nine months ended September 30, 1996. Net patient services
for the nine months ended September 30, 1997 is for the Cambridge facility,
which Registrant assumed management of in August 1996, and net patient services
for the nine months ended September 30, 1996 is for the Countryside facility,
which was sold in May 1996. Interest income for the nine months ended September
30, 1997 increased $82,389 from the nine months ended September 30, 1996
primarily due to rising interest rates and increasing cash available for
investment.
Facility operating expenses for the nine months ended September 30, 1997,
increased by $1,709,383 from the comparable 1996 period. Facility operating
expenses for the nine months ended September 30, 1997 and 1996 include the
operating expenses of the Cambridge Nursing Home and Countryside, respectively.
Depreciation for the nine months ended September 30, 1997, decreased $53,929
from the comparable 1996 period and is primarily due to the loss of the
Countryside facility. Lease default expense decreased $89,397 for the nine
months ended September 30, 1997 from the comparable 1996 period due to
decreasing legal fees incurred on the resolution of defaulted leases.
Administrative expenses, including fees to the General Partner, increased
$238,972 for the nine months ended September 30, 1997 in comparison to 1996 and
is primarily due to increased professional fees and management fees. Bad debt
expense for the nine months ended September 30, 1997 decreased $667,346 from the
comparable 1996 period primarily due to the decreasing bad debt provision on
Partnership advances and rent provisions to the Cambridge facility. Interest
expense and amortization for the nine months ended September 30, 1997 decreased
by $95,804 and $4,967, respectively, from the comparable 1996 period, and is
primarily due to the loss of the Countryside facility.
During the second quarter 1996, the Partnership incurred a $387,528 gain on
sale and $952,692 extraordinary gain on extinguishment of debt due to the sale
of the Countryside facility.
For the three months ended September 30, 1997 as compared with the three
months ended September 30, 1996, the Partnership's revenue was impacted by the
same shifts of revenue as discussed above. Similarly, a comparison of third
quarter 1997 operating expenses versus third quarter 1996 reflects the same
variances as discussed above.
Cash and cash equivalents as of September 30, 1997 increased $844,390 over
the balance at December 31, 1996. Cash decreased for the nine months ending
September 30, 1997 in comparison to 1996 is primarily due to cash distributions.
Net accounts receivable of $765,302 at September 30, 1997 reflected a decrease
of $28,932 over 1996 year-end balances. Accounts payable, accrued expenses, and
facility accounts payable balances decreased $432,217 at September 30, 1997,
from December 31, 1996 and is primarily due to the payment of accrued Medicaid
liabilities on the Countryside facility.
The following is a brief discussion of the status of Registrant's
properties:
Cedarbrook, Cane Creek, Crenshaw Creek and Sandy Brook facilities. Rebound,
Inc. (a subsidiary of HealthSouth Corporation) leases the Cedarbrook, Cane
Creek, Crenshaw Creek and Sandy Brook properties pursuant to a master lease with
the Registrant.
Due to low occupancy of the Sandybrook facility, it was closed in 1994 and
at this time the lessee has not provided any information on when it might
8
<PAGE>
reopen. Rental payments in March and April 1995 were discontinued by HealthSouth
causing an interruption in the master lease. Registrant met with HealthSouth 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. In February
1997, the Registrant was notified by HealthSouth of the closing of the
Cedarbrook facility due to the low occupancy. At this time, the Registrant
cannot determine when this facility might reopen. HealthSouth has continued to
make lease payments 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. 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. One of the lenders agreed to extend the maturity date
of its note to December 1, 2001, pending completion of final loan documents. On
March 21, 1997, the other lender agreed not to exercise its call rights until
June 30, 1997. The Partnership is currently negotiating the extension of the
note until December 1, 2001.
Countryside facility. The mortgage loan on Countryside was in default from
April 1992 onward. On May 1, 1996, Registrant sold the Countryside facility to a
third party buyer for $2,200,000. With the sale proceeds, Registrant paid off
the lender on Countryside an amount agreed to by the lender in full settlement
of all obligations to the lender. Registrant netted $26,000 as a result of this
agreed upon sale. Registrant also obtained a full release of all potential
liability from the lender.
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. On August 1, 1996, the United
States Bankruptcy Court approved the transfer of the operations of NCA Cambridge
Nursing Home to Cambridge LLC, a subsidiary of the Registrant, thereby releasing
the operations of the facility from the jurisdiction of the United States
Bankruptcy Court.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Registrant has been engaged in litigation in an attempt to recover damages
from defaulting lessees and their guarantors. Such actions involve claims
against a prior operator of the Diablo/Tamarack facility. In certain cases
counterclaims against Registrant have been either threatened or filed.
Registrant does not believe any materially adverse judgments are likely from
these counter claims.
9
<PAGE>
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
Through September 30, 1997, Capital Senior Living Communities, L.P.
("CSLC"), an affiliate of CRGSH, acquired additional Units of Registrant and
thereby now holds approximately 56% of the Units of Registrant. CSLC has
acquired the Units for cash for investment purposes. Messrs. Jeffrey L. Beck and
James A. Stroud, the beneficial owners of CRGSH, are also the beneficial owners
of the general partner of CSLC and beneficially own in excess of 50% of the
outstanding equity units of CSLC.
On November 3, 1997, CLSC sold all of the units of the Registrant it held
to Capital Senior Living Properties, Inc., an affiliate of CRGSH, in conjunction
with the initial public offering of its parent company, Capital Senior Living
Corporation. Messrs. Jeffrey L. Beck and James A. Stroud own approximately 45%
of Capital Senior Living Corporation's outstanding stock. In connection with the
sale of its investment in the Registrant, and in compliance with Section 16b of
the Securities and Exchange Act, CSLC subsequently paid to the Registrant
$440,007 in short swing profits made on purchases of the Registrant's equity
securities within a six month period prior to the sale.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: /s/ Keith Johannessen
-------------------------------------
Keith Johannessen
President
By: /s/ James A. Stroud
-------------------------------------
James A. Stroud
Chief Operating Officer
Date: November 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> Healthcare Properties FDS
</LEGEND>
<CIK> 0000814458
<NAME> Healthcare Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 9,839,845
<SECURITIES> 0
<RECEIVABLES> 5,035,957
<ALLOWANCES> (4,270,655)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 24,897,257
<DEPRECIATION> (15,057,412)
<TOTAL-ASSETS> 32,239,451
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,633,707
<TOTAL-LIABILITY-AND-EQUITY> 32,239,451
<SALES> 0
<TOTAL-REVENUES> 7,139,597
<CGS> 0
<TOTAL-COSTS> 5,652,250
<OTHER-EXPENSES> 80,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512,651
<INCOME-PRETAX> 894,082
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894,082
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
