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 June 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 oganization) 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
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
BALANCE SHEETS
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited) (Audited)
----------- ---------
ASSETS
------
Cash and cash equivalents $ 9,548,043 $ 8,995,455
Accounts receivable, less
allowance for doubtful
accounts of $4,255,655
in 1997 and $4,225,811
in 1996 947,337 794,234
Prepaid Expenses and other 72,723 85,295
Property and improvements, net 21,469,109 22,112,619
Deferred charges, less accumulated
amortization of $819,111 in 1997
and $765,409 in 1996 446,242 499,944
------------ ------------
$ 32,483,454 $ 2,487,547
============ ============
See notes to financial statements
1
<PAGE>
LIABILITIES AND PARTNERSHIP EQUITY
----------------------------------
Accounts payable and accrued
expenses $ 820,991 $ 1,004,204
Operating facility accounts payable 43,359 211,304
Mortgage loans payable 6,946,423 7,207,414
------------ ------------
7,810,773 8,422,922
------------ ------------
Partnership equity:
Limited partners (4,172,457 units) 24,654,579 24,058,684
General partner 18,102 5,941
------------ ------------
24,672,681 24,064,625
------------ ------------
$ 32,483,454 $ 32,487,547
============ ============
See notes to financial statements
2
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
Three months ended, Three months ended,
June 30, 1997 June 30, 1996
------------- -------------
Revenues:
Rental $ 1,059,749 $ 1,229,333
Net patient services 1,289,147 207,727
------------- ------------
2,348,896 1,437,060
------------- ------------
Expenses:
Facility operating expenses 1,121,592 188,791
Depreciation 340,960 354,928
Lease default expenses 10,037 18,144
Administrative and other 490,041 303,792
Bad debts 14,844 245,094
------------- ------------
1,977,474 1,110,749
------------- ------------
Income from operations 371,422 326,311
------------- ------------
Other income (expenses):
Gain on sale 0 387,528
Interest income 85,886 58,354
Interest expenses (171,222) (196,982)
Amortization (26,850) (28,527)
-------------- -------------
(112,186) 220,373
-------------- -------------
Net income before
extraordinary item 259,236 546,684
Extraordinary item - gain
on extinguishment of debt 0 952,692
------------- ------------
Net income $ 259,236 $ 1,499,376
============= ============
NET EARNINGS PER UNIT $ .06 $ .36
============= ============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,172,457 4,172,457
============= ============
See notes to financial statements
3
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
Six months ended, Six months ended,
June 30, 1997 June 30, 1996
----------------- -----------------
Revenues:
Rental $ 2,157,973 $ 2,448,668
Net patient services 2,495,295 786,239
------------ -------------
4,653,268 3,234,907
------------ -------------
Expenses:
Facility operating expenses 2,256,544 736,957
Depreciation 681,920 733,908
Lease default expenses 14,687 58,215
Administrative and other 830,111 719,272
Bad debts 28,061 415,509
------------ -------------
3,811,323 2,663,861
------------ -------------
Income from operations 841,945 571,046
------------ -------------
Other income (expenses):
Gain on sale 0 387,528
Interest income 163,635 114,541
Interest expenses (343,823) (430,313)
Amortization (53,701) (57,054)
------------ -------------
(233,889) 14,702
------------ -------------
Net income before
extraordinary item 608,056 585,748
Extraordinary item - gain
on extinguishment of debt 0 952,692
------------ -------------
Net income $ 608,056 $ 1,538,440
============ =============
NET EARNINGS PER UNIT $ .15 $ .37
============ =============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,172,457 4,172,457
============ =============
See notes to financial statements
4
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF PARTNERSHIP EQUITY
Limited General
Partners Partners Total
-------- -------- ---------
Allocation of Net Earnings
(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
============ ======== =============
See notes to financial statements
5
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
Six months ended Six months ended
June 30, 1997 June 30, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 608,056 $ 1,538,440
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Gain on extinguishment of debt 0 (952,692)
Gain on sale 0 (387,528)
Bad debts 28,061 415,509
Depreciation and amortization 735,621 790,962
Changes in assets and
liabilities:
Accounts receivable (181,164) (279,067)
Prepaid expenses 12,572 34,118
Accounts payable &
accrued expenses (351,158) 176,802
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 851,988 1,336,544
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of property 0 2,246,114
Purchases of property and improvement (38,409) (10,655)
----------- -----------
NET CASH (USED)
PROVIDED IN
INVESTING ACTIVITIES (38,409) 2,235,459
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans
payable (260,991) (2,314,784)
----------- -----------
NET CASH USED IN
FINANCING ACTIVITIES (260,991) (2,314,784)
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 552,588 1,257,219
CASH AND CASH EQUIVALENTS
Beginning of Period 8,995,455 7,606,857
----------- -----------
CASH AND CASH EQUIVALENTS
End of Period $ 9,548,043 $ 8,864,076
=========== ===========
See notes to financial statements
6
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
NOTE TO FINANCIAL STATEMENTS
Six months ended June 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:
Six months ended Six months ended
June 30, 1997 June 30, 1996
Salary and benefit reimbursements $ 1,579,494 $ 528,936
Administrative reimbursements 85,694 109,101
Asset management fees 222,289 383,208
Property management fees 169,558 53,665
General partner management fees 45,802 28,781
------------- ------------
$ 2,102,837 $ 1,103,691
============= ============
Currently, Capital Senior Living Communities, L.P., an affiliate of CRGSH, holds
approximately 55% of the outstanding Units of the Registrant.
7
<PAGE>
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 six months ended June 30, 1997, based on the
Registrant's evaluation of the properties, the Registrant did not believe that
any additional write-down was warranted.
The balance sheet of the Registrant as of June 30, 1997, shows total assets
of $32,483,454, total liabilities of $7,810,773, and Registrant equity of
$24,672,681.
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, 1995, 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 June 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 June 30, 1997, Registrant had cash and cash equivalents aggregating
$9,548,043. The cash and cash equivalents will be used for working capital,
balloon notes due by 1997, 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.
8
<PAGE>
The Units are not publicly traded and as a result the liquidity of each Limited
Partner's individual investment is limited.
9
<PAGE>
Results of Operations
Discussion of Six Months Ending June 30, 1997
Rental revenues for the six months ended June 30, 1997, decreased $290,695
from the comparable six months ended June 30, 1996, due to the termination of
lease accruals with the prior lessee of the Cambridge facility. Net patient
services for the six months ended June 30, 1997, increased $1,709,056 from the
six months ended June 30, 1996. Net patient services for the six months ended
June 30, 1997 is for the Cambridge facility, which Registrant assumed management
of in August 1996, and net patient services for the six months ended June 30,
1996 is for the Countryside facility, which was sold in May 1996. Interest
income for the six months ended June 30, 1997 increased $49,094 from the six
months ended June 30, 1996 primarily due to rising interest rates and increasing
cash available for investment.
Facility operating expenses for the six months ended June 30, 1997,
increased by $1,519,587 from the comparable 1996 period. Facility operating
expenses for the six months ended June 30, 1997 and 1996 include the operating
expenses of the Cambridge Nursing Home and Countryside, respectively.
Depreciation for the six months ended June 30, 1997, decreased $51,988 from the
comparable 1996 period and is primarily due to the loss of the Countryside
facility. Lease default expense decreased $43,528 for the six months ended June
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 $110,839 for the six months ended June 30,
1997 in comparison to 1996 and is primarily due to increased professional fees.
Bad debt expense for the six months ended June 30, 1997 decreased $387,448 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 six months ended June 30, 1997 decreased by
$86,490 and $3,353, 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 June 30, 1997 as compared with the three months
ended June 30, 1996, the Partnership's revenue was impacted by the same shifts
of revenue as discussed above. Similarly, a comparison of second quarter 1997
operating expenses versus second quarter 1996 reflects the same variances as
discussed above.
Cash and cash equivalents as of June 30, 1997 increased $552,588 over the
balance at December 31, 1996. Cash decreased for the six months ending June 30,
1997 in comparison to 1996 is primarily due to increasing accounts receivable
and decreasing accounts payable and accrued expenses. Net accounts receivable of
$947,337 at June 30, 1997 reflected an increase of $153,103 over 1996 year-end
balances and is due to delayed collection of Medicaid and Medicare claims from
the Cambridge facility. Accounts payable, accrued expenses, and facility
accounts payable balances decreased $351,158 at June 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
reopen. Rental payments in March and April 1995 were discontinued by HealthSouth
10
<PAGE>
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. Registrant commenced litigation
against NCAC seeking full payment of future rentals under the lease of NCAC.
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 judgements are likely from
these counter claims.
11
<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
As of July 1, 1997, Capital Senior Living Communities, L.P. ("CSLC"),
an affiliate of CRGSH, acquired additional Units of Registrant and thereby now
holds approximately 55% 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.
Item 6. Exhibits and Reports on Form 8-K
None.
12
<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
Date: August 13, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000814458
<NAME> Healthcare Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> 1.00
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 9,548,043
<SECURITIES> 0
<RECEIVABLES> 5,202,992
<ALLOWANCES> (4,255,655)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 36,185,561
<DEPRECIATION> (14,716,452)
<TOTAL-ASSETS> 32,483,454
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,672,681
<TOTAL-LIABILITY-AND-EQUITY> 32,483,454
<SALES> 0
<TOTAL-REVENUES> 4,816,903
<CGS> 0
<TOTAL-COSTS> 3,811,323
<OTHER-EXPENSES> 53,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,823
<INCOME-PRETAX> 608,056
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608,056
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
