SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998
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
--------------------
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
BALANCE SHEETS
--------------
<S> <C> <C>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited) (Audited)
----------- ---------
ASSETS
------
Cash and cash equivalents $ 11,130,809 $ 10,722,118
Accounts receivable, less allowance for doubtful
accounts of $316,042 in 1998 and $301,042 in 1997 728,597 800,029
Prepaid Expenses and other 24,680 50,221
Property and improvements, net 20,526,552 20,823,913
Deferred charges, less accumulated amortization
of $900,243 in 1998 and $876,760 in 1997 388,652 405,572
---------------- ----------------
$ 32,799,290 $ 32,801,853
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
----------------------------------
Accounts payable and accrued expenses $ 911,895 $ 818,252
Operating facility accounts payable 82,895 114,211
Mortgage loans payable 6,539,798 6,677,431
---------------- ----------------
7,534,588 7,609,894
---------------- ----------------
Partnership equity:
Limited partners (4,151,535 and 4,172,457 units outstanding 25,225,749 25,156,971
in 1998 and 1997, respectively)
General partner 38,953 34,988
---------------- ----------------
25,264,702 25,191,959
---------------- ----------------
$ 32,799,290 $ 32,801,853
================ ================
</TABLE>
See notes to financial statements
1
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended, Three months ended,
March 31, 1998 March 31, 1997
-------------- --------------
Revenues:
Rental $ 1,067,501 $ 1,098,224
Net patient services 984,920 1,206,148
--------------- ---------------
2,052,421 2,304,372
--------------- ---------------
Expenses:
Facility operating expenses 1,108,357 1,134,952
Depreciation 325,364 340,960
Lease default expenses 0 4,650
Administrative and other 329,923 340,070
Bad debts 15,000 13,217
--------------- ---------------
1,778,644 1,833,849
--------------- ---------------
Income from operations 273,777 470,523
--------------- ---------------
Other income (expenses):
Interest income 113,444 77,749
Interest expenses (162,967) (172,601)
Amortization (25,982) (26,851)
--------------- ---------------
(75,505) (121,703)
--------------- ---------------
Net income $ 198,272 $ 348,820
=============== ===============
NET EARNINGS PER UNIT $ .05 $ .08
=============== ===============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,164,156 4,172,457
=============== ===============
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF PARTNERSHIP EQUITY
--------------------------------
<S> <C> <C>
Limited General
Partners Partners Total
-------- -------- -----
Allocation of Net Earnings
(Loss) 98 % 2% 100%
==== == ====
EQUITY at
December 31, 1997 $ 25,156,971 $ 34,988 $ 25,191,959
Net Income 194,307 3,965 198,272
Repurchased Limited Partner Units (125,529) - (125,529)
-------------- ------------ --------------
EQUITY at
March 31, 1998 $ 25,225,749 $ 38,953 $ 25,264,702
============== ============ ==============
</TABLE>
See notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<S> <C> <C>
Three months ended Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 198,272 $ 348,820
Adjustments to reconcile net loss to
net cash provided by operating activities:
Bad debts 15,000 13,217
Depreciation and amortization 351,346 367,811
Changes in assets and liabilities:
Accounts receivable 56,432 (151,640)
Prepaid expenses 25,541 44,677
Deferred charges (9,062) 0
Accounts payable &
accrued expenses 62,327 (228,363)
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 699,856 394,522
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and improvement (28,003) (29,250)
------------- -------------
NET CASH USED IN
INVESTING ACTIVITIES (28,003) (29,250)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable (137,633) (129,521)
Repurchased limited partner units (125,529) 0
------------- -------------
NET CASH USED IN
FINANCING ACTIVITIES (263,162) (129,521)
------------- -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 408,691 235,751
CASH AND CASH EQUIVALENTS
Beginning of Period 10,722,118 8,995,455
------------- -------------
CASH AND CASH EQUIVALENTS
End of Period $ 11,130,809 $ 9,231,206
============= =============
</TABLE>
See notes to financial statements
4
<PAGE>
HEALTHCARE PROPERTIES, L.P.
(A Limited Partnership)
NOTE TO FINANCIAL STATEMENTS
----------------------------
Three months ended March 31, 1998
(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, 1998. 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, 1997.
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>
Three months ended Three months ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Salary and benefit reimbursements $ 759,247 $ 787,281
Administrative reimbursements 29,529 50,285
Asset management fees 117,000 103,433
Property management fees 78,674 84,285
General partner management fees 21,914 23,023
-------------- --------------
$ 1,006,364 $ 1,048,307
-------------- --------------
</TABLE>
Currently, Capital Senior Living Properties, Inc., an affiliate of CRGSH, holds
approximately 56% of the outstanding units of the Registrant. The Registrant is
included in the consolidated financial statements of Capital Senior Living
Properties, Inc. and its parent company, Capital Senior Living Corporation, a
public company that files with the Securities and Exchange Commission. Capital
Senior Living Corporation also holds an option to purchase the stock of CRGSH at
fair market value.
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
5
<PAGE>
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 three months ended March 31, 1998, based on the Registrant's
evaluation of the properties, the Registrant did not believe that any additional
write-down was warranted.
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 March 31, 1998, 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. The expiration date of the initial term of the leases
are indicated below:
Property Lease Expiration Date (Year)
-------- ----------------------------
Cedarbrook 2000
Cane Creek 2001
Crenshaw Creek 2001
Sandy Brook 2001
Cambridge N/A
Trinity Hills 2000
Hearthstone 2000
McCurdy 2001
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 including sale to one or more of the lessees.
As of March 31, 1998, Registrant had cash and cash equivalents aggregating
$11,130,809. The cash and cash equivalents will be used for working capital and
emergency reserves.
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
6
<PAGE>
suspended in March of 1991) might be reactivated, on August 15, 1991, Registrant
ceased accepting additional liquidation requests. 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.
The General Partner believes it is in the best interest of the Partnership that
once optimization of the asset value of the Partnership is reached, these assets
be converted to cash. An appraisal has been conducted on this Partnership and
based on this appraisal, we believe we are close to optimizing the value of this
Partnership at approximately $24 million. Based on the appraisal, as well as the
General Partner's duty to further the best interests of the Partnership, the
General Partner is currently evaluating options, which could include the
potential sale or merger of the assets of the Partnership.
Results of Operations
- ---------------------
Discussion of Three Months Ending March 31, 1998
------------------------------------------------
Rental revenues for the three months ended March 31, 1998, decreased
$30,723 from the comparable three months ended March 31, 1997, due to decreased
revenue participation from leased facilities. Net patient services for the three
months ended March 31, 1998, decreased $221,228 from the three months ended
March 31, 1997, and was primarily due to a $139,000 Medicare reserve accrual and
decreased ancillary revenues from the Cambridge facility. Interest income for
the three months ended March 31, 1998 increased $35,695 from the three months
ended March 31, 1997 primarily due to increasing cash available for investment.
Facility operating expenses for the three months ended March 31, 1998,
decreased by $26,595 from the comparable 1997 period and is primarily due to
decreased therapy costs at the Cambridge facility. Depreciation for the three
months ended March 31, 1998, decreased $15,596 from the comparable 1997 period.
Lease default expense decreased $4,650 for the three months ended March 31, 1998
from the comparable 1997 period due to decreasing legal fees incurred on the
resolution of defaulted leases. Administrative expenses, including fees to the
General Partner, decreased $10,147 for the three months ended March 31, 1998 in
comparison to 1997 and is primarily due to decreased administrative
reimbursements and asset management fees. Bad debt expense for the three months
ended March 31, 1998 increased $1,783 from the comparable 1997 period primarily
due to increasing bad debt provisions at the Cambridge facility. Interest
expense and amortization for the three months ended March 31, 1998 decreased by
$9,634 and $869, respectively, from the comparable 1997 period.
Cash and cash equivalents as of March 31, 1998 increased $408,691 over the
balance at December 31, 1997. Increased cash for the three months ending March
31, 1998 in comparison to 1997 is primarily due to improved operating cash flow.
Net accounts receivable of $728,597 at March 31, 1998 reflected a decrease of
$71,432 over 1997 year-end balances. Accounts payable, accrued expenses, and
facility accounts payable balances increased $ 62,327 at March 31, 1998, from
December 31, 1997, and is primarily due to a Medicare reserve provision at the
Cambridge 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
causing an interruption in the master lease. Registrant met with HealthSouth and
those payments were subsequently made in the second quarter of 1995. Subsequent
7
<PAGE>
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.
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. Registrant's subsidiary now
operates this property.
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.
Year 2000 Issue
- ---------------
The Partnership has developed a plan to modify its information technology
to be ready for the year 2000. The Partnership relies upon PC-based systems and
does not expect to incur material costs to transition to Year 2000 compliant
systems in its internal operations. The Partnership does not expect this project
to have a significant effect on operations. The Partnership will continue to
implement systems and all new investments are expected to be with Year 2000
compliant software.
8
<PAGE>
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.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
9
<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: May 13, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Sheet for Healthcare Properties, L.P.
</LEGEND>
<CIK> 0000814458
<NAME> Healthcare Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 11,130,809
<SECURITIES> 0
<RECEIVABLES> 1,044,639
<ALLOWANCES> (316,042)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,070,008
<DEPRECIATION> (13,543,456)
<TOTAL-ASSETS> 32,799,290
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,264,702
<TOTAL-LIABILITY-AND-EQUITY> 32,799,290
<SALES> 0
<TOTAL-REVENUES> 2,165,865
<CGS> 0
<TOTAL-COSTS> 1,778,644
<OTHER-EXPENSES> 25,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,967
<INCOME-PRETAX> 198,272
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198,272
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
