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, 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
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
-----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 11,324,744 $ 10,722,118
Accounts receivable, less allowance for doubtful
accounts of $331,042 in 1998 and $301,042 in 1997 840,260 800,029
Prepaid Expenses and other 28,966 50,221
Property and improvements, net 20,250,759 20,823,913
Deferred charges, less accumulated amortization
of $926,627 in 1998 and $876,760 in 1997 362,267 405,572
---------------- ----------------
$ 32,806,996 $ 32,801,853
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
----------------------------------
Accounts payable and accrued expenses $ 672,126 $ 818,252
Operating facility accounts payable 159,090 114,211
Mortgage loans payable 6,399,999 6,677,431
---------------- ----------------
7,231,215 7,609,894
---------------- ----------------
Partnership equity:
Limited partners (4,148,325 and 4,172,457 units outstanding
in 1998 and 1997, respectively) 25,530,221 25,156,971
General partner 45,560 34,988
---------------- ----------------
25,575,781 25,191,959
---------------- ----------------
$ 32,806,996 $ 32,801,853
================ ================
</TABLE>
See notes to financial statements
1
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended, Three months ended,
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues:
Rental $ 1,063,469 $ 1,059,749
Net patient services 1,163,961 1,289,147
--------------- ---------------
2,227,430 2,348,896
--------------- ---------------
Expenses:
Facility operating expenses 1,147,288 1,121,592
Depreciation 326,579 340,960
Lease default expenses 0 10,037
Administrative and other 348,120 490,041
Bad debts 15,000 14,844
--------------- ---------------
1,836,987 1,977,474
--------------- ---------------
Income from operations 390,443 371,422
--------------- ---------------
Other income (expenses):
Interest income 126,705 85,886
Interest expenses (160,423) (171,222)
Amortization (26,384) (26,850)
--------------- ---------------
(60,102) (112,186)
--------------- ---------------
Net income $ 330,341 $ 259,236
=============== ===============
NET INCOME PER UNIT $ .08 $ .06
=============== ===============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,156,240 4,172,457
=============== ===============
</TABLE>
See notes to financial statements
2
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended, Six months ended,
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues:
Rental $ 2,130,970 $ 2,157,973
Net patient services 2,148,881 2,495,295
--------------- ---------------
4,279,851 4,653,268
--------------- ---------------
Expenses:
Facility operating expenses 2,255,645 2,256,544
Depreciation 651,943 681,920
Lease default expenses 0 14,687
Administrative and other 678,043 830,111
Bad debts 30,000 28,061
--------------- ---------------
3,615,631 3,811,323
--------------- ---------------
Income from operations 664,220 841,945
--------------- ---------------
Other income (expenses):
Interest income 240,149 163,635
Interest expenses (323,390) (343,823)
Amortization (52,366) (53,701)
--------------- ---------------
(135,607) (233,889)
--------------- ---------------
Net income $ 528,613 $ 608,056
=============== ===============
NET INCOME PER UNIT $ .13 $ .15
=============== ===============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,156,240 4,172,457
=============== ===============
</TABLE>
See notes to financial statements
3
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Allocation of Net Income 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) 0 (125,529)
-------------- ------------ --------------
EQUITY at
March 31, 1998 $ 25,225,749 $ 38,953 $ 25,264,702
Net Income 323,734 6,607 330,341
Repurchased Limited Partner Units (19,262) 0 (19,262)
-------------- ------------ --------------
EQUITY at
June 30, 1998 $ 25,530,221 $ 45,560 $ 25,575,781
============== ============ ==============
</TABLE>
See notes to financial statements
4
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 528,613 $ 608,056
Adjustments to reconcile net income to
net cash provided by operating activities:
Bad debts 30,000 28,061
Depreciation and amortization 704,309 735,621
Changes in assets and liabilities:
Accounts receivable (70,230) (181,164)
Prepaid expenses 21,255 12,572
Accounts payable &
accrued expenses (101,247) (351,158)
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,112,700 851,988
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and improvement (78,789) (38,409)
------------- -------------
NET CASH USED IN
INVESTING ACTIVITIES (78,789) (38,409)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable (277,432) (260,991)
Repurchased limited partner units (144,791) 0
Increase in deferred charges (9,062) 0
------------- -------------
NET CASH USED IN
FINANCING ACTIVITIES (431,285) (260,991)
------------- -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 602,626 552,588
CASH AND CASH EQUIVALENTS
Beginning of Period 10,722,118 8,995,455
------------- -------------
CASH AND CASH EQUIVALENTS
End of Period $ 11,324,744 $ 9,548,043
============= =============
CASH PAID FOR INTEREST $ 323,390 $ 343,823
============= =============
</TABLE>
See notes to financial statements
5
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 1998 AND 1997
(Unaudited)
A. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated 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
Personnel working at the Cambridge facility and certain home office
personnel who perform services for the Registrant are employees of Capital
Senior Living, Inc. (CSL), which was until June 10, 1998, an affiliate of
Capital Realty Group Senior Housing, Inc. ("CRGSH"), the General Partner of the
Registrant. 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 CRGSH and CSL are as
follows:
Six months ended Six months ended
June 30, 1998 June 30, 1997
Salary and benefit reimbursements $ 1,532,161 $ 1,579,494
Administrative reimbursements 64,579 85,694
Asset management fees 275,567 222,289
Property management fees 150,072 169,558
General partner management fees 42,749 45,802
-------------- --------------
$ 2,065,128 $ 2,102,837
============== ==============
Currently, Capital Senior Living Properties, Inc., formerly 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.
On June 10, 1998, the sole owner of the General Partner, Capital Group
Corporation, sold all of its shares of CRGSH common stock to Retirement
Associates, Inc. ("Associates") for $855,000. The source of the funds is a
Promissory Note for $855,000 with a five year term and bearing an interest rate
of 10% per annum. The interest will accrue on the Promissory Note and be payable
at the maturity of the Promissory Note. Associates is the make of the Note and
Capital Realty Group Corporation is the payee. Mr. Robert Lankford is the
President of Associates and has had prior business relationships with Messrs.
Beck and Stroud, the former principals of CRGSH.
6
<PAGE>
C. VALUATION OF RENTAL PROPERTY
Generally accepted accounting principles require that the Registrant
evaluate whether an event or circumstance has occurred that would indicate 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 to fair value is
recorded. The Registrant performs such evaluations on an on-going basis. During
the six months ended June 30, 1998, based on the Registrant's evaluation of the
properties, the Registrant did not record 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 June 30, 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. With the exception of the Cambridge facility, which has
no long-term net lease, the initial term of the seven properties with long-term
net leases are due to expire in the years 2000 and 2001.
Potential sources of liquidity for Registrant include current holdings
of cash and cash equivalents, 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, 1998, Registrant had cash and cash equivalents
aggregating $11,324,744. 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
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, $250,000 and $325,000 in cash distributions were 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. For the six months
ended June 30, 1998, the Registrant has repurchased 24,132 limited partner units
for a total amount of $144,791.
7
<PAGE>
Results of Operations
Discussion of Six Months Ending June 30, 1998
Rental revenues for the six months ended June 30, 1998, decreased
$27,003 from the comparable six months ended June 30, 1997, due to decreased
revenue participation from leased facilities. Net patient services for the six
months ended June 30, 1998, decreased $346,414 from the six months ended June
30, 1997, and was primarily due to a 1997 Medicare charge of $108,423 and
decreased ancillary revenues from the Cambridge facility. Interest income for
the six months ended June 30, 1998 increased $76,514 from the six months ended
June 30, 1997 and was primarily due to increasing cash available for investment.
Facility operating expenses for the six months ended June 30, 1998
slightly decreased by $899 from the comparable 1997 period. Depreciation for the
six months ended June 30, 1998, decreased $29,977 from the comparable 1997
period. Lease default expense decreased $14,687 for the six months ended June
30, 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 $152,068 for the six months ended June 30,
1998 in comparison to 1997 and is primarily due to decreased professional fees.
Bad debt expense for the six months ended June 30, 1998 slightly increased
$1,939 from the comparable 1997 period. Interest expense and amortization for
the six months ended June 30, 1998 decreased by $20,433 and $1,335,
respectively, from the comparable 1997 period.
For the three months ended June 30, 1998 as compared with the three
months ended June 30, 1997, the Partnership's revenue was impacted by the same
shifts of revenue as discussed above with the exception of an increase of $3,720
in rental revenue for the three months ended June 30, 1998 from the comparable
1997 period. Similarly, a comparison of second quarter 1998 operating expenses
versus second quarter 1997 reflects the same variances as discussed above with
the exception of an increase of $25,696 in facility operating expenses for the
three months ended June 30, 1998 from the comparable 1997 period.
Cash and cash equivalents as of June 30, 1998 increased $602,626 over
the balance at December 31, 1997. Cash increased by $50,038 for the six months
ending June 30, 1998 in comparison to 1997 is primarily due to improved
operating cash flow. Net accounts receivable of $840,260 at June 30, 1998
reflected an increase of $40,231 over 1997 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 $101,247 at June 30, 1998, from December 31, 1997 and is primarily due
to the decrease in accrued Medicare liabilities on 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
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
8
<PAGE>
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 this 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. A 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 at Trinity Hills
continues to fund the deficits and its lease payments.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Registrant was previously 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.
Registrant settled with the alleged defaulting guarantor of this facility for
$60,000 plus 10% interest - payable in installments of $10,000 per year plus
interest over five years.
On June 17, 1998, Registrant filed a lawsuit in Dallas County against
the lessee of the McCurdy facility. The complaint seeks a declaratory judgement
affirming that the lessee of the McCurdy facility cannot exercise its option to
purchase the McCurdy facility until the end of its term in October 2001. The
lessee had asserted its right to exercise this option immediately (subject to a
final determination of value). The lessee has currently sought to dismiss this
action based on jurisdictional grounds.
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
None.
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/ Robert Lankford
-------------------
Robert Lankford
President
Date: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000814458
<NAME> Healthcare Properties, L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,324,744
<SECURITIES> 0
<RECEIVABLES> 1,171,302
<ALLOWANCES> (331,042)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,120,794
<DEPRECIATION> (13,870,035)
<TOTAL-ASSETS> 32,806,996
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,575,781
<TOTAL-LIABILITY-AND-EQUITY> 32,806,996
<SALES> 0
<TOTAL-REVENUES> 2,354,135
<CGS> 0
<TOTAL-COSTS> 1,836,987
<OTHER-EXPENSES> 26,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,423
<INCOME-PRETAX> 330,341
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330,341
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
