SECURITIES AND EXCHANGE COMMISSION}
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1997, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
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to
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Commission file number 0-17695.
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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 organizations) Identification No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Limited Partnership Interest
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sec tion 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The Registrant's outstanding securities consist of units of limited partnership
interests which have no readily ascertainable market value since there is no
public trading market for these securities on which to base a calculation of
aggregate market value.
Documents incorporated by reference. None
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Exhibit Index Page : 38
Page 1 of 38
<PAGE>
TABLE OF CONTENTS
PART I Page
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Item 1 Business 2
Item 2 Properties 3
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 5
PART II
Item 5 Market for Registrant's Common Equity
and Related Security Holder Matters 6
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 8 Financial Statements and Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 11
PART III
Item 10 Directors and Executive Officers of the Registrant 12
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners and Management 14
Item 13 Certain Relationships and Related Transactions 15
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 36
SIGNATURES 37
Exhibit Index 38
1
<PAGE>
PART I
Item 1. Business
--------
HealthCare Properties, L.P. ("Registrant"), is a Delaware limited
partnership formed in March 1987, for the purpose of acquiring, leasing and
operating existing or newly constructed health care properties. The General
Partner of Registrant is Capital Realty Group Senior Housing, Inc. ("Capital")
The offering of Registrant's limited partnership interests (the "Units")
terminated on August 31, 1989, although some Units were sold to existing
investors pursuant to Registrant's distribution reinvestment plan (the "Plan")
until July of 1991 when the Plan was suspended. Registrant received gross
proceeds from the offering of $43,373,269 and net proceeds of $38,748,791.
All of the net proceeds of the offering were originally invested in 12
properties (the "Properties") or used for working capital reserves. Registrant
partially financed the acquisition of eight of its original properties with
non-recourse debt. Four properties were initially unleveraged. As of December
31, 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. See Item 2. "Properties" and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a description of Registrant's properties and their history.
As of December 31, 1997, Registrant had seven properties leased to
unaffiliated operators under triple net leases, whereby the lessee is
responsible for all operating expenses, insurance and real estate taxes. The
eighth facility is Cambridge Nursing Home. On August 1, 1996, the United States
Bankruptcy Court approved the transfer of the operations of Cambridge Nursing
Home, Inc. to Cambridge Nursing Home Limited Liability Company ("Cambridge
LLC"), a subsidiary of the Registrant, thereby releasing the operations of this
facility from the jurisdiction of the Bankruptcy Court.
All of Registrant's triple net leases with unaffiliated operators require
operators to make necessary repairs. Registrant inspects or receives reports
from each facility at least annually to insure that necessary repairs are made.
Registrant is responsible for capital improvements and debt service payments
under mortgage obligations secured by certain properties.
Both the income and expenses of operating the Properties owned by
Registrant are subject to factors outside the control of both Registrant and the
operators of the facilities, such as oversupply of similar properties resulting
from overbuilding, increases in unemployment or population shifts, reduced
availability of permanent mortgage funds, changes in taxes and regulations,
including healthcare regulations and zoning laws, or changes in patterns or
needs of users.
For the year ended December 31, 1997, Registrant's Properties accounted for
100% of Registrant's gross revenues.
Registrant's original objective was to maintain and hold its properties for
long-term appreciation. Registrant may reinvest net sale or refinancing proceeds
in additional health care properties.
2
<PAGE>
The terms of transactions between Registrant and affiliates of the General
Partner of Registrant are set forth below. Also, See Item 13.
Replacement of Prior General Partners with Capital
- --------------------------------------------------
In June 1993, the holders of Units ("Unit Holders") approved the
replacement of the existing general partners of the Partnership, Jacques-Miller,
Inc. and Jacques and Associates, L.P., (collectively, the "Prior General
Partners"), with Capital as well as various amendments to the Partnership
Agreement (the "Partnership Agreement").
Competition
- -----------
The real estate business is highly competitive. Registrant's properties are
subject to competition from similar properties within their service area. In
addition, the health care industry segments in which Registrant's lessees
participate are also subject to intense competitive pressures, which may impact
such lessees' ability to generate sufficient revenues to fulfill their
obligations to Registrant under their leases.
Employees
- ---------
The Registrant is managed by an affiliate of Capital. There were no
employees of Registrant at December 31, 1997.
Regulatory Matters
- ------------------
Federal, state and local government regulations govern fitness and
adequacy, equipment, personnel and standards of medical care at a health care
facility, as well as health and fire codes. Changes in the applicable
regulations could adversely affect the operations of a property, which could
also affect the financial results of Registrant. Risks of inadequate cost
reimbursements from various government programs such as Medicaid and Medicare
may also impact lessees' ability to fulfill their lease obligations to
Registrant. Any impact from future health care legislation is not known at this
time; however, such impact could adversely affect cost reimbursements from
various government programs.
Item 2. Properties
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Registrant owns eight properties at December 31, 1997 consisting of four
nursing homes and four rehabilitation centers purchased between October 1987 and
October 1990. Four facilities were newly constructed when purchased. Four
facilities are security for mortgage loans. Two of these loans are non-recourse
to Registrant while two loans are guaranteed by Registrant. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
3
<PAGE>
The following table summarizes key information about each of Registrant's
properties:
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
PROPERTY SUMMARY
CEDARBROOK CANE CREEK CRENSHAW CREEK SANDY BROOK
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Location Nashville, TN Martin, TN Lancaster, SC Orlando, FL
Type Rehab Rehab Rehab Rehab
Date Purchased 10/87 11/87 6/88 9/88
Purchase Price $3,955,000 $4,000,000 $3,900,000 $4,200,000
Original Mortgage Amount $2,000,000 $2,200,000 $0 $0
12/31/9 7 Mortgage Balance $729,622 $581,555 $0 $0
Mortgage Maturity June 30, 1997* December 1, 2001 N/A N/A
End of Lease Term 2001 2001 2001 2001
CAMBRIDGE TRINITY HILLS HEARTHSTONE MCCURDY
--------------------------------------------------------------------------------------
Location Cambridge, MA Ft. Worth, TX Round Rock, TX Evansville, IN
Type Nursing Nursing Nursing Nursing
Date Purchased 9/90 2/88 11/88 9/89
Purchase Price $5,100,000 $2,700,000 $3,625,000 $7,100,000
Original Mortgage Amount $0 $0 $1,500,000 $4,700,000
12/31/97 Mortgage Balance $0 $0 $1,306,222 $4,060,033
Mortgage Maturity N/A N/A July 1, 2002 April 1, 2012
End of Lease Term N/A 2000 2000 2001
<FN>
*On March 21, 1997, the lender agreed not to exercise its call rights on June
30, 1997 and the Partnership is currently negotiating the extension of this note
until December 1, 2001.
</FN>
</TABLE>
Item 3. Legal Proceedings
-----------------
A. On January 21, 1992 Registrant won a judgment against Mr. Barry Lieberman
(a guarantor of SentinelCare's lease) in connection with his guaranties and
is currently pursuing efforts to collect on that judgment in the
Connecticut state courts.
B. In December 1991, Registrant initiated litigation in Massachusetts against
NCA Cambridge Nursing Home (NCAC) and Richard Wolfe (NCAC's operator/lessee
and a guarantor of NCAC's lease obligations to Registrant) in an attempt to
enforce certain obligations of NCAC and Mr. Wolfe under the terms of NCAC's
lease of Registrant's Cambridge Nursing Home facility. In February 1992,
NCAC filed a voluntary Chapter 11 proceeding in the Southern District of
Florida. Registrant subsequently learned that in addition to NCAC's default
under certain terms of its lease, the State of Massachusetts asserted
claims against NCAC regarding prior Massachusetts Medicaid payments made to
4
<PAGE>
NCAC for fiscal years 1988 through 1991. The Massachusetts claims were
against NCAC; however, Massachusetts has regulations requiring successor
operators of a facility to indemnify the state for its losses suffered in
connection with a prior operator of the same facility. It was therefore
possible that Registrant could have been subject to such liability based on
certain interpretations of state regulations. As a result, the Registrant
could have become liable for approximately $1,400,000 in connection with
the recovery of Medicaid overpayments. Additionally, property taxes were
owed to the City of Cambridge in an amount in excess of $600,000. On May
24, 1993, Registrant reached an agreement with Mr. Wolfe to repossess that
facility pending emergence from Bankruptcy Court. In December 1995,
Registrant reached a settlement with the State of Massachusetts and the
City of Cambridge with regard to the outstanding issues facing the
Cambridge facility. This settlement was approved by the United States
Bankruptcy Court. The settlement eliminated the Registrant's exposure in
connection with the $1,400,000 Medicaid overpayments and allowed the
Registrant to pay a settlement amount with regard to unpaid property taxes.
On August 1, 1996, the United States Bankruptcy Court approved the transfer
of the operations of Cambridge Nursing Home, Inc. to Cambridge LLC, a
subsidiary of the Registrant, thereby releasing the operations of this
facility from the jurisdiction of the Bankruptcy Court. The Registrant has
filed an administrative claim for advances and past due rent in the
Bankruptcy Court. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
5
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
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Matters
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At March 1, 1998, there were 1,791 Unit Holders of record in Registrant
owning an aggregate of 4,172,457 Units. There is no public market for these
Units and Capital does not plan to list the Units on a national exchange or
automated quotation system. Registrant formerly had a liquidity reserve feature
which, under certain circumstances, permitted Unit Holders to liquidate their
Units. Due to inadequate liquidity of Registrant and the adverse impact on Unit
values caused by defaults of certain of Registrant's lessees, the prior General
Partners suspended all redemptions pursuant to the liquidity reserve in March of
1991. Due to the valuation formula required to be used by Registrant in any such
redemptions, it is unlikely that the General Partner will be able to reinstate
the liquidity feature in the foreseeable future.
Pursuant to the terms of the Partnership Agreement, there are restrictions
on the ability of the Unit Holders to transfer their Units. In all cases, the
General Partner must consent in writing to any substitution of an Unit Holder.
The Internal Revenue Code contains provisions which have an adverse impact on
investors in "publicly traded partnerships." Accordingly, the General Partner
has established a policy of imposing limited restrictions on the transferability
of the Units in private transactions. This policy is intended to prevent a
public trading market from developing and may impact the ability of a Unit
Holder to liquidate his investment quickly.
The Registrant distributed $325,000 to its partners collectively in 1997
(to cover tax liabilities of the partners) and did not make any distributions in
1996. The ability of Registrant to make distributions of Operating Cash Flow in
the future is dependent upon operational performance of properties operated by
Registrant and collection of adequate rental revenues from properties leased to
third party operators.
6
<PAGE>
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P.
(A Delaware Limited Partnership)
December 31, 1997, 1996, 1995, 1994 and 1993
(Unaudited - not covered by Independent Auditors' Report)
Year Ended December 31
1997 1996 1995 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 32,801,853 $ 32,487,547 $ 33,812,286 $ 40,914,991 $ 43,375,924
Mortgage Debt $ 6,677,432 $ 7,207,414 $ 9,775,601 $ 16,268,668 $ 16,713,020
Total Revenue from
Operations $ 8,977,628 $ 7,560,104 $ 8,419,024 $ 12,574,481 $ 14,024,311
Weighted Average
Number of Units 4,172,457 4,172,457 4,172,457 4,172,457 4,172,457
Income (Loss) Before
Extraordinary Item $ 1,452,334 $ 684,651 $ (2,354,181) $ (3,035,459) $ (2,395,486)
Extraordinary Gain $ 0 $ 952,692 $ 3,604,514 $ 0 $ 0
Net Income (Loss) $ 1,452,334 $ 1,637,343 $ 1,250,333 $ (3,035,459) $ (2,395,486)
Net Income (Loss) Per
Unit
Income (Loss) before
Extraordinary Item $ 0.34 $ 0.16 $ (0.56) $ (0.71) $ (0.56)
Extraordinary Gain $ 0 $ 0.23 $ 0.79 $ 0 $ 0
Net Income (Loss) $ 0.34 $ 0.39 $ 0.23 $ (0.71) $ (0.56)
Net Income (Loss)
Tax $ 1,832,184 $ 794,101 $ (1,692,342) $ (393,245) $ 1,710,132
Per Unit $ .44 $ .19 $ (.41) $ (.09) $ .41
Cash Distributions $ 325,000 $ 0 $ 0 $ 0 $ 250,000
Per Unit $ .08 $ 0 $ 0 $ 0 $ .06
========================================================================================================
<FN>
The above selected financial data should be read in conjunction with the
consolidated financial statements and the related notes appearing elsewhere in
this annual report. See Footnote 3. "Property and Improvements" to the
Consolidated Financial Statements for discussion of property dispositions.
</FN>
</TABLE>
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources
- -------------------------------
Registrant raised gross proceeds from the offering of over $43,300,000 and
purchased twelve properties. Registrant does not anticipate additional capital
investments by Unit Holders. Sources for Registrant's liquidity include rental
revenues from lessees of certain of Registrant's properties, operational income
from property operated by a subsidiary of Registrant, potential proceeds from
mortgage financing on one or more of Registrant's four unleveraged properties,
or potential sale proceeds from any of Registrant's eight properties. The
Registrant anticipates sufficient cash flow to meet debt service requirements
and cover all other operational expenses. The Registrant may reinvest net sale
proceeds and available cash in additional healthcare properties. For further
information, see the discussion below on each individual property.
Registrant ended 1997 with cash and cash equivalents of $10,722,118 as
compared with $8,995,455 at December 31, 1996. Cash and cash equivalents
primarily increased in 1997 due to improved cash flow provided by operating
activities.
Accounts receivable at December 31, 1997 slightly increased from
approximately $800,000 as compared to $794,000 at December 31, 1996.
Accounts payable and accrued expenses were approximately $818,000 at
December 31, 1997, as compared to $1,004,000 at December 31, 1996. This decrease
resulted largely from the payment of a Medicaid accrual in connection with the
Countryside facility.
Operating facility accounts payable were approximately $114,000 at December
31, 1997, and $211,000 at December 31, 1996.
Decreases from December 31, 1996 to 1997 in property and improvements,
deferred charges and mortgage loans payable primarily relate to depreciation,
amortization and note payments, respectively .
Two loans of the Registrant became due in January 1996; however, one loan
was extended to March 31, 1996 and subsequently extended to June 30, 1997. The
Registrant is currently negotiating extension of this loan until December 1,
2001. The lender of the other loan agreed to extend the loan to December 1,
2001, pending completion of final loan documents.
The mortgage loan for the Hearthstone facility became due on July 1, 1997
and the lender of the loan agreed to extend the loan to July 1, 2002.
Results of Operations
- ---------------------
Rental revenues were approximately $4,276,000 in 1997 compared to
approximately $4,590,000 in 1996, and approximately $5,100,000 in 1995. The
decrease of rental revenues from 1996 to 1997 is primarily due to the loss of
lease revenue from the Cambridge facility prior to its release from the United
States Bankruptcy Court on August 1, 1996. The decrease of rental revenues from
1995 to 1996 is primarily due to the loss of lease revenue generated from the
Heritage Manor property upon its sale on July 5, 1995.
8
<PAGE>
Patient revenues of approximately $4,702,000 for the year ended December
31, 1997, approximately $2,970,000 for the year ended December 31, 1996, and
approximately $3,269,000 for the year ended December 31, 1995, related to the
operations at the Cambridge LLC, Countryside, Diablo/Tamarack, and Foothills
facilities. The increase in patient revenues from 1996 to 1997 resulted from a
full year of operations from the Cambridge facility in 1997 and a partial year
of operations from the Cambridge and Countryside facilities in 1996. The
decrease in patient revenues for 1996 as compared to 1995 resulted from the sale
of the Countryside facility on May 1, 1996 and was partially offset by the
commencement of operations of Cambridge LLC on August 1, 1996.
Facility operating expenses were approximately $4,578,000 in 1997 compared
to approximately $2,728,000 in 1996, and approximately $3,238,000 in 1995. The
increase in facility operating expenses from 1996 to 1997 resulted from a full
year of operations from the Cambridge facility in 1997 and a partial year of
operations from the Cambridge and Countryside facilities in 1996. The decrease
in facility operating expenses in 1996, compared to 1995, resulted from the sale
of the Countryside facility on May 1, 1996 and was partially offset by the
commencement of operations of Cambridge LLC on August 1, 1996.
Depreciation was approximately $1,369,000 for 1997, $1,418,000 for 1996,
and $1,722,000 for 1995. Depreciation decreased in 1997 and 1996 due to the
above mentioned dispositions of properties.
Fees to affiliates were approximately $1,110,000, $1,276,000, and
$1,279,000 for the years ended 1997, 1996, and 1995, respectively. The decrease
of fees to affiliates in 1997 from 1996 resulted from decreased asset management
fees upon the closure of the Cedarbrook facility in February, 1997, leased by
HealthSouth. Fees to affiliates were relatively unchanged from 1996 compared to
1995.
Bad debt expense was approximately $43,000, $875,000, and $1,586,000 for
the years ended 1997, 1996, and 1995, respectively. Bad debt expense decreased
in 1997, compared to 1996, and decreased in 1996, compared to 1995, because the
Registrant stopped making lease rent accruals on the Cambridge facility during
1996, which accruals had been fully reserved by the Registrant, upon release of
facility operations by the Bankruptcy Court on August 1, 1996. See Item 3.
"Legal Proceedings".
Lease default expenses of approximately $15,000 , $115,000, and $286,000
for the years ended 1997, 1996, and 1995, respectively, decreased in 1997 and
1996 from 1995 due to the resolution of the Countryside, Cambridge,
Diablo/Tamarack and Foothills lease defaults.
Administrative and other expenses were $506,000, $192,000, and $115,000 for
the years ended 1997, 1996, and 1995, respectively. Administrative and other
expenses increased from 1996 to 1997 due to increased printing, accounting and
professional fees in addition to increased salaries, benefits and overhead
allocated from Capital and affiliates of Capital for personnel performing
services on behalf of the Partnership. Administrative and other expenses
increased from 1995 to 1996 due to increased accounting and professional fees
Interest income was approximately $359,000, $239,000, and $186,000 for the
years ended 1997, 1996, and 1995, respectively. Interest income increased in
1997 and 1996 from 1995 due to additional cash available as a result of lower
debt service requirements, proceeds received upon the sale of Heritage Manor
earning interest for a full year and increased operational cash flow.
9
<PAGE>
Interest expense was approximately $679,000, $784,000, and $1,325,000 for
the years ended 1997, 1996, and 1995, respectively. Interest expense decreased
in 1997 and in 1996 from 1995 due to the repayment of the mortgage upon the sale
of the Countryside facility.
Amortization was approximately $109,000, $114,000, and $171,000 for the
years ended 1997, 1996, and 1995, respectively. Amortization decreased in 1997
and 1996 from 1995, primarily due to fully amortized deferred costs for the
Diablo/Tamarack, Countryside, and Foothills facilities.
During 1996, the gain on disposition of operating properties of
approximately $388,000 and extraordinary gain of approximately $953,000 resulted
from the sale of the Countryside facility. During 1995, the loss on disposition
of operating properties of approximately $1,237,000 and extraordinary gain of
approximately $3,605,000 resulted from the sale of Heritage Manor and deed
transfers in lieu of foreclosure of the Diablo/Tamarack and Foothills
facilities.
During 1997, other income of approximately $524,000 primarily resulted from
the collection of a $71,000 distribution from Rebound, Inc., and $440,007 paid
in compliance with Section 16b of the Securities and Exchange Act by Capital
Senior Living Communities, L.P., an affiliate of the General Partner, for gains
on purchases of HCP units made within a six month period prior to the sale of
HCP units.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Operations of the 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 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. The Cedarbrook note was
extended through March 31, 1996 and subsequently extended to June 30, 1997. The
Registrant is currently negotiating extension of the loan until December 1,
2001. The lender of the Cane Creek note agreed to extend the loan to December 1,
2001, pending completion of final loan documents.
Countryside facility. On May 1, 1996, the Countryside facility was sold to
a third party buyer for approximately $2,200,000. With the sale proceeds,
Registrant paid off the lender on Countryside an amount agreed to by the lender
10
<PAGE>
in full settlement of all obligations to the lender. Registrant netted
approximately $26,000 in cash as a result of this sale, after payment to lender
and closing costs. Registrant also obtained a full release of all potential
liability from the lender.
Cambridge facility The lessee of the Cambridge facility, 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. See Item 3, B.
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 lease deficit.
Impact of Inflation
- -------------------
To offset potential adverse effect of inflation, Registrant has required
each of its unaffiliated tenants to execute "triple-net" leases with the tenant
being responsible for all operating expenses, insurance and real estate taxes.
Such leases generally require additional participating rent payments based on
certain increases in the lessee's collected revenues. To the extent that
Registrant undertakes to operate certain facilities through wholly-owned
subsidiaries, those subsidiaries, and ultimately Registrant, will be directly
exposed to the inflationary pressures on health care industry operating costs.
Year 2000 Issue
- ---------------
The Registrant has developed a plan to modify its information technology to
be ready for the year 2000. The Registrant 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 Registrant does not expect this project to have
a significant effect on operations. The Registrant will continue to implement
systems and all new investments are expected to be with Year 2000 compliant
software.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
See the Consolidated Financial Statements with Independent Auditors'
Report thereon.
Item 9. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure
--------------------
None.
11
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
(a) The Registrant is a Limited Partnership managed by an affiliate of
Capital and has no directors, officers, or significant employees.
(b) The General Partner of Registrant is:
Capital Realty Group Senior Housing, Inc., ("Capital") a Texas
corporation, that was formed under the laws of the State of Texas
in 1988.
(c) As of December 31, 1997 the officers and directors of Capital, the
General Partner, were:
Name Age Position
---- --- --------
Jeffrey L. Beck 53 Chief Executive Officer and
Director
James A. Stroud 47 Chief Operating Officer,
Secretary and Director
Keith N. Johannessen 41 President
David Beathard 50 Vice President
Rob L. Goodpaster 45 Vice President, National
Director of Marketing
David Brickman 39 Vice President
Robert F. Hollister 42 Property Controller
Jeffrey L. Beck, age 53. Mr. Beck has served as an officer and a director
of Capital since December 1988, most recently serving as Chief Executive Officer
since November 1990. Mr. Beck is currently Co-Chairman of the Board and Chief
Executive Officer of Capital Senior Living Corporation. He owns 50% of Capital
Realty Group Corporation, the parent of Capital and has served as its Chief
Executive Officer since February 1988. From 1975 to 1985, he was President of
Beck Properties, Inc., which was the predecessor of Capital. From 1973 to 1974,
he was Regional Controller with Trammell Crow & Company, a real estate company
based in Dallas, Texas. Mr. Beck is Chairman of the Board of Directors of United
Texas Bank of Dallas. Mr. Beck served as Chairman of the American Senior Housing
Association.
James A. Stroud, age 47. Mr. Stroud has served as an officer and a director
of Capital since December 1988, most recently serving as Chief Operating Officer
and Secretary since May 1991. Mr. Stroud is currently Co-Chairman of the Board
and Chief Operating Officer of Capital Senior Living Corporation. He owns 50%
(through a trust) of Capital Realty Group Corporation, the parent of Capital and
has served as its President, Secretary and a Director since February 1988. From
1984 until 1985, he was Executive Vice-President of Equity Management
Corporation, Dallas, Texas, a full service real estate company. From 1980 to
1983, he was director in charge of the Tax Department of the law firm of Baker,
Glast & Middleton, Dallas, Texas. From 1978 until 1980, he was an associate with
Brice & Mankoff (formerly Durant and Mankoff), a law firm in Dallas, Texas. Mr.
Stroud is a Certified Public Accountant and a licensed attorney. He received his
B.B.A. from Texas Tech University with highest honors, his J.D. from the
University of Texas with honors, and his L.L.M. in taxation from New York
12
<PAGE>
University with honors. While at New York University, he was a graduate editor
of the New York University Tax Law Review and a Wallace Scholar. Mr. Stroud is a
founder and director of the Assisted Living Facilities Association of America, a
member of the Health Industry Council, President-elect of the National
Association for Senior Living Industries ("NASLI"), and has delivered speeches
on health care topics to the NASLI, National Investment Conference, and the
Urban Land Institute.
Keith N. Johannessen, age 41. Mr. Johannessen became Executive Vice
President of Capital in May 1993 with responsibility for supervising the
day-to-day operations of Capital's retirement communities. In March 1994, Mr.
Johannessen became President of Capital. He is also President of Capital Senior
Living Corporation. From September 1992 through May 1993, Mr. Johannessen was a
Senior Manager in the North Central Region for the health care practice of Ernst
& Young LLP, responsible for assisting in the development and direction of the
firm's long term care center consulting projects in the region as well as on a
national basis. From August 1987 through September 1992, Mr. Johannessen was
Executive Vice President with Oxford Retirement Services, Inc. responsible for
the sales, marketing and operations of retirement communities and nursing homes.
From August 1978 to August 1987, Mr. Johannessen was employed by Life Care
Services Corporation in a variety of operations management positions, from
single retirement projects to multi-facility responsibilities. He is a licensed
nursing home administrator and holds a Bachelor of Arts Degree from Nyack
College, New York. Mr. Johannessen is active in the American Senior Housing
Association, National Association for Senior Living Industries and the American
Association of Homes and Services for the Aging.
David Beathard, age 50. Mr. Beathard is Vice President of Capital with
responsibility for supervising the daily operations of Capital Nursing Homes and
Senior Communities. He is also Vice President - Operations of Capital Senior
Living Corporation. Prior to joining Capital, Mr. Beathard was a management
consultant for the retirement housing industry in Ohio. From 1978 to 1991, Mr.
Beathard served as Executive Director , Regional Administrator, Regional Vice
President, and Vice President and Director of Operations Management for Life
Care Services Corp. Mr. Beathard has been in the senior housing and services
business for 20 years.
Rob L. Goodpaster, age 45. Mr. Goodpaster became National Director of
Marketing of Capital in December 1992, with overall responsibility for marketing
and lease-up functions of Capital's managed properties. He is also Vice
President - National Marketing of Capital Senior Living Corporation. With 19
years of experience in the industry, Mr. Goodpaster has an extensive background
in retirement housing marketing. His experience includes analyzing demographics,
developing and implementing marketing plans, creating outreach and advertising
programs, hiring and training sales personnel and implementing lead management
and tracking systems. Prior to joining Capital, Mr. Goodpaster was National
Director of Marketing for Autumn America from January 1990 to November 1992.
From 1985 until December 1989, he was President of Retirement Living Concepts,
Inc. where he marketed retirement properties throughout the United States. Mr.
Goodpaster was formerly Vice President, Marketing for U.S. Retirement Corp. from
1984 to 1985 and Vice President, Development for American Retirement Corp. from
1980 to 1984. Mr. Goodpaster is a graduate of Ball State University with a B.S.
in Business Management and Marketing. Mr. Goodpaster is a member of the National
Association of Senior Living Industry and the Texas Association of Retirement
Communities.
David Brickman, age 39. Mr. Brickman has served as Vice President and
Counsel of Capital since 1992. He is also Vice President and General Counsel of
Capital Senior Living Corporation. Mr. Brickman received his bachelor of Arts
degree from Brandeis University. He holds a J.D. from the University of South
Carolina Law School, an M.B.A. from the University of South Carolina School of
Business Administration and a Masters of Health Administration from Duke
University. Prior to joining Capital in 1992, he served as in-house counsel from
13
<PAGE>
1986 through 1987 with Cigna Health Plan, Inc., from 1987 through 1989 with
American General Group Insurance Company and from 1989 until joining Capital,
with LifeCo Travel Management Company located in Houston, Texas. In addition to
his legal responsibilities, Mr. Brickman is also responsible for asset
management activities, operational activities and investor relations for
Capital's portfolio.
Robert F. Hollister, age 42. Mr. Hollister has served as Property
Controller of Capital since 1992. He is also Property Controller for Capital
Senior Living Corporation. Mr. Hollister received his Bachelor of Science in
Accounting from the University of Maryland. His experience includes public
accounting as well as private experience in fields such as securities,
construction, and nursing homes. Prior to joining Capital in 1992, Mr. Hollister
was the chief financial officer and controller for Kavanaugh Securities, Inc.
from December 1985 until 1992. Mr. Hollister is the property controller and
supervises the day-to-day accounting and financial aspects of Capital. Mr.
Hollister is a Certified Financial Planner and a member of both local and
national professional accounting organizations.
(d) Section 16 (a) Beneficial Ownership Reporting Compliance
--------------------------------------------------------
Based solely upon a review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Registrant pursuant to Rule 16a-3(e) of the SEC rules, the
Registrant is not aware of any failure of any officer or director of Capital or
beneficial owner of more than ten percent of the Units to timely file with the
SEC any Form 3, 4 or 5 relating to the Registrant for 1997 except that the
following persons or entities failed to file in a timely basis the following
reports: Capital filed five late reports on Form 4 reporting fourteen
transactions; Capital Retirement Group, Inc. filed five late reports on Form 4
reporting fourteen transactions; Capital Senior Living Communities, L.P. filed
five late reports on Form 4, reporting fourteen transactions; and each of
Messrs. Beck and Stroud filed five late reports on Form 4, reporting fourteen
transactions.
Item 11. Executive Compensation
----------------------
The Registrant has no officers or directors. The officers and directors of
the General Partner receive no direct current remuneration from Registrant nor
is it proposed that they receive remuneration in such capacities. Registrant is
required to pay certain fees to the General Partner or its affiliates, make
distributions, and allocate a share of the profits and losses of Registrant to
the General Partner. The relationship of the General Partner (and its directors
and officer) to its affiliates is set forth above in Item 10. Reference is also
made to Note 6 of the Notes to the Consolidated Financial Statements included
herein, for a description of such distributions, allocations and the
compensation and reimbursements paid to the General Partner and certain
affiliates. Also see Item 13. "Certain Relationships and Related Transactions"
for additional information.
There are no compensatory plans or arrangements resulting from resignation
or retirement of the partners, directors or executive officers of the General
Partner which require payments to be received from Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) Capital Senior Living Properties, Inc., an affiliate of Capital, owns
56.8% of outstanding Units of Registrant as of March 1, 1998.
Otherwise, no other person or group owns more than 5% of Registrant as
of March 1, 1998.
(b) No partners, officers or directors of the General Partner directly own
any Units at March 1, 1998 . However, Messrs. Beck and Stroud (through
a trust) each own indirectly 50% of Capital and they may be deemed
beneficial owners of the 2% interest in the Registrant owned by
Capital as the general partner. Messrs. Beck and Stroud and their
affiliates own a substantial interest (approximately 46%) in the
parent of Capital Senior Living Properties, Inc.
14
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Under the terms of the Partnership Agreement, Registrant is entitled to
engage in various transactions involving affiliates of the General Partner.
Pursuant to the Partnership Agreement, the General Partner receives a share of
Registrant's profits and losses.
The General Partner and its affiliates are entitled to receive an
Acquisition Fee, as defined in Registrant's Partnership Agreement, for their
services rendered to Registrant in connection with the selection and purchase of
any property by Registrant whether designated as real estate commissions or
other fees, however designated and however treated for tax or accounting
purposes. Aggregate Acquisition Fees payable to all persons in connection with
the purchase of Registrant's properties may not exceed the lesser of: (a) 2% of
the gross proceeds of Registrant's offering; or (b) such compensation as is
customarily charged in similar arm's-length transactions. If there are
insufficient proceeds to pay such fee to the General Partner and their
affiliates, such amount will not be deferred. No amounts were earned in 1997 and
1996 in connection with such services. In connection with any reinvestment of
sale or refinancing proceeds as provided in the Partnership Agreement, the
Registrant will pay a reinvestment acquisition fee of 2% of the price of
additional properties payable from Net Sale or Refinancing Proceeds utilized
solely for the acquisition. No such fees were paid in 1997 or in 1996.
Registrant may pay the General Partner or its affiliates a Regulatory
Approval Fee, as defined in the Partnership Agreement, of up to 6% of the costs
of any newly constructed property which is acquired by Registrant. The services
rendered in connection with such fee will include: obtaining the appropriate
certificates of need, licenses, Medicare and Medicaid clearances, regulatory
approvals of transfer as is necessary, and such other federal, state, local and
other regulatory agency approvals as are necessary, and completion of various
other items which pertain to the commencement of the operation of a newly
constructed health care facility. Said services are expected to continue over
the term for which such Registrant properties are subject to compliance with
regulatory agencies, so as to ensure that the newly constructed property can be
placed into service on a timely basis and remain operational. This fee will not
exceed $1,150,000. The General Partner or its affiliates did not earn any
compensation in 1997 or in 1996 in connection with such services. The prior
General Partners earned $455,000 since inception.
Registrant may pay to the General Partner or its affiliates, for services
rendered in connection with the refinancing of a Registrant property, a mortgage
placement fee equal to the lesser of: (a) 2% of the refinancing proceeds of the
Registrant property; or (b) fees which are competitive for similar services in
the geographical area where the Registrant property is located. Amounts earned
by the General Partner in 1997 for the extension of the Hearthstone loan was
$13,245. No such fees were paid in 1996.
Registrant may pay to the General Partner or its affiliates, for services
rendered in connection with the sale of a Registrant property, and shall be
entitled to receive the lessor of: (a) 3% of the sale price of the Registrant's
property, or (b) an amount not to exceed 50% of the standard real estate
commission. No such fees were paid in 1997. Amounts earned by the General
Partner in 1996 for the sale of Countryside were $66,000 and in 1995 for the
sale of the Heritage Manor was $92,250.
For property management services, the General Partner or its affiliates are
entitled to receive leasing and property management fees. Since most of
Registrant's properties have long-term, triple-net leases and others have
independent fee management engagements for most services, the General Partner or
15
<PAGE>
its affiliates received 1% of the monthly gross rental or operating revenues,
totaling approximately $90,000, $72,000, and $80,000 in 1997, 1996, and 1995,
respectively. Property management fees paid to the General Partner were
approximately $330,000, $208,000, and $252,000 in 1997, 1996, and 1995,
respectively. Asset management fees paid to the General Partner were
approximately $484,000, $740,000, and $712,000 in 1997, 1996, and 1995,
respectively.
The General Partner may be reimbursed for its direct expenses relating to
offering and administration of Registrant. The General Partner or its affiliates
received $206,000, $256,000, and $235,000 reimbursements for such out-of-pocket
expenses in 1997, 1996, and 1995, respectively. In addition, the General partner
or its affiliates received $3,173,000, $1,859,000, and $2,256,000 for salary and
benefit reimbursements.
In addition, a 50% owner of the General Partner is chairman of the board
and an owner of a bank, United Texas Bank of Dallas, where the Registrant holds
the majority of its operating cash accounts.
16
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
HealthCare Properties, L.P.:
We have audited the accompanying consolidated balance sheets of HealthCare
Properties, L.P. and subsidiaries (a Delaware limited partnership) as of
December 31, 1997 and 1996, and the related consolidated statements of income,
partnership equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthCare
Properties, L.P. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 4, 1998
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 10,722,118 8,995,455
Accounts receivable, less allowance for doubtful accounts of
of $301,042 in 1997 and $256,042 in 1996 (note 9) 800,029 794,234
Prepaid expenses 50,221 85,295
Property and improvements, net (notes 3, 4 and 5) 20,823,913 22,112,619
Deferred charges, less accumulated amortization of $876,760
in 1997 and $765,409 in 1996 405,572 499,944
------------ ------------
Total assets $ 32,801,853 32,487,547
============ ============
Liabilities and Partnership Equity
----------------------------------
Accounts payable and accrued expenses $ 818,252 1,004,204
Operating facility accounts payable 114,211 211,304
Mortgage loans payable (note 4) 6,677,431 7,207,414
------------ -----------
7,609,894 8,422,922
------------ -----------
Partnership equity:
Limited partners (4,172,457 units) 25,156,971 24,058,684
General partner 34,988 5,941
------------ -----------
25,191,959 24,064,625
Commitments and contingencies (note 4) ------------ -----------
Total liabilities and partnership equity $ 32,801,853 32,487,547
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Revenues (notes 5 and 9):
Net patient service $ 4,702,017 2,969,991 3,268,800
Rental 4,275,611 4,590,113 5,100,085
----------- --------- ---------
8,977,628 7,560,104 8,368,885
----------- --------- ---------
Expenses:
Facility operating expenses 4,577,735 2,727,909 3,238,004
Depreciation 1,368,941 1,418,293 1,721,605
Fees to affiliates (note 6) 1,110,278 1,275,833 1,279,428
Bad debts, net of recoveries 43,061 875,143 1,585,555
Lease default expenses 14,687 114,523 286,108
Administrative and other 505,736 192,385 114,625
----------- ---------- ---------
7,620,438 6,604,086 8,225,325
----------- ---------- ---------
Income from operations 1,357,190 956,018 143,560
----------- ---------- ---------
Other income (expense):
Interest income 358,856 239,215 185,650
Interest expense (678,905) (784,092) (1,324,845)
Amortization (108,851) (114,107) (171,265)
Gain (loss) on disposition of operating
properties, net (note 3) - 387,617 (1,237,420)
Other (note 7) 524,044 - 50,139
----------- ---------- ----------
95,144 (271,367) (2,547,880)
----------- ---------- ----------
Income (loss) before extraordinary item 1,452,334 684,651 (2,354,181)
----------- ---------- ----------
Extraordinary gain on disposition of
operating properties (note 3) - 952,692 3,604,514
----------- ---------- ----------
Net income $ 1,452,334 1,637,343 1,250,333
=========== ========== ==========
Allocation of net income:
Limited partners $ 1,423,287 1,609,067 960,336
General partners 29,047 28,276 289,997
----------- ---------- ----------
$ 1,452,334 1,637,343 1,250,333
=========== ========== ==========
Basic earnings per limited partnership unit:
Income (loss) before extraordinary item $ .34 .16 (.56)
Extraordinary gain - .23 .79
---- --- ---
Net income $ .34 .39 .23
==== === ===
Distributions $ .08 - -
==== === ===
Weighted average number of units 4,172,457 4,172,457 4,172,457
============= ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Partnership Equity
Years ended December 31, 1997, 1996 and 1995
Limited General
Partners Partner Total
-------- ------- -----
<S> <C> <C> <C>
Equity at December 31, 1994 $ 21,489,281 (312,332) 21,176,949
Net income 960,336 289,997 1,250,333
------------ ------- ----------
Equity at December 31, 1995 22,449,617 (22,335) 22,427,282
Net income 1,609,067 28,276 1,637,343
------------ ------- ----------
Equity at December 31, 1996 24,058,684 5,941 24,064,625
Net income 1,423,287 29,047 1,452,334
Distributions (325,000) - (325,000)
------------ ------- ----------
Equity at December 31, 1997 $ 25,156,971 34,988 25,191,959
============ ======= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,452,334 1,637,343 1,250,333
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,477,792 1,532,400 1,892,870
Bad debts, net of recoveries 43,061 875,143 1,585,555
(Gain) loss on disposition of operating
properties, net - (387,617) 1,237,420
Extraordinary gain on disposition of operating
properties - (952,692) (3,604,514)
Changes in assets and liabilities, net of
effects of property dispositions:
Accounts receivable (48,856) (1,458,968) (1,228,720)
Prepaid expenses 35,074 43,647 39,406
Accounts payable and accrued expenses (283,045) 443,384 (89,940)
------------- --------- ---------
Net cash provided by operating activities 2,676,360 1,732,640 1,082,410
------------- --------- ---------
Cash flows from investing activities:
Purchases of property and improvements (80,235) (21,969) (760)
Proceeds from sale of property - 2,246,114 2,958,287
Cash forfeiture on disposition of property held in
receivership - - (67,969)
------------- ---------- ---------
Net cash provided by (used in)
investing activities (80,235) 2,224,145 2,889,558
------------- ---------- ---------
Cash flows from financing activities:
Payments on mortgage loans payable (529,983) (2,568,187) (1,971,385)
Distributions to limited partners (325,000) - -
Increase in deferred charges (14,479) - -
------------- ---------- ---------
Net cash used in financing activities (869,462) (2,568,187) (1,971,385)
------------- ---------- ---------
Net increase in cash and cash equivalents 1,726,663 1,388,598 2,000,583
Cash and cash equivalents at beginning of year 8,995,455 7,606,857 5,606,274
------------- ---------- ---------
Cash and cash equivalents at end of year $ 10,722,118 8,995,455 7,606,857
============= ========== =========
Cash paid for interest $ 678,905 716,910 850,747
============= ========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) General
HealthCare Properties, L.P. (HCP or the Partnership), is a Delaware limited
partnership established for the purpose of acquiring, leasing and operating
existing or newly constructed long-term health care properties. These
properties are operated by the Partnership or are leased to qualified
operators who provide specialized health care services. Effective July 1,
1993, Capital Realty Group Senior Housing, Inc. (CRG) became the sole
general partner of the Partnership. Effective February 1, 1995 Capital
Senior Living, Inc., (CSL), an affiliate of CRG became the managing agent
for the Partnership replacing CRG, which had been managing agent since July
1, 1992.
At December 31, 1995, CRG owned approximately 9% of the Partnership's
limited partner units. During 1996, Capital Senior Living Communities, L.P.
(CSLC), an affiliate of CRG, acquired CRG's 9% interest in the Partnership.
At December 31, 1996 and 1995, CSLC owned approximately 31% and 6% of the
Partnership's limited partner units, respectively. In 1997, CSLC was sold
to Capital Senior Living Properties (CSLP), a subsidiary of Capital Senior
Living Corporation. At December 31, 1997, CSLP owned approximately 56% of
the Partnership's limited partner units.
The consolidated financial statements as of and for the years ended
December 31, 1997 and 1996, include the accounts of the Partnership's
wholly owned subsidiary, Cambridge Nursing Home Limited Liability Company
(Cambridge LLC), which began operating Cambridge Nursing Home, located in
Cambridge, Massachusetts, effective August 1, 1996. In addition, the
consolidated financial statements for 1995 include the accounts of the
Partnership and its wholly owned subsidiaries, Danville Care, Inc.,
Foothills Care, Inc., Countryside Care, Inc. and Countryside Care, LP. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
At December 31, 1997, 1996 and 1995, the status of the Partnership's
properties was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operated under bankruptcy and managed by CSL - - 1
Leased to unaffiliated operators on a triple net basis 7 7 7
Operated by subsidiaries of the Partnership and
managed by CSL 1 1 1
--- --- ---
8 8 9
=== === ===
</TABLE>
During 1996, one of the properties (Countryside) operated by a subsidiary
of the Partnership was sold to an unrelated third party. Additionally,
during 1996, the operations of a property (Cambridge) previously operated
under bankruptcy and managed by CSL were transferred to Cambridge LLC. CSL
continues to manage this property. During 1995, one of the Partnership's
leased properties was sold to an unrelated third party and the deeds for
two of the Partnership's operated properties were transferred to the
noteholders in lieu of foreclosure (see note 3).
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies
Property and improvements are stated at cost. The Partnership adopted the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. The fair value is based on either the
expected future cash flows discounted at a rate which varies based on
associated risk or an independent third-party appraisal. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, using
declining-balance and straight-line methods, as follows: buildings and
improvements, 25 to 31 years; furniture, fixtures and equipment, 5 to 10
years.
The financial statements and federal income tax returns are prepared on the
accrual method of accounting and include only those assets and liabilities
and results of operations which relate to the business of the Partnership
and its wholly owned subsidiaries. No provision has been made for federal
and state income taxes since such taxes are the responsibility of the
individual partners. Although the Partnership's subsidiaries file federal
corporate income tax returns, none of the subsidiaries had significant net
income for financial reporting or income tax purposes in 1997, 1996 or
1995. Accordingly, no provision has been made for federal and state income
taxes for these subsidiaries in 1997, 1996 or 1995.
Net income (loss) of the Partnership and taxable income (loss) are
generally allocated 98% to the limited partners and 2% to the general
partner. The net income of the Partnership from the disposition of a
property is allocated (i) to partners with deficit capital accounts on a
pro rata basis, (ii) to limited partners until they have been paid an
amount equal to the amount of their Adjusted Investment, as defined, (iii)
to the limited partners until they have been allocated income equal to
their 12% Liquidation Preference, and (iv) thereafter, 80% to the limited
partners and 20% to the general partner. The net loss of the Partnership
from the disposition of a property is allocated (i) to partners with
positive capital accounts on a pro rata basis and (ii) thereafter, 98% to
the limited partners and 2% to the general partner. Distributions of
available cash flow are generally distributed 98% to the limited partners
and 2% to the general partner, until the limited partners have received an
annual preferential distribution, as defined. Thereafter, available cash
flow is distributed 90% to the limited partners and 10% to the general
partner. The partnership made a $325,000 distribution to the limited
partners in 1997 and no distributions in 1996 and 1995.
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
Deferred charges primarily represent initial fees and other costs incurred
in negotiating leases and mortgage loans payable. These costs are being
amortized using the straight-line method over the lives of the related
leases or mortgage loans.
Net patient service revenue is reported at the estimated net realizable
amounts due from residents, third-party payors (including the Medicare and
Medicaid programs), and others for service rendered. Revenue under
third-party payor agreements is subject to audit and retroactive
adjustment. Provisions for estimated third-party payor settlements are
provided in the period the related services are rendered. Differences
between the estimated amounts accrued and interim and final settlements are
reported in operations in the year of settlement. Laws and regulations
governing the Medicare and Medicaid programs are complex and subject to
interpretation. The Partnership believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing.
While no such regulatory inquiries have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
The Partnership records accounts receivable for contingent rentals and past
due rents only when circumstances indicate a substantial probability of
collection. Existing receivables are reserved to the extent collection is
deemed doubtful by the Partnership's management. Deductions to the
allowance for doubtful accounts were $-0-, $45,682 and $29,953 for 1997,
1996 and 1995, respectively.
The Partnership classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.
The Partnership adopted Statement of Financial Accounting Standards No.
128, Earnings per Share, on December 31, 1997. The adoption of this
statement had no effect on the Partnership.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these consolidated financial statements. Actual results could differ from
those estimates.
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
(3) Property and Improvements
-------------------------
<TABLE>
<CAPTION>
Property and improvements consist of:
December 31
1997 1996
<S> <C> <C>
---- ----
Land $ 3,145,803 3,145,803
Buildings and improvements 31,425,543 31,397,383
Furniture, fixtures and equipment 1,656,040 1,603,965
------------- ----------
36,227,386 36,147,151
Less allowance for reduction in carrying value of
operating property (2,185,381) (2,185,381)
------------- ----------
34,042,005 33,961,770
Less accumulated depreciation (13,218,092) (11,849,151)
------------- ----------
$ 20,823,913 22,112,619
============= ==========
</TABLE>
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
The following is a summary of information for the individual Partnership
properties from inception of the Partnership through December 31, 1997. The
information presented includes furniture, fixtures and equipment which are
immaterial to the Partnership.
<TABLE>
<CAPTION>
Costs
Costs
Capitalized
Subse-
Initial Cost to quent to
Partnership Acquisition Gross Amount at which Carried at Close of Period
-------------------------------------------------------------------------------
Build-
ings Buildings Accumu-
and and lated Date of Date
Improve- Improve- Improve- Valuation Encum- Depre- Const- Ac- Useful
Description Land ments ments Land ments Allowance Total brances ciation ruction quired Life
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cedarbrook $807,861 3,147,139 783,608 807,861 3,930,747 - 4,738,608 729,622 1,725,113 1985 1987 25-31 yrs
rehab facility
Nashville, TN
Cane Creek 97,560 3,902,440 225,118 97,560 4,127,558 - 4,225,118 581,555 1,941,859 1985 1987 25-31 yrs
rehab facility
Martin, TN
Crenshaw Creek 123,801 3,776,199 102,732 123,801 3,878,931 - 4,002,732 - 1,551,238 1988 1988 25-31 yrs
rehab facility
Lancaster, SC
Sandy Brook 563,072 3,636,928 128,434 563,072 3,765,362 - 4,328,434 - 1,468,773 1985 1988 25-31 yrs
rehab facility
Orlando, FL
Cambridge 497,470 4,602,530 182,006 497,470 4,784,536 (2,185,381) 3,096,625 - 1,616,348 1967 1990 25-31 yrs
nursing home
Cambridge, MA
Trinity Hills 300,000 2,400,000 26,152 300,000 2,426,152 - 2,726,152 - 1,192,245 1971 1988 25-31 yrs
nursing home
Ft. Worth, TX
Hearthstone 756,039 2,868,961 116,365 756,039 2,985,326 - 3,741,365 1,306,222 1,216,698 1988 1988 25-31 yrs
nursing home
Round Rock, TX
McCurdy - 7,100,000 74,064 - 7,174,064 - 7,174,064 4,060,033 2,500,670 1916 1989 25-31 yrs
nursing home
Evansville, IN
Partnership
assets
Dallas, TX - - 8,907 - 8,907 - 8,907 - 5,148 n/a 1991- 10 yrs
1993
---------- ---------- -------- -------- ---------- --------- -------- --------- ---------
Total $3,145,803 31,434,197 1,647,386 3,145,803 33,081,583 (2,185,381)34,042,005 6,677,432 13,218,092
========== ========== ========= ========= ========== ========= ========== ========= ==========
</TABLE>
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
The following information is a summary of Partnership additions to and
deductions from property and improvements and accumulated depreciation for the
years ended December 31, 1997, 1996 and 1995. The information presented includes
furniture, fixtures and equipment which are immaterial to the Partnership.
<TABLE>
<CAPTION>
Property and Improvements 1997 1996 1995
------------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 33,961,770 36,862,974 46,272,927
Additions during the period:
Acquisitions - - -
Improvements 80,235 21,969 760
------------ ---------- ----------
34,042,005 21,969 760
Deductions during period:
Cost of property sold - 2,923,173 3,520,068
Cost of property transferred in lieu of
foreclosure - - 5,890,645
Write-down in value of property - - -
------------ ---------- ----------
Total deductions - 2,923,173 9,410,713
------------ ---------- ----------
Balance at close of period $ 34,042,005 33,961,770 36,862,974
============ ========== ==========
Accumulated depreciation:
Balance at beginning of period $ 11,849,151 11,611,719 12,576,670
Additions 1,368,941 1,418,293 1,721,605
Deductions during period:
Property sold - 1,180,861 989,422
Property transferred in lieu of foreclosure - - 1,697,134
------------ ---------- ----------
Total deductions - 1,180,861 2,686,556
------------ ---------- ----------
Balance at close of period $ 13,218,092 11,849,151 11,611,719
============ ========== ==========
</TABLE>
The federal income tax basis of the Partnership's property and improvements at
December 31, 1997 is $25,775,120.
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
The following property dispositions occurred during 1996 and 1995:
<TABLE>
<CAPTION>
Net property Mortgage Net gain
and loans Net on
improvements payable Other proceeds disposition
------------ -------- ----- -------- -----------
<S> <C> <C> <C> <C> <C>
1996:
Sale of Countryside
on May 1, 1996 $ 1,742,401 (2,068,539) (987,804) (26,367) 1,340,309
========= ========= ========== ========== =========
1995:
Sale of Heritage
Manor on July 5,
1995 $ 2,530,645 (1,500,000) 63,857 (1,458,287) 363,785
Deed transferred to
noteholder in
lieu of foreclosure:
Foothills 2,122,178 (2,360,895) (872,587) - 1,111,304
Diablo/Tamarack 2,071,334 (2,160,787) (802,552) - 892,005
----------- --------- ---------- ---------- ---------
$ 6,724,157 (6,021,682) (1,611,282) (1,458,287) 2,367,094
========= ========= ========= ========= =========
</TABLE>
"Other" consists primarily of disposition costs, accrued interest payable and
deferred charges (prepaid loan fees).
The Countryside property was sold to an unrelated third-party investor on May 1,
1996 for $2,246,114. The resulting net gain is comprised of (1) an ordinary gain
of $387,617 representing the difference between the carrying value of the
property and the sales proceeds and (2) an extraordinary gain of $952,692
representing the difference between the agreed-upon cash settlement with the
lender and the mortgage loan payable including accrued interest payable.
The Heritage Manor property was sold on July 5, 1995 to an unrelated third-party
investor for $3,075,000. With the proceeds, the Partnership paid the $1,500,000
mortgage loan balance. The resulting ordinary net gain of $363,785 represents
the difference between the carrying value of the property and the sales
proceeds.
The deed to the Diablo/Tamarack property was transferred to the noteholder in
lieu of foreclosure on July 31, 1995. The resulting net gain is comprised of (1)
an ordinary loss of $686,770 representing the difference between the carrying
value and the fair value of the property and, (2) an extraordinary gain of
$1,578,775 representing the difference between the fair value of the property,
and the mortgage loan payable including accrued interest payable.
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
Effective December 1, 1994, the Foothills property was placed in receivership.
The deed to the property was subsequently transferred to the noteholder in lieu
of foreclosure on JulyE19, 1995. The resulting net gain is comprised of (1) an
ordinary loss of $914,435, representing the difference between the carrying
value and the fair value of the property and, (2) an extraordinary gain of
$2,025,739 representing the difference between the fair value of the property,
and the mortgage loan payable including accrued interest payable.
Combined operating results for Cambridge, Foothills, Countryside and
Diablo/Tamarack follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net patient service revenue $ 4,702,017 2,969,991 3,268,800
--------- --------- ---------
Facility operating expenses 4,577,735 2,727,909 3,238,004
Depreciation 205,563 248,134 275,815
Fees to affiliates 390,059 261,517 319,454
Bad debts 43,061 79,682 325,921
Lease default expenses - 35,923 120,258
--------- --------- ---------
5,216,418 3,353,165 4,279,452
--------- --------- ---------
Loss from operations $ (514,401) (383,174) (1,010,652)
========== ========= =========
Interest expense $ - 67,181 457,691
========== ========= =========
</TABLE>
The 1997 and 1996 operating results consist primarily of activity at the
Cambridge facility. The 1996 operations for Cambridge were from August 1,
1996 through December 31, 1996 and at the Countryside facility from January
1, 1996 through April 30, 1996. Operating results consist of amounts at the
Countryside facility for the year ended December 31, 1995 and at the
Diablo/Tamarack facility from January 1, 1995 through July 31, 1995.
(4) Mortgage Loans Payable
----------------------
Mortgage loans payable consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cane Creek property - note payable to bank $ 581,555 789,198
Cedarbrook property - note payable to bank 729,622 899,029
Hearthstone property - note payable to life insurance
company 1,306,222 1,341,859
McCurdy property - note payable to bank 4,060,032 4,177,328
--------- ---------
Total mortgage loans payable $ 6,677,431 7,207,414
========= =========
</TABLE>
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
Mortgage loans payable bear interest ranging from 6.6% to 10.75% at
December 31, 1997 and 6.6% to 10.75% at December 31, 1996. These notes are
payable in monthly installments of $100,812 at December 31, 1997 and
$101,092 at December 31, 1996, including interest. The notes are secured by
properties with net book values aggregating $12,494,825 and $13,246,635 at
December 31, 1997 and 1996, respectively. The notes range in maturity from
2001 to 2012.
The Partnership leases four of its properties under a master lease (see
note 5). The rentals under the master lease provide additional security for
two notes payable used to finance two of the master lease properties. 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 on June 30, 1997 and
the Partnership is currently negotiating the extensio of this note until
December 1, 2001.
Presented below is a summary of required principal payments on mortgage
loans payable. The note callable on June 30, 1997 is included in amounts
due currently.
1998 $ 932,664
1999 382,640
2000 417,147
2001 378,170
2002 and thereafter 4,566,810
---------
$ 6,677,431
=========
(5) Leases
The Partnership leases its property and equipment to tenants under
noncancelable operating leases. The lease terms range from 9 to 12 years
with options to renew for additional five-year terms and options to
purchase the leased property at the current fair market value at the end of
the initial lease term. The leases generally provide for contingent rentals
based on the performance of the property. Contingent rentals aggregated
$271,340, $192,325 and $165,042 in 1997, 1996 and 1995, respectively.
Minimum rentals for the next two years are $3,971,328 per year, subject to
change based on changes in interest rates. Minimum rentals are $3,761,262
and $2,858,619 for the years 2000 and 2001. There are no minimum rentals
thereafter. Property and improvements less accumulated depreciation
attributable to such rentals, amounted to $19,339,886 and $20,502,517 at
December 31, 1997 and 1996, respectively.
Four of the Partnership's properties are subject to a master lease with a
single operator, Rebound, Inc., a subsidiary of HealthSouth Corporation
(HealthSouth). This master lease, as amended, contains a nine-year renewal
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
option and provides for contingent rentals equal to 4% of the revenue
differential, as defined, effective January 30, 1997. As of December 31,
1997, no contingent rentals have been accrued on the master lease.
During 1994, HealthSouth closed the Partnership's Sandybrook facility. In
February 1997, HealthSouth closed the Cedarbrook facility. Despite these
closures, HealthSouth has continued making its full lease payments under
the terms of the master lease.
The following summary consolidated financial data was obtained from the
September 30, 1997 Form 10-Q and the December 31, 1996 Form 10-K of
HealthSouth:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(unaudited)
(in thousands)
<S> <C> <C>
Cash $ 189,408 148,028
Accounts receivable, net 659,415 510,567
Property and equipment, net 1,659,300 1,390,873
Intangible assets, net 1,379,500 1,049,658
Other assets 362,148 272,826
---------- ---------
Total assets $ 4,249,771 3,371,952
========= =========
Long-term debt $ 1,882,466 1,450,620
Other liabilities 429,894 405,408
Stockholders' equity 1,937,411 1,515,924
--------- ---------
Total liabilities and stockholders' equity $ 4,249,771 3,371,952
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended
December 31
1997 1996 1995
---- ---- ----
(unaudited)
(in thousands)
<S> <C> <C> <C>
Net revenue $ 2,163,018 2,436,537 2,003,146
========= ========= =========
Net income $ 231,818 220,818 92,521
========= ========= =========
</TABLE>
(6) Related Party Transactions
--------------------------
Personnel working at the property sites and certain home office personnel
who perform services on behalf of HCP are employees of CSL. HCP reimburses
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
CSL for the salaries, related benefits, and overhead reimbursements of such
personnel. In addition, HCP pays fees to the general partner and affiliates
of the general partner. The approximate costs of these arrangements are
reflected below.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C>
Salary and benefit reimbursements $ 3,173,000 1,859,000 2,256,000
========= ========= =========
Asset management fees $ 484,000 740,000 712,000
Property management fees 330,000 208,000 252,000
Administrative and other expenses 206,000 256,000 235,000
General partner management fees 90,000 72,000 80,000
--------- --------- ---------
$ 1,110,000 1,276,000 1,279,000
========= ========= =========
</TABLE>
In October 1997, HCP paid CRG a refinancing fee of $13,245.
In connection with the sale of Countryside in 1996, the general partner was
paid fees aggregating $66,000. In connection with the sale of Heritage
Manor in 1995, the general partner was paid fees aggregating $92,250.
As of December 31, 1997, Capital Senior Living Corporation, which is owned
by James A. Stroud (through a trust), Jeffrey L. Beck and Lawrence A.
Cohen, indirectly owned 56% of the limited partnership units of HCP. HCP is
included in the consolidated financial statements of Capital Senior Living
Corporation, a public company that files with the Securities and Exchange
Commission. In addition, the general partner of HCP, CRG, is beneficially
owned by Messrs. Beck and Stroud.
Mr. Beck is chairman of the board of a bank where the Partnership holds the
majority of its operating cash accounts.
(7) Other Income
------------
On November 3, 1997, CSLC sold all of its units of HCP to CSLP in
conjunction with the initial public offering of its parent company, Capital
Senior Living Corporation. In connection with the sale of its investment in
HCP, and in compliance with Section 16b of the Securities Exchange Act of
1934, CSLC subsequently paid to HCP $440,007 in gains recognized on
purchases of HCP units made within a six month period prior to the sale of
HCP units to CSLP. This gain is included in other income in the
accompanying 1997 consolidated statement of income.
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
(8) Income Taxes
Reconciliation of financial statement basis partners' equity to federal
income tax basis partners' equity is as follows:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1997 1996 1995
<S> <C> <C> <C>
---- ---- ----
Total partners' equity - financial statement
basis $ 25,191,959 24,064,625 22,427,282
Current year tax basis net earnings
over (under) financial statement basis 321,264 (684,329) (2,942,675)
Cumulative tax basis net earnings over
financial statement basis 4,452,249 5,136,578 8,079,253
----------- ---------- ----------
Total partners' equity - federal income
tax basis $ 29,965,472 28,516,874 27,563,860
========== ========== ==========
</TABLE>
Because many types of transactions are susceptible to varying
interpretations under federal and state income tax laws and regulations,
the amounts reported above may be subject to change at a later date upon
final determination by the taxing authorities.
(9) Business and Credit Concentrations
----------------------------------
The Partnership's eight facilities are located in the southeastern United
States, Texas, Indiana and Massachusetts. The four facilities operated by
HealthSouth (note 5) are located in the southeastern United States and
accounted for approximately $2,367,000 (26%), $2,367,000 (31%) and
$2,367,000 (28%) of Partnership revenues in 1997, 1996 and 1995,
respectively. One property leased to an unaffiliated operator accounted for
approximately $998,000 (11%) and $1,024,000 (14%) of Partnership revenue in
1997 and 1996, respectively.
The Partnership also derives revenue from Medicaid programs funded by the
states of Michigan and Massachusetts. The Partnership derived 32% and 15%
of its revenues from the state program in Massachusetts in 1997 and 1996,
respectively. The Partnership derived 15% of its revenues from the Michigan
state program in 1995. The Partnership also derived 13% of its revenue from
the Medicare program in 1997.
Receivables due from state Medicaid programs aggregated $372,033 and
$438,350 at December 31, 1997 and 1996, respectively.
The Partnership does not require collateral or other security to support
financial instruments subject to credit risk.
(Continued)
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
(10) Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments presented below.
(a) Cash and Cash Equivalents, Receivables and Payables
---------------------------------------------------
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Mortgage Loans Payable
----------------------
The fair value of the Partnership's mortgage loans payable is
calculated by discounting scheduled cash flows through maturity using
discount rates that are currently available to the Partnership on
other borrowings with similar risk and maturities. Issuance costs and
other expenses that would be incurred in an actual borrowing are not
reflected in this amount.
Carrying value Fair value
-------------- ----------
Mortgage loans payable $ 6,677,431 6,611,128
========= =========
(11) Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
<TABLE>
<CAPTION>
Fiscal 1997 Quarters Fiscal 1996 Quarters
----------------------- ---------------------
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,304,372 2,348,896 2,229,873 2,094,487 1,797,847 1,437,060 2,051,544 2,273,653
Income before
extraordinary item 348,820 259,236 286,026 558,252 39,064 546,684 53,695 45,208
Net income 348,820 259,236 286,026 558,252 39,064 1,499,376 53,695 45,208
Basic earnings per
limited partnership
unit .08 .06 .07 .13 .01 .36 .01 .01
</TABLE>
Quarterly operating results are not necessarily representative of
operations for a full year.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following Consolidated Financial Statements of
HealthCare Properties, L.P. and Subsidiaries are incorporated by
reference as set forth in PART II, Item 8:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Partnership Equity - Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows- Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are inapplicable,
not required, or the information is included in the financial
statements or notes thereto.
(3) Exhibits
The list of exhibits is incorporated herein by reference to the
exhibit index on page 38 of this report
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934; the Registrant has duly caused this Report to be signed on
its behalf of the undersigned, thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: Capital Realty Group Senior Housing, Inc.,
General Partner
By: /s/ James A. Stroud
----------------------------------------
James A. Stroud
Chief Operating Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated.
By: /s/ James A. Stroud
__________________________________ March 27, 1998
James A. Stroud
Chief Operating Officer and Director of General Partner
(Chief financial, and accounting officer)
By: /s/ Jeffrey L. Beck
__________________________________ March 27, 1998
Jeffrey L. Beck
Chief Executive Officer and Director of General Partner
37
<PAGE>
Exhibit Index
Page Nos. in
Exhibit Number This Filing
- -------------- ------------
3 Restated Limmited Partnership Agreement is incorporated N/A
by reference to Exhibit A to the Prospectus of Registrant
dated August 31, 1987, as filed with the Commission
pursuant to Rule 424(b).
10 Restructuring Agreement dated November 30, 1992, between N/A
Registrant and Rebound, Inc. with exhibits.
27* Financial Data Schedule (included only in Edgar filing) -
28 Partnership Management Agreement, dated July 29, 1992, N/A
with Capital Realty Group Properties, Inc. as filed with
the Commission in the Third Quarter 10-Q, dated September 20,
1992.
*Filed herewith
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the last quarter of fiscal 1997.
38
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Sheet
</LEGEND>
<CIK> 0000814458
<NAME> HealthCare Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 10,722,118
<SECURITIES> 0
<RECEIVABLES> 1,101,071
<ALLOWANCES> (301,042)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,042,005
<DEPRECIATION> (13,218,092)
<TOTAL-ASSETS> 32,801,853
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,191,959
<TOTAL-LIABILITY-AND-EQUITY> 32,801,853
<SALES> 0
<TOTAL-REVENUES> 9,860,528
<CGS> 0
<TOTAL-COSTS> 7,620,438
<OTHER-EXPENSES> 108,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 678,905
<INCOME-PRETAX> 1,452,334
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452,334
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
