FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-17695
HEALTHCARE PROPERTIES L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1317327
(State of other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
14160 DALLAS PARKWAY, SUITE 300
DALLAS, TX 75240
(Address of principal executive offices)
(Zip Code)
(972) 770-5600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 the past 90 days.
Yes X No
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
-----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 15,413,271 $ 11,971,405
Accounts receivable, less allowance for doubtful
accounts of $792,395 in 1999 and $686,042 in 1998 1,149,996 843,332
Prepaid expenses and other 16,139 36,605
Property and improvements, net 16,683,459 19,598,117
Deferred charges, less accumulated amortization
of $962,816 in 1999 and $981,895 in 1998 230,648 309,499
---------------- ----------------
$ 33,493,513 $ 32,758,958
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
Accounts payable and accrued expenses $ 608,033 $ 606,044
Operating facility accounts payable 86,375 102,665
Mortgage loans payable 5,250,678 6,128,656
---------------- ----------------
5,945,086 6,837,365
---------------- ----------------
Partnership equity
Limited partners (4,148,325 units outstanding in 1999
and 1998) 27,468,860 25,869,116
General partner 79,567 52,477
---------------- ----------------
27,548,427 25,921,593
---------------- ----------------
$ 33,493,513 $ 32,758,958
================ ================
</TABLE>
See notes to financial statements
1
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues
Rental $ 992,832 $ 1,073,421
Net patient services 1,334,917 1,140,126
--------------- ---------------
2,327,749 2,213,547
--------------- ---------------
Expenses
Facility operating expenses 1,221,526 1,098,010
Depreciation 322,561 327,397
Administrative and other 306,238 432,667
Bad debts 76,353 15,000
--------------- ---------------
1,926,678 1,873,074
--------------- ---------------
Income from operations 401,071 340,473
--------------- ---------------
Other income (expenses)
Gain on disposition of operating property 772,286 -
Interest income 146,335 145,045
Interest expense (145,146) (157,860)
Amortization (26,283) (26,384)
--------------- ---------------
747,192 (39,199)
--------------- ---------------
Net income $ 1,148,263 $ 301,274
=============== ===============
NET INCOME ALLOCATION
Limited partners $ 1,140,744 $ 295,249
General partner 7,519 6,025
--------------- ---------------
$ 1,148,263 $ 301,274
=============== ===============
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .27 $ .07
=============== ===============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,148,325 4,148,325
=============== ===============
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine-months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues
Rental $ 3,187,874 $ 3,204,391
Net patient services 3,920,571 3,289,007
--------------- ---------------
7,108,445 6,493,398
--------------- ---------------
Expenses
Facility operating expenses 3,533,756 3,353,655
Depreciation 967,181 979,340
Administrative and other 1,035,308 1,110,710
Bad debts 106,353 45,000
--------------- ---------------
5,642,598 5,488,705
--------------- ---------------
Income from operations 1,465,847 1,004,693
--------------- ---------------
Other income (expenses)
Gain on disposition of operating property 772,286 -
Interest income 410,849 385,194
Interest expense (443,322) (481,250)
Amortization (78,851) (78,750)
--------------- ---------------
660,962 (174,806)
--------------- ---------------
Net income $ 2,126,809 $ 829,887
=============== ===============
NET INCOME ALLOCATION
Limited partners $ 2,099,719 $ 813,290
General partner 27,090 16,597
--------------- ---------------
$ 2,126,809 $ 829,887
=============== ===============
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .51 $ .20
=============== ---------------
WEIGHTED AVERAGE
NUMBER OF UNITS 4,148,325 4,153,602
=============== ===============
</TABLE>
See notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
EQUITY at
December 31, 1998 $ 25,869,116 $ 52,477 $ 25,921,593
Distributions - Unaudited (499,975) - (499,975)
Net income - Unaudited 2,099,719 27,090 2,126,809
--------------- ------------ ----------------
EQUITY at
September 30, 1999 - Unaudited $ 27,468,860 $ 79,567 $ 27,548,427
=============== ============= ================
</TABLE>
See notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine-months ended September 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,126,809 $ 829,887
Adjustments to reconcile net income to
net cash provided by operating activities
Bad debts 106,353 45,000
Depreciation and amortization 1,046,032 1,058,090
Gain on disposition of operating property (772,286) -
Changes in assets and liabilities
Accounts receivable (413,017) (242,594)
Prepaid expenses and other 20,466 34,450
Accounts payable and accrued expenses (14,301) (165,233)
------------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,100,056 1,559,600
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and improvement (20,191) (80,997)
Net proceeds from sale of property 2,739,954 -
------------- ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 2,719,763 (80,997)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on mortgage loans payable (877,978) (419,457)
Repurchased limited partner units - (144,791)
Increase in deferred charges - (9,061)
Distributions (499,975) -
------------- ------------
NET CASH USED IN
FINANCING ACTIVITIES (1,377,953) (573,309)
------------- ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 3,441,866 905,294
CASH AND CASH EQUIVALENTS
Beginning of period 11,971,405 10,722,118
------------- ------------
CASH AND CASH EQUIVALENTS
End of period $ 15,413,271 $ 11,627,412
------------- ============
CASH PAID FOR INTEREST $ 443,322 $ 481,250
============= ============
</TABLE>
See notes to financial statements
5
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. 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, 1999. 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, 1998.
Net income (loss) of the Partnership and taxable income (loss) are
generally allocated 98 percent to the limited partners and 2 percent 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 percent
Liquidation Preference, and (iv) thereafter, 80 percent to the limited partners
and 20 percent 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 percent to the limited
partners and 2 percent to the general partner. Distributions of available cash
flow are generally distributed 98 percent to the limited partners and 2 percent
to the general partner, until the limited partners have received an annual
preferential distribution, as defined. Thereafter, available cash flow is
distributed 90 percent to the limited partners and 10 percent to the general
partner.
For the three-months and nine-months ended September 30, 1999, the gain
on sale of the Cedarbrook facility ( see Note 4) was allocated 100 percent to
the limited partners and the remaining net income was allocated 98 percent to
the limited partners and 2 percent to the general partner.
2. 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
6
<PAGE>
<TABLE>
<CAPTION>
Nine-months ended Nine-months ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Salary and benefit reimbursements $ 2,313,582 $ 2,291,860
Administrative reimbursements 118,192 104,635
Asset management fees 351,000 413,475
Property management fees 271,498 229,881
General partner fees 70,051 64,884
-------------- --------------
$ 3,124,323 $ 3,104,735
============== ==============
</TABLE>
Currently, Capital Senior Living Properties, Inc., formerly an
affiliate of CRGSH, holds approximately 57 percent 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 Realty
Group Corporation, sold all of its shares of CRGSH common stock to Retirement
Associates, Inc. (Associates) for $855,000. The source of the funds was a
Promissory Note for $855,000 with a five-year term and bearing an interest rate
of 10 percent per annum. The interest accrues on the Promissory Note and becomes
payable at the maturity of the Promissory Note. Associates is the maker of the
Note and Capital Realty Group Corporation is the payee. Mr. Robert Lankford is
the President of Associates and has brokered and continues to broker real estate
as an independent contractor with affiliates of Capital Senior Living
Corporation.
3. VALUATION OF RENTAL PROPERTY
----------------------------
Generally accepted accounting principles require that the Registrant
evaluate whether events or circumstances indicate that the estimated
undiscounted future cash flows of its properties, taken individually, are less
than the respective net book value of the properties. If such a shortfall
exists, then a write-down to fair value is recorded. The Registrant performs
such evaluations on an on-going basis. During the nine- months ended September
30, 1999, based on the Registrant's evaluation of the properties, the Registrant
did not record any impairment.
4. SALE OF PROPERTY
----------------
On September 20, 1999, the Registrant sold the Cedarbrook facility for
$2,825,000, resulting in $2,739,954 in net cash proceeds after payment of
settlement costs and mortgage payable related to this facility and recognized a
gain of $772,286.
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.
7
<PAGE>
All of the net proceeds of the offering were originally invested in 12
properties or used for working capital reserves. The Registrant partially
financed the acquisition of eight of its original properties with non-recourse
debt. Four properties were initially unleveraged. As of September 30, 1999, five
of the original twelve properties had either been sold or deeded back to the
lender, leaving the Registrant with three properties secured by debt and four
properties unleveraged. With the exception of the Cambridge facility, which is
operated by the Registrant and consequently not leased to a third party
operator, the initial term of the six properties with long-term net leases to
third party operators are due to expire in the years 2000 and 2001. Such leases
are subject to renewal and purchase options.
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.
On September 20, 1999, the Registrant sold the Cedarbrook facility for
$2,825,000, resulting in $2,739,954 in net cash proceeds after payment of
settlement costs and mortgage payable related to this facility and recognized a
gain of $772,286.
As of September 30, 1999, Registrant had cash and cash equivalents
aggregating $15,413,271. 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, including the McCurdy
facility as discussed below, and to have adequate additional funds for
investment in existing assets for improvements. In the event 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. Future cash distributions will be dependent on the status
of future operational control of these properties. Cash distributions of
$250,000, $325,000 and $499,975 were made in June 1993, July 1997 and April
1999, respectively. The Units are not publicly traded and as a result, the
liquidity of each Limited Partner's individual investment is limited. During
1998, the Registrant, in response to requests by holders of Units, repurchased
24,132 Units for a total amount of $144,791.
Results of Operations
- ---------------------
Discussion of Nine-Months and Three-Months Ended September 30, 1999
-------------------------------------------------------------------
Rental revenues for the nine-months ended September 30, 1999 decreased
$16,517 from the comparable nine-months ended September 30, 1998, due to
decreased revenue participation from leased facilities. Net patient services for
the nine-months ended September 30, 1999 increased $631,564 from the nine-months
ended September 30, 1998, primarily due to a 1998 Medicare charge of $139,000 (
which reduced 1998 recurring revenues) and higher reimbursement rates and higher
average occupancy rates at the Cambridge facility in 1999. On September 20,
1999, the Registrant sold the Cedarbrook facility for $2,825,000, resulting in
$2,739,954 in net cash proceeds after payment of settlement costs and mortgage
payable. The Registrant recognized a gain on sale of $772,286. Interest income
for the nine-months ended September 30, 1999 increased $25,655 from the
nine-months ended September 30, 1998 and was primarily due to increasing cash
available for investment.
Facility operating expenses for the nine-months ended September 30,
1999 increased by $180,101 from the comparable 1998 period primarily due to
increased salaries and benefits at the Cambridge facility. Depreciation for the
nine-months ended September 30, 1999, decreased $12,159 from the comparable 1998
8
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period. Administrative and other expenses decreased $75,402 for the nine-months
ended September 30, 1999 in comparison to the comparable 1998 period and is
primarily due to decreased professional fees. Bad debt expense for the
nine-months ended September 30, 1999 increased $61,353 in comparison to the
comparable 1998 period and is due to additional lease receivable reserves on the
McCurdy facility. Interest expense for the nine-months ended September 30, 1999
decreased by $37,928 from the comparable 1998 period. Amortization expense for
the nine-months ended September 30, 1999 was comparable to the 1998 period.
For the three-months ended September 30, 1999 as compared with the
three-months ended September 30, 1998, Registrant's revenue was impacted by the
same shifts of revenue as discussed above. Similarly, a comparison of third
quarter 1999 operating expenses versus third quarter 1998 reflects the same
variances as discussed above.
Cash and cash equivalents as of September 30, 1999 increased $3,441,866
over the balance at December 31, 1998. Cash increased by $2,536,572 for the
nine-months ended September 30, 1999 in comparison to the comparable 1998 period
primarily due to net sale proceeds from the sale of the Cedarbrook facility. Net
accounts receivable of $1,149,996 at September 30, 1999 reflected an increase of
$306,664 over 1998 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 $14,301 at
September 30, 1999, from December 31, 1998.
The following is a brief discussion of the status of Registrant's
properties.
Cedarbrook, Cane Creek, Crenshaw Creek and Sandybrook facilities.
Rebound, Inc. (a subsidiary of HealthSouth Corporation) leases the Cedarbrook,
Cane Creek, Crenshaw Creek and Sandybrook properties pursuant to a master lease
with the Registrant.
Due to low occupancy at the Sandybrook facility, it was closed in 1994.
Rental payments in March and April 1995 were discontinued by HealthSouth
Corporation (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.
HealthSouth has continued to make lease payments on a timely basis.
Effective August 5, 1999, HealthSouth agreed to transfer control of the
Cedarbrook and Sandybrook facilities to the Registrant. HealthSouth agreed,
however, to continue making its full lease payments to the Registrant. On
September 20, 1999, the Registrant sold the main campus of the Cedarbrook
facility for $2,825,000, resulting in $2,739,954 in net cash proceeds after
payment of settlement costs and mortgage payable. It is the intent of the
Registrant to distribute the net proceeds from this sale, after payment of
closing costs, including the brokerage fee, to the limited partners. The
Registrant is exploring its options with regard to the Sandybrook facility,
including the possibility of a sale of this asset.
A recourse loan on the Cane Creek facility was due in January 1996 in
the aggregate amount of approximately $988,000. This note was callable by the
lender at any time between January 1, 1993 and November 30, 1995; however, the
lender 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.
The lender agreed to extend the maturity date of their note to December 1, 2001,
pending completion of final loan documents. The Registrant continues to make its
loan payments under this loan.
9
<PAGE>
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 NCAC to Cambridge Nursing Home, LLC, a subsidiary
of the Registrant, thereby releasing the operations of the facility from the
jurisdiction of the United States Bankruptcy Court. A subsidiary of Registrant
now operates this property.
Registrant has filed an administrative claim with the trustee of the
United States Bankruptcy Court for unpaid lease payments. If approved by the
trustee, these payments are anticipated to exceed $500,000.
Trinity Hills, McCurdy, and Hearthstone facilities. The Trinity Hills
and Hearthstone lessees are current in their lease obligations to the
Registrant. In addition, the Registrant believes it likely that Hearthstone 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. Only Hearthstone appears to be generating cash flow
sufficient to fund its lease obligations. 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. On August 5, 1999, the lessees of the McCurdy facility
verbally told management of the Registrant that because of the recent poor
financial condition of this facility, they would be unable to make a full lease
payment to Registrant. Currently, the lessee of the McCurdy facility is
delinquent on its monthly rent payments since August 1999. The Registrant is
exploring its options in light of this event, which could include taking over
the operations of this facility immediately, bringing in new management or a new
lessee, and/or selling this facility.
YEAR 2000 ISSUE
- ---------------
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs or hardware that have date-sensitive software or
embedded chips may recognize the year 2000 as a date other than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Based on ongoing assessments, the Partnership has developed a program
to modify or replace significant portions of its software and certain hardware,
which are generally PC-based systems, so that those systems will properly
recognize and utilize dates beyond December 31, 1999. The Partnership has
substantially completed software reprogramming and software and hardware
replacement as of September 30, 1999, with 100 percent completion targeted for
December 31, 1999. The costs of the completed and future modifications and
replacement of hardware and software for the systems of the managing agent is
expected to result in expenditures of approximately $100,000. However, the
Partnership expects to incur $5,000 or less of allocated costs from the managing
agent for the completion of the managing agent's year 2000 initiative. All of
the Partnership's systems have been upgraded with the exception of its general
ledger program. The general ledger program is year 2000 compliant, however, some
of the reporting tools used in conjunction with the general ledger will not work
properly with the current version of the Partnership's general ledger after
December 31, 1999. As a result of this issue, the Partnership is currently in
the process of upgrading its current general ledger and reporting software and
10
<PAGE>
expects this process to be completed by December 31, 1999. The Partnership
presently believes that these modifications and replacement of existing software
and certain hardware will mitigate the year 2000 issue. However, if such
modifications and replacements are not completed timely, the year 2000 issue
could have a material impact on the operations of the Partnership.
The Partnership has completed a survey requiring written responses from
its critical service providers in 1999. Based on the responses from the
Partnership's critical service providers, 90 to 95 percent of the respondents
indicated that they are currently year 2000 compliant and the remaining
respondents indicate that they will be year 2000 compliant by the end of the
year. The Partnership is therefore not aware of any external critical service
provider with a year 2000 issue that would materially impact the Partnership's
results of operations, liquidity or capital resources. However, the Partnership
has no other means of determining whether or ensuring that its critical service
providers are or will be year 2000-ready. The inability of critical services
providers to complete their year 2000 resolution process in a timely fashion
could materially impact the Partnership.
The Partnership has assessed its exposure to operating equipment, and
such exposure it not significant due to the nature of the Partnership's
business.
The Partnership operates in a relatively low technology dependent
industry and does not anticipate any industry or Partnership specific year 2000
risks beyond those discussed above. Significant year 2000 problems could result
in the Partnership not having timely the operating information necessary to
efficiently manage and monitor its business activities. This could result in
disruptions in operation, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. The Partnership does not foresee year 2000 issues affecting the
day-to-day operations of its senior living communities due to their limited use
of technology and the Partnership's evaluation of their operating equipment. The
Partnership considers the possibility of significant year 2000 problems, based
on the evaluation of its internal systems and the response from its critical
service providers, to be remote.
The Partnership's management believes it has an effective program in
place to resolve the year 2000 issue in a timely manner. As noted above, the
Partnership has completed most but not all necessary phases of its year 2000
program. In the event that the Partnership does not complete the current program
or any additional phases, the Partnership could incur disruptions to its
operations. In addition, disruptions in the economy generally resulting from
year 2000 issues also could materially adversely affect the Partnership. The
Partnership could be subject to litigation or computer systems failure. The
amount of potential liability and cost cannot be reasonably estimated at this
time.
The Partnership currently has no contingency plans in place in the
event it does not complete all phases of its year 2000 program. The Partnership
plans to continue to monitor the status of completion of its year 2000
initiatives to determine whether such a plan is necessary.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Registrant's primary market risk exposure is from fluctuations in
interest rates and the effects of those fluctuations on the market values of its
cash equivalent short-term investments and floating interest rates on one
11
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recourse loan. The cash equivalent short-term investments consist primarily of
overnight investments that are not significantly exposed to interest rate risk,
except to the extent that changes in interest rates will ultimately affect the
amount of interest income earned on these investments. One Partnership recourse
loan is subject to a floating interest rate determined by bank prime rates,
which are subject to market fluctuations in the lending markets. Changes in debt
interest rates will ultimately affect the amount of interest expense accrued on
this loan.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
On June 17, 1998, Registrant filed a lawsuit in Dallas County against
the lessee of the McCurdy facility. The complaint sought a declaratory judgment
affirming that the lessee of the McCurdy facility (the lessee) cannot exercise
its option to purchase the McCurdy facility until the end of the lease term in
October 2001. The lessee had threatened to exercise this option immediately
(subject to a final determination of value). The lessee sought to dismiss this
Dallas County action based on jurisdictional grounds and this dismissal was
granted on November 6, 1998. On November 6, 1998, the Registrant was informed
that the lessee had filed a complaint for declaratory judgment in Evansville,
Indiana, seeking to exercise its option to purchase the McCurdy facility. On May
13, 1999, the parties entered into a Stipulation to Stay Litigation without
Prejudice and are attempting to negotiate a resolution to this dispute. The
parties are currently continuing these negotiations. There is no guarantee these
negotiations will be successful. The ultimate outcome of these negotiations is
not presently determinable.
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
--------------------------------
(A) Exhibit
27.1 Financial data schedule
(B) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: /s/ Robert Lankford
--------------------------------------
Robert Lankford
President
Date: November ____, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Healthcare Properties, L.P. Financial Data Schedule
</LEGEND>
<CIK> 0000814458
<NAME> Healthcare Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 15,413,271
<SECURITIES> 0
<RECEIVABLES> 1,942,391
<ALLOWANCES> (792,395)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 30,651,383
<DEPRECIATION> (13,967,924)
<TOTAL-ASSETS> 33,493,513
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,548,427
<TOTAL-LIABILITY-AND-EQUITY> 33,493,513
<SALES> 0
<TOTAL-REVENUES> 8,291,580
<CGS> 0
<TOTAL-COSTS> 5,642,598
<OTHER-EXPENSES> 78,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 443,322
<INCOME-PRETAX> 2,126,809
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,126,809
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
