SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-17695.
-------
HEALTHCARE PROPERTIES, L.P.
---------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1317327
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas
----------------------------------------------
75240 (Address of principal executive
offices)
(972) 770-5600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for at least the past 90 days. YES x NO
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED BALANCE SHEETS
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
-----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 12,280,367 $ 11,971,405
Accounts receivable, less allowance for doubtful
accounts of $701,042 in 1999 and $686,042 in 1998 1,282,026 843,332
Prepaid expenses and other 20,606 36,605
Property and improvements, net 19,275,879 19,598,117
Deferred charges, less accumulated amortization
of $1,005,679 in 1999 and $981,895 in 1998 $ 283,215 $ 309,499
---------------- --------------
$ 33,142,093 $ 32,758,958
================ ==============
LIABILITIES AND PARTNERSHIP EQUITY
----------------------------------
Accounts payable and accrued expenses $ 858,926 $ 606,044
Operating facility accounts payable 26,445 102,665
Mortgage loans payable 5,967,007 6,128,656
---------------- --------------
6,852,378 6,837,365
---------------- --------------
Partnership equity:
Limited partners (4,148,325 units outstanding in 1999 and
1998) 26,229,876 25,869,116
General partner 59,839 52,477
---------------- --------------
26,289,715 25,921,593
---------------- --------------
$ 33,142,093 $ 32,758,958
================ ==============
</TABLE>
See notes to financial statements
1
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
Three months ended, Three months ended,
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental $ 1,092,771 $ 1,067,501
Net patient services 1,215,507 984,920
---------------- --------------
2,308,278 2,052,421
---------------- --------------
Expenses:
Facility operating expenses 1,162,576 1,108,357
Depreciation 322,238 325,364
Administrative and other 397,024 329,923
Bad debts 15,000 15,000
---------------- --------------
1,896,838 1,778,644
---------------- --------------
Income from operations 411,440 273,777
---------------- --------------
Other income (expenses):
Interest income 133,465 113,444
Interest expense (150,499) (162,967)
Amortization (26,284) (25,982)
----------------- ---------------
(43,318) (75,505)
----------------- ---------------
Net income $ 368,122 $ 198,272
================ ==============
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .09 $ .05
================ ==============
WEIGHTED AVERAGE
NUMBER OF UNITS 4,148,325 4,164,156
================ ==============
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
---------------------------------------------
Limited General Total
Partners Partners
------------------ ------------------ -----------------
<S> <C> <C> <C>
Allocation of Net Income 98% 2% 100%
=== == ====
EQUITY at December 31, 1998 $ 25,869,116 $ 52,477 $ 25,921,593
Net Income 360,760 7,362 368,122
------------------ ------------------ -----------------
EQUITY at March 31, 1999 - Unaudited $ 26,229,876 $ 59,839 $ 26,289,715
================== ================== =================
</TABLE>
See notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Three months ended Three months ended
March 31, 1999 March 31, 1998
----------------------- -----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 368,122 $ 198,272
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debts........................................... 15,000 15,000
Depreciation and amortization....................... 348,522 351,346
Changes in assets and liabilities:
Accounts receivable............................... (453,694) 56,432
Prepaid expenses.................................. 15,999 25,541
Deferred charges.................................. 0 (9,062)
Accounts payable & accrued expenses 176,662 62,327
-------------------- --------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES............................ 470,611 699,856
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and improvement................... 0 (28,003)
-------------------- --------------------
NET CASH USED IN
INVESTING ACTIVITIES............................ 0 (28,003)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable...................... (161,649) (137,633)
-------------------- --------------------
Distributions........................................... 0 (125,529)
-------------------- --------------------
NET CASH USED IN
FINANCING ACTIVITIES............................ (161,649) (263,162)
-------------------- --------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS............................................ 308,962 408,691
CASH AND CASH EQUIVALENTS
Beginning of Period..................................... 11,971,405 10,722,118
-------------------- --------------------
CASH AND CASH EQUIVALENTS
End of Period........................................... $ 12,280,367 $ 11,130,809
==================== ====================
CASH PAID FOR INTEREST...................................... $ 150,499 $ 162,967
==================== ====================
</TABLE>
See notes to financial statements
4
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
-----------------------------------------
March 31, 1999 AND 1998
(Unaudited)
A. ACCOUNTING POLICIES
-------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary have been included. Operating
results are not necessarily indicative of the results that may be expected for
the year ending December 31, 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.
B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
---------------------------------------------------------------------------
Personnel working at the Cambridge facility and certain home office
personnel who perform services for the Registrant are employees of Capital
Senior Living, Inc. ("CSL"), which was until June 10, 1998, an affiliate of
Capital Realty Group Senior Housing, Inc. ("CRGSH"), the General Partner of the
Registrant. The Registrant reimburses CSL for the salaries, related benefits,
and overhead reimbursements of such personnel as reflected in the accompanying
financial statements. Reimbursements and fees paid to CRGSH and CSL are as
follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
<S> <C> <C>
Salary and benefit reimbursements $ 786,035 $ 759,247
Administrative reimbursements 46,359 29,529
Asset management fees 117,000 117,000
Property management fees 85,086 78,674
General partner fees 23,083 21,914
--------------- ---------------
$ 1,057,563 $ 1,006,364
=============== ===============
</TABLE>
Currently, Capital Senior Living Properties, Inc., formerly an
affiliate of CRGSH, holds approximately 57% 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 is a
Promissory Note for $855,000 with a five year term and bearing an interest rate
of 10% per annum. The interest will accrue on the Promissory Note and be payable
at the maturity of the Promissory Note. Associates is the 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 Capital Realty Group Corporation and its
affiliates.
C. VALUATION OF RENTAL PROPERTY
----------------------------
Generally accepted accounting principles require that the Registrant
evaluate whether an event or circumstance has occurred that would indicate that
the estimated undiscounted future cash flows of its properties, taken
individually, will be less than the respective net book value of the properties.
If such a shortfall exists and is material, then a write-down to fair value is
5
<PAGE>
recorded. The Registrant performs such evaluations on an on-going basis. During
the three months ended March 31, 1999, based on the Registrant's evaluation of
the properties, the Registrant did not record any impairment.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources
- -------------------------------
Registrant commenced an offering to the public on August 31, 1987, of
depository units representing beneficial assignments of limited partnership
interests ("Units"). On October 14, 1987, Registrant commenced operations,
having previously accepted subscriptions for more than the specified minimum of
120,000 Units. As of August 30, 1989, the offering was closed except for Units
for sale to existing investors under the terms of a distribution reinvestment
plan. As of September 30, 1995, Registrant had sold Units aggregating
approximately $43.4 million. Due to the suspension of the distribution
reinvestment plan, Registrant does not anticipate any additional inflow of
investment.
All of the net proceeds of the offering were originally invested in 12
properties or used for working capital reserves. The Registrant partially
financed the acquisition of eight of its original properties with non-recourse
debt. Four properties were initially unleveraged. As of March 31, 1999, four of
the original twelve properties had either been sold or deeded back to the
lender, leaving the Registrant with four properties secured by debt and four
properties unleveraged. With the exception of the Cambridge facility, which is
operated by the Registrant and consequently not leased to a third party
operator, the initial term of the seven properties with long-term net leases to
third party operator are due to expire in the years 2000 and 2001. Such leases
are subject to renewal 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.
As of March 31, 1999, Registrant had cash and cash equivalents
aggregating $12,280,367. The cash and cash equivalents will be used for working
capital and emergency reserves.
Registrant's general policy is to maintain sufficient cash and cash
equivalents to address disruptions of its lease revenues and to have adequate
additional funds for investment in existing assets for improvements. To the
extent that Registrant deems it necessary to take over the operations of any of
its facilities currently under long term net lease, such action would require
additional investment in working capital for operating reserves, capital
expenditures and related debt payments. Future cash distributions will be
dependent on the status of future operational control of these properties.
$250,000 and $325,000 in cash distributions were made in June 1993 and July
1997, 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 repurchased 24,132 Units for a total amount of $144,791.
Results of Operations
- ---------------------
Discussion of Three Months Ending March 31, 1999
------------------------------------------------
Rental revenues for the three months ended March 31, 1999 increased
$25,270 from the comparable three months ended March 31, 1998, due to increased
revenue participation from leased facilities. Net patient services for the three
months ended March 31, 1999 increased $230,587 from the three months ended March
31, 1998, and was primarily due to a 1998 Medicare billing of $139,000 and
higher reimbursement rates at the Cambridge facility. Interest income for the
three months ended March 31, 1999 increased $20,021 from the three months ended
March 31, 1998 and was primarily due to increasing cash available for
investment.
Facility operating expenses for the three months ended March 31, 1999
increased by $54,219 from the comparable 1998 period and is primarily due to
increased salaries and benefits at the Cambridge facility. Depreciation for the
three months ended March 31, 1999, decreased $3,126 from the comparable 1998
period. Administrative expenses increased $67,101 for the three months ended
March 31, 1999 in comparison to 1998 and is primarily due to increased
professional fees incurred related to litigation on the McCurdy facility. There
was no change in bad debt expense for the three months ended March 31, 1999 in
6
<PAGE>
comparison to the 1998 period. Interest expense for the three months ended March
31, 1999 decreased by $12,468 from the comparable 1998 period. Amortization
expense for the three months ended March 31, 1999 slightly increased $302 from
the comparable 1998 period.
Cash and cash equivalents as of March 31, 1999 increased $308,962 over
the balance at December 31, 1998. Cash decreased by $99,729 for the three months
ending March 31, 1999 in comparison to 1998 is primarily due to increased
accounts receivable at the Cambridge facility. Net accounts receivable of
$1,282,026 at March 31, 1999 reflected an increase of $438,694 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 increased $176,662 at March 31, 1999, from
December 31, 1998 and is primarily due to the increase in prepaid rent on the
leased properties to HealthSouth Corporation.
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 of the Sandybrook facility, it was closed in 1994
and at this time the lessee has not provided any information on when it might
reopen. Rental payments in March and April 1995 were discontinued by HealthSouth
causing an interruption in the master lease. Registrant met with HealthSouth and
those payments were subsequently made in the second quarter of 1995. Subsequent
to that time period, all payments have been made on a timely basis. In February
1997, the Registrant was notified by HealthSouth of the closing of the
Cedarbrook facility due to the low occupancy. At this time, the Registrant
cannot determine when this facility might reopen. HealthSouth has continued to
make lease payments on a timely basis.
Two recourse loans, Cedarbrook and Cane Creek, were due in January 1996
in the aggregate amount of approximately $2,400,000. Both of these notes were
callable by the lenders at any time between January 1, 1993 and November 30,
1995; however, the lenders agreed not to exercise their call rights prior to
maturity on January 31, 1996 as long as the Partnership remained in compliance
with the loan agreements. Both of the lenders agreed to extend the maturity date
of their notes to December 1, 2001, pending completion of final loan documents.
The Partnership continues to make its loan payments under those two loans.
On August 1, 1996, the United States Bankruptcy Court approved the
transfer of the operations of NCA Cambridge Nursing Home 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.
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 two of the
above-stated lessees will pay additional rental amounts to the Registrant during
future years based upon increased revenues at those facilities. However, there
can be no assurance of such increased revenue. Two of these facilities appear to
be generating cash flow sufficient to fund their lease obligations, but Trinity
Hills is, at this time, not generating sufficient cash flow to fund its lease
obligations from property operations. However, the lessee at Trinity Hills
continues to fund the deficits and its lease payments. Registrant believes that
the lessee of the McCurdy facility is not in compliance with all the obligations
set forth in the lease between the parties. If such a default is found to be
upheld, the Registrant may have to take back operational control of 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 Registrant'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 Registrant 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 utilize dates beyond
7
<PAGE>
December 31, 1999. The Registrant expects to substantially complete software
reprogramming and software and hardware replacement no later than December 31,
1998, with 100% completion targeted for September 30, 1999. The Registrant
presently believes that these modifications and replacements 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 Registrant.
Registrant has assessed its exposure to operating equipment, and such exposure
is not significant due to the nature of the Partnership's business.
Registrant is not aware of any external agent with a Year 2000 Issue that would
materially impact the Registrant's results of operations, liquidity, or capital
resources. However, the Registrant has no means of determining whether or
ensuring that external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolution process in a timely fashion could
materially impact the Registrant.
Management of the Registrant believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Registrant
has completed most but not all necessary phases of its Year 2000 program. In the
event that the Registrant does not complete the current program or any
additional phases, the Registrant could incur disruptions to its operations. In
addition, disruptions in the economy generally resulting from Year 2000 Issues
could also materially adversely affect the Registrant. The Registrant could be
subject to litigation for computer systems failure. The amount of potential
liability and lost revenue cannot be reasonably estimated at this time.
The Registrant currently has no contingency plans in place in the event it does
not complete all phases of its Year 2000 program. The Registrant plans to
evaluate the status of completion in mid 1999 and determine whether such a plan
is necessary.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Partnership'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 two
recourse loans. 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. Two of the Partnership's
recourse loans are 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 these loans.
8
<PAGE>
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 ("lessee") cannot exercise its option to
purchase the McCurdy facility until the end of its 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 filed a
complaint for declaratory judgment in Evansville, Indiana seeking to exercise
its option to purchase the McCurdy facility. The Registrant is vigorously
challenging this action.
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.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: /s/ Robert Langford, President
------------------------------
Robert Lankford
President
Date: May 14, 1999
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Healthcare Properties, L.P.
</LEGEND>
<CIK> 0000814458
<NAME> Healthcare Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 12,280,367
<SECURITIES> 0
<RECEIVABLES> 1,983,068
<ALLOWANCES> (701,043)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,122,945
<DEPRECIATION> (14,847,066)
<TOTAL-ASSETS> 33,142,093
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,289,715
<TOTAL-LIABILITY-AND-EQUITY> 33,142,093
<SALES> 0
<TOTAL-REVENUES> 2,441,743
<CGS> 0
<TOTAL-COSTS> 1,896,838
<OTHER-EXPENSES> 26,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,999
<INCOME-PRETAX> 368,122
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 368,122
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
