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, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ---------------
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 officers) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
--------------
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 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
--- ---
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
----
Page 1 of 38
Exhibit Index Page : 38
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I Page
----
Item 1 Business 3
Item 2 Properties 4
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 6
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 12
Item 9 Changes in and Disagreements with Accountants on Accounting 12
and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 13
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners and Management 14
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34
SIGNATURES 35
Exhibit Index 36
</TABLE>
<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 the 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 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, 1998, four of the
original twelve properties had either been sold or deeded back to the lender,
leaving the Registrant with four properties secured by debt and four properties
unleveraged ("the "Properties"). 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, 1998, 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, 1998, 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.
3
The terms of transactions between Registrant and former 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 Capital Senior Living, Inc. ("CSL"),
a subsidiary of Capital Senior Living Corporation. Until June 10, 1998, CSL was
an affiliate of Capital. There were no employees of Registrant at December 31,
1998.
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
----------
Registrant owns eight properties at December 31, 1998 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".
4
<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 SANDYBROOK
-----------------------------------------------------------------------------------------
<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
12/31/98 Mortgage Balance $568,181 $364,106 $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 Austin, 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
12/31/98 Mortgage Balance $0 $0 $1,266,559 $3,929,811
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. Registrant was previously engaged in litigation in an attempt to recover
damages from defaulting lessees and their guarantors. Such actions involve
claims against a prior operator of the Diablo/Tamarack facility. Registrant
settled in June, 1998 with the alleged defaulting guarantor of this
facility for $60,000 plus 10% interest - payable in installments of $10,000
per year plus interest over five years.
B. 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
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.
5
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
-----------------------------------------------------------------------
Matters
-------
At March 1, 1999, there were 1,791 Unit Holders of record in Registrant
owning an aggregate of 4,148,325 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 sell their Units
at a predetermined formula. 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.
During 1998, the Registrant repurchased 24,132 limited partner units
in the amount of $144,791, or approximately $6.00 per unit.
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 a 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 1998. 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, 1998, 1997, 1996, 1995, and 1994
(Unaudited - not covered by Independent Auditors'
Report)
Year Ended December 31
=====================================================================================================================
1998 1997 1996 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Total Assets $32,758,958 $32,801,853 $32,487,547 $33,812,286 $40,914,991
- ---------------------------------------------------------------------------------------------------------------------
Mortgage Debt $ 6,128,656 $6,677,432 $7,207,414 $9,775,601 $16,268,668
- ---------------------------------------------------------------------------------------------------------------------
Total Revenue from
- ---------------------------------------------------------------------------------------------------------------------
Operations $ 8,787,575 $8,977,628 $7,560,104 $8,419,024 $12,574,481
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Weighted Average
- ---------------------------------------------------------------------------------------------------------------------
Number of Units 4,153,835 4,172,457 4,172,457 4,172,457 4,172,457
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) Before
Extraordinary Item $ 874,425 $1,452,334 $684,651 $(2,354,181) $(3,035,459)
- ---------------------------------------------------------------------------------------------------------------------
Extraordinary Gain $0 $0 $952,692 $3,604,514 $0
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 874,425 $1,452,334 $1,637,343 $1,250,333 $(3,035,459)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
Per Unit
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) before
Extraordinary Item $0.21 $0.34 $0.16 $(0.56) $(0.71)
- ---------------------------------------------------------------------------------------------------------------------
Extraordinary Gain $0 $0 $0.23 $0.79 $0
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $0.21 $0.34 $0.39 $0.23 $(0.71)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
- ---------------------------------------------------------------------------------------------------------------------
Tax $1,822,007 $1,832,184 $794,101 $(1,692,342) $(393,245)
- ---------------------------------------------------------------------------------------------------------------------
Per Unit $.44 $.44 $.19 $(.41) $(.09)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Cash Distributions $0 $325,000 $0 $0
- ---------------------------------------------------------------------------------------------------------------------
Per Unit $0 $.08 $0 $0
=====================================================================================================================
<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 1998 with cash and cash equivalents of $11,971,405 as
compared with $10,722,118 at December 31, 1997. Cash and cash equivalents
primarily increased in 1998 due to positive cash flows provided by operating
activities offset by regular debt service payments and the repurchase of limited
partner units.
Accounts receivable at December 31, 1998 slightly increased from
approximately $843,000 as compared to $800,000 at December 31, 1997, however,
the allowance for doubtful accounts increased from approximately $301,000 at
December 31, 1997 to approximately $686,000 at December 31, 1998. This increase
was the result of additional allowance reserves at the Cambridge facility on
increased aged receivables.
Accounts payable and accrued expenses were approximately $606,000 at
December 31, 1998, as compared to $818,000 at December 31, 1997. This decrease
resulted largely from a decrease in deferred lease income for rentals paid in
advance.
Operating facility accounts payable were approximately $103,000 at
December 31, 1998, and $114,000 at December 31, 1997.
Decreases from December 31, 1997 to 1998 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 lenders on these two loans
have not documented the loan extension, but have verbally agreed to extend the
loans to December 1, 2001.
Results of Operations
- ---------------------
Rental revenues were approximately $4,282,000 in 1998 compared to
approximately $4,276,000 in 1997, and approximately $4,590,000 in 1996. Rental
revenues between 1998 and 1997 remain relatively unchanged. 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.
8
<PAGE>
Patient revenues of approximately $4,506,000 for the year ended
December 31, 1998, approximately $4,702,000 for the year ended December 31,
1997, and approximately $2,970,000 for the year ended December 31, 1996, related
to the operations at the Cambridge facility in 1998, 1997 and from August 1,
1996 through December 31,1996 and the Countryside facility from January 1, 1996
through April 30, 1996. The decrease in patient revenues from 1997 to 1998
resulted from decreased ancillary revenues at the Cambridge facility. 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.
Facility operating expenses were approximately $4,448,000 in 1998
compared to approximately $4,578,000 in 1997, and approximately $2,728,000 in
1996. The decrease in facility operating expenses from 1997 to 1998 is primarily
due to decreased nursing costs at the Cambridge facility. 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.
Depreciation was approximately $1,307,000 for 1998, $1,369,000 for
1997, and $1,418,000 for 1996. Depreciation decreased from 1997 to 1998 due to
the full depreciation on certain equipment. Depreciation decreased in 1997 from
1996 due to the above mentioned dispositions of properties.
Fees to former affiliates were approximately $1,095,000 , $1,110,000 ,
and $1,276,000 for the years ended 1998, 1997, and 1996, respectively. Fees to
these former affiliates were relatively unchanged from 1998 compared to 1997.
The decrease of fees to former affiliates in 1997 from 1996 resulted from
decreased asset management fees upon the closure of the Cedarbrook facility in
February, 1997, leased by HealthSouth.
Bad debt expense was approximately $385,000, $43,000, and $875,000 for
the years ended 1998, 1997, and 1996, respectively. Bad debt expense increased
in 1998 from 1997 due to additional allowance reserves at the Cambridge facility
on increased aged receivables. Bad debt expense decreased in 1997, compared to
1996, 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 $0, $15,000 , and $115,000 for
the years ended 1998, 1997, and 1996, respectively, decreased in 1998 and 1997
from 1996 due to the resolution of the Countryside and Cambridge lease defaults.
Administrative and other expenses were $468,000, $506,000, and $192,000
for the years ended 1998, 1997, and 1996, respectively. Administrative and other
expenses decreased from 1997 to 1998 due to decreased overhead allocations from
Capital. 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 former affiliates of
Capital for personnel performing services on behalf of the Partnership.
Interest income was approximately $524,000, $359,000, and $239,000 for
the years ended 1998, 1997, and 1996, respectively. Interest income increased in
1998 and 1997 from 1996 due to additional cash available as a result of lower
debt service requirements and continued positive operating cash flows.
9
<PAGE>
Interest expense was approximately $635,000, $679,000, and $784,000 for
the years ended 1998, 1997, and 1996, respectively. Interest expense decreased
in 1998 and in 1997 from 1996 due to continuing paydown of loan principal and
the repayment of the mortgage upon the sale of the Countryside facility in 1996.
Amortization was approximately $105,000, $109,000, and $114,000 for the
years ended 1998, 1997, and 1996, respectively. Amortization decreased in 1998
and 1997 from 1996, primarily due to certain fully amortized deferred costs.
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 1997, other income of approximately $524,000 primarily resulted
from the collection of a $71,000 distribution from Rebound, Inc., and
approximately $440,000 paid in compliance with Section 16b of the Securities and
Exchange Act by Capital Senior Living Communities, L.P., a former affiliate of
the General Partner, for gains on purchases of units made within a six month
period prior to the sale of such 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 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, the Sandybrook facility was closed in 1994. 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 either of these facilities might reopen. HealthSouth has
continued to make lease payments on a timely basis.
Two recourse loans, Cedarbrook and Cane Creek, were due in January 1996
in the aggregate amount of approximately $2,400,000. Both of these notes were
callable by the lenders at any time between January 1, 1993 and November 30,
1995; however, the lenders agreed not to exercise their call rights prior to
maturity on January 31, 1996 as long as the Partnership remained in compliance
with the loan agreements. One of the lenders agreed to extend the maturity date
of its note to December 1, 2001, pending completion of final loan documents. On
March 21, 1997, the other lender agreed not to exercise its call rights until
June 30, 1997. The Partnership is currently negotiating the extension of this
note until December 1, 2001. The Partnership continues to make its loan payments
under those two loans.
Cambridge facility. The lessee of the Cambridge facility, Nursing
Centers of America-Cambridge ("NCAC"), filed a voluntary petition under Chapter
11 of the Federal Bankruptcy Code in February of 1992. Registrant commenced
litigation against NCAC seeking full payment of future rentals under the lease
of NCAC.
On August 1, 1996, the United States Bankruptcy Court approved the
transfer of the operations of NCA Cambridge Nursing Home to Cambridge LLC, a
10
<PAGE>
subsidiary of the Registrant, thereby releasing the operations of the Cambridge
facility from the jurisdiction of the United States Bankruptcy Court. A
Registrant's subsidiary now operates this property.
Trinity Hills, McCurdy, and Hearthstone facilities. The Trinity Hills
and Hearthstone lessees are current in their lease obligations to the
Registrant. In addition, the Registrant believes it likely that the lessees of
the Hearthstone and McCurdy facilities 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. The
Hearthstone and McCurdy 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 Partnership
may take back operational control of this facility.
Impact of Inflation
- -------------------
To offset potential adverse effects 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 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 December 31, 1999. The Registrant expects to substantially complete
software reprogramming and software and hardware replacement by mid 1999, 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.
The Registrant has assessed its exposure to operating equipment, and such
exposure is not significant due to the nature of the Partnership's business.
The 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.
11
<PAGE>
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 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
evaluate the status of completion in mid 1999 and determine whether such a plan
is necessary.
Item 7A. Qualitative and Quantitative Disclosure 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. 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.
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.
12
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
(a) The Registrant is a Limited Partnership 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, was formed under the laws of the State of
Texas in 1988. Capital was a wholly owned subsidiary of
Capital Realty Group Corporation, a Texas corporation ("CRG").
CRG is owned 50% by James A. Stroud (through a trust) and 50%
by Jeffrey L. Beck. On June 10, 1998, the sole owner of stock
of the General Partner, Capital Realty Group Corporation, sold
all of its shares of Capital 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 had
prior business relationships with Messrs. Beck and Stroud, the
former principals of Capital.
(c) The Registrant is managed by Capital Senior Living, Inc. ("CSL"), a
subsidiary of Capital Senior Living Corporation. As of December 31,
1998 the officers and directors of Capital, the General Partner, were:
Name Position
---- --------
Robert L. Lankford President, Retirement Associates,
Inc., sole stockholder of CRGSH,
the General Partner
Wayne R. Miller Secretary, Retirement Associates,
Inc.
Robert L. Lankford, age 44. Mr. Lankford has served as President
of Retirement Associates, Inc. since June 1997. From 1988 to 1997, Mr.
Lankford was an independent broker with Capital Brokerage, an
affiliate of CSLC. From 1997 to the present, however, Mr. Lankford has
been a principal with Kamco Property Company Commercial Real Estate
Brokerage ("Kamco"). In this capacity, Mr. Lankford provides
independent commercial real estate brokerage services for various
clients including CSLC, which accounts for less than 20% of his
compensation.
Wayne R. Miller, age 49. Mr. Miller has served as Secretary of
Retirement Associates, Inc. since June 1997. From 1980 to 1994, Mr.
Miller was an officer, director and shareholder of Miller, Hiersche,
Martens and Hayward, Inc. From 1994 to the present, Mr. Miller has
been President, Sole Director and Sole Shareholder of Wayne R. Miller
P.C.
13
<PAGE>
(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 CSL 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 1998.
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 former
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 CSL, and until
June 10, 1998, an affiliate of Capital owns 56.8% of outstanding Units
of Registrant as of March 1, 1999. Otherwise, no other person or group
owns more than 5% of Registrant as of March 1, 1999.
(b) No partners, officers or directors of the General Partner directly own
any Units at March 1, 1999. However, Messrs. Beck and Stroud and their
affiliates own a substantial interest (approximately 46%) in the
parent of Capital Senior Living Properties, Inc.
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
14
<PAGE>
affiliates, such amount will not be deferred. No amounts were earned in 1998,
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 1998, 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 1998, 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 1998 and 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 1998 and 1997. Amounts earned by
the General Partner in 1996 for the sale of Countryside were $66,000.
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 its former affiliates received 1% of the monthly gross rental
or operating revenues, totaling approximately $88,000, $90,000, and $72,000 in
1998, 1997, and 1996, respectively. Property management fees paid to the General
Partner or to its managing agent, CSL, were approximately $315,000, $330,000,
and $208,000 in 1998, 1997, and 1996, respectively. Asset management fees paid
to the General Partner or to its managing agent, CSL, were approximately
$543,000, $484,000, and $740,000 in 1998, 1997, and 1996, respectively.
The General Partner may be reimbursed for its direct expenses relating
to offering and administration of Registrant. The General Partner, its
affiliates or its managing agent, CSL, received $149,140, $206,000, and $256,000
reimbursements for such out-of-pocket expenses in 1998, 1997, and 1996,
respectively. In addition, the General partner, its affiliates or its managing
agent, CSL, received $3,074,000, $3,173,000, and $1,859,000 for salary and
benefit reimbursements.
In addition, a 50% owner of CSL is chairman of the board and principal
stockholder of a bank, United Texas Bank of Dallas, where the Registrant holds
the majority of its operating cash accounts.
15
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
16
<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 31,1998 and 1997, and the related consolidated statements of income,
partnership equity, and cash flows for each of the years in the three-year
period ended December 31,1998. 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 31,1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31,1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
-------------------------
Dallas, Texas
February 5, 1999
17
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
------------------ ------------------
<S> <C> <C>
Cash and cash equivalents $ 11,971,405 10,722,118
Accounts receivable, less allowance for doubtful accounts of
$686,042 in 1998 and $301,042 in 1997 (notes 9 and 11) 843,332 800,029
Prepaid expenses 36,605 50,221
Property and improvements, net (notes 3, 4 and 5) 19,598,117 20,823,913
Deferred charges, less accumulated amortization of $981,895
in 1998 and $876,760 in 1997 309,499 405,572
------------------ ------------------
Total assets $ 32,758,958 32,801,853
================== ==================
Liabilities and Partnership Equity
Accounts payable and accrued expenses $ 606,044 818,252
Operating facility accounts payable 102,665 114,211
Mortgage loans payable (note 4) 6,128,656 6,677,431
------------------ ------------------
6,837,365 7,609,894
------------------ ------------------
Partnership equity:
Limited partners (4,148,325 units at December 31, 1998 and
4,172,457 units at December 31, 1997) 25,869,116 25,191,959
General partner 52,477 34,988
------------------ ------------------
25,921,593 25,156,971
Commitments and contingencies (notes 2, 4 and 5)
------------------ ------------------
Total liabilities and partnership equity $32,758,958 32,801,853
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues (notes 5 and 9):
Net patient service $ 4,505,972 4,702,017 2,969,991
Rental 4,281,603 4,275,611 4,590,113
---------------- ---------------- ------------------
8,787,575 8,977,628 7,560,104
---------------- ---------------- ------------------
Expenses:
Facility operating expenses 4,447,809 4,577,735 2,727,909
Depreciation 1,306,736 1,368,941 1,418,293
Fees to affiliates (note 6) 1,094,957 1,110,278 1,275,833
Bad debts, net of recoveries 385,000 43,061 875,143
Lease default expenses -- 14,687 114,523
Administrative and other 467,610 505,736 192,385
---------------- ---------------- ------------------
7,702,112 7,620,438 6,604,086
---------------- ---------------- ------------------
Income from operations 1,085,463 1,357,190 956,018
---------------- ---------------- ------------------
Other income (expense):
Interest income 524,180 358,856 239,215
Interest expense (635,083) (678,905) (784,092)
Amortization (105,135) (108,851) (114,107)
Gain on disposition of operating
properties, net (note 3) -- -- 387,617
Other (note 7) 5,000 524,044 --
---------------- ---------------- ------------------
(211,038) 95,144 (271,367)
---------------- ---------------- ------------------
Income before extraordinary item 874,425 1,452,334 684,651
---------------- ---------------- ------------------
Extraordinary gain on disposition of
operating properties (note 3) -- -- 952,692
---------------- ---------------- ------------------
Net income $ 874,425 1,452,334 1,637,343
================ ================ ==================
Allocation of net income:
Limited partners $ 856,936 1,423,287 1,609,067
General partners 17,489 29,047 28,276
---------------- ---------------- ------------------
$ 874,425 1,452,334 1,637,343
================ ================ ==================
Basic earnings per limited partnership unit:
Income before extraordinary item $ .21 .34 .16
Extraordinary gain - - .23
---------------- ---------------- ------------------
Net income $ .21 .34 .39
================ ================ ==================
Distributions $ - .08 -
================ ================ ==================
Weighted average number of units $ 4,153,835 4,172,457 14,172,457
================ ================ ==================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Partnership Equity
Years ended December 31, 1998, 1997 and 1996
Limited General
Partners Partner Total
------------------ ------------------- ------------------
<S> <C> <C> <C>
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
Net income 856,936 17,489 874,425
Repurchased 24,132 Limited Partner Units
and subsequently canceled (144,791) -- (144,791)
------------------ ------------------- ------------------
Equity at December 31, 1998 $ 25,869,116 52,477 25,921,593
================== =================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 874,425 1,452,334 1,637,343
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,411,871 1,477,792 1,532,400
Bad debts, net of recoveries 385,000 43,061 875,143
Gain on disposition of operating
properties, net -- -- (387,617)
Extraordinary gain on disposition of operating
properties -- -- (952,692)
Changes in assets and liabilities, net of
effects of property dispositions:
Accounts receivable (428,303) (48,856) (1,458,968)
Prepaid expenses 13,616 35,074 43,647
Accounts payable and accrued expenses (223,754) (283,045) 443,384
------------------ ----------------- -----------------
Net cash provided by operating activities 2,032,855 2,676,360 1,732,640
------------------ ----------------- -----------------
Cash flows from investing activities:
Purchases of property and improvements (80,940) (80,235) (21,969)
Proceeds from sale of property -- -- 2,246,114
Net cash provided by (used in)
------------------ ----------------- -----------------
investing activities (80,940) (80,235) 2,224,145
------------------ ----------------- -----------------
Cash flows from financing activities:
Payments on mortgage loans payable (548,775) (529,983) (2,568,187)
Distributions to limited partners -- (325,000) --
Increase in deferred charges (9,062) (14,479) --
Repurchased limited partner units (144,791) -- --
------------------ ----------------- -----------------
Net cash used in financing activities (702,628) (869,462) (2,568,187)
------------------ ----------------- -----------------
Net increase in cash and cash equivalents 1,249,287 1,726,663 1,388,598
Cash and cash equivalents at beginning of year 10,722,118 8,995,455 7,606,857
------------------ ----------------- -----------------
Cash and cash equivalents at end of year $11,971,405 10,722,118 8,995,455
================== ================= =================
Cash paid for interest $ 635,083 678,905 716,910
================== ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(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. Capital
Realty Group Senior Housing, Inc. (CRG) is 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.
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 December31, 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 December31, 1997, CSLP owned
approximately 56% of the Partnership's limited partner units.
The consolidated financial statements as of and for the years ended
December31, 1998 and 1997, 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 August1, 1996. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
At December 31, 1998, 1997 and 1996, the Partnership leased seven of its
properties to unaffiliated operators on a tripple net basis.
(2) Summary of Significant Accounting Policies
Property and improvements are stated at cost. Long-lived assets are
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.
(Continued)
22
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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 1998, 1997 or 1996. Accordingly, no provision has been
made for federal and state income taxes for these subsidiaries in 1998,
1997 or 1996.
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.
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
(Continued)
23
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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-, $-0- and $45,682 for 1998, 1997
and 1996, respectively.
The Partnership classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 superseded FAS 14,
"Financial Reporting for Segments of a Business Enterprise". FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. FAS 131 also establishes standards
for related disclosures about products and services, geographic areas and
major customers. The adoption of FAS 131 did not affect results of
operations or financial position. The Partnership evaluates the performance
and allocates resources of its properties based on current operations and
market assessments on a property-by-property basis. The Partnership does
not have a concentration of operations geographically or by product or
service as its management functions are integrated at the property level.
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.
(3) Property and Improvements
<TABLE>
<CAPTION>
Property and improvements consist of:
December 31
------------------------------------------
1998 1997
-------------------- -------------------
<S> <C> <C>
Land $ 3,145,803 3,145,803
Buildings and improvements 31,426,443 31,425,543
Furniture, fixtures and equipment 1,736,080 1,656,040
-------------------- -------------------
36,308,326 36,227,386
Less allowance for reduction in carrying value of
operating property (2,185,381) (2,185,381)
-------------------- -------------------
34,122,945 34,042,005
Less accumulated depreciation (14,524,828) (13,218,092)
-------------------- -------------------
$ 19,598,117 20,823,913
==================== ===================
</TABLE>
(Continued)
24
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The following is a summary of information for the individual Partnership properties from inception of the Partnership through
December 31, 1998. The information presented includes furniture, fixtures and equipment which are immaterial to the Partnership.
Costs
Capitalized
Subsequent to
Initial Cost to Partnership Acqusition Gross Amount Carried at Close of Period
--------------------------- ------------- --------------------------------------------
Buildings Buildings
and and Valuation
Description Land Improvements Improvements Land Improvements Allowance Total
- -------------------- -------- ---------------- ------------ -------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cedarbrook rehab facility $ 807,861 3,147,139 783,608 807,861 3,930,747 -- 4,738,608
Nashville, TN
Cane Creek rehab facility 97,560 3,902,440 225,118 97,560 4,127,558 -- 4,225,118
Martin, TN
Crenshaw Creek rehab facility 123,801 3,776,199 102,732 123,801 3,878,931 -- 4,002,732
Lancaster, SC
Sandybrook rehab facility 563,072 3,636,928 128,434 563,072 3,765,362 -- 4,328,434
Orlando, FL
Cambridge nursing home 497,470 4,602,530 262,946 497,470 4,865,476 (2,185,381) 3,177,565
Cambridge, MA
Trinity Hills nursing home 300,000 2,400,000 26,152 300,000 2,426,152 -- 2,726,152
Ft. Worth, TX
Hearthstone nursing home 756,039 2,868,961 116,365 756,039 2,985,326 -- 3,741,365
Austin, TX
McCurdy nursing home -- 7,100,000 74,064 -- 7,174,064 -- 7,174,064
Evansville, IN
Partnership assets -- -- 8,907 -- 8,907 -- 8,907
Dallas, TX ---------- ---------- ----------- --------- ----------- --------- ----------
Total $3,145,803 31,434,197 1,728,326 3,145,803 33,162,523 (2,185,381) 34,122,945
========== ========== =========== ========= =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Encumbrances Depreciation Construction Acquired Life
------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
568,180 1,876,378 1985 1987 25-31 years
364,106 2,095,270 1985 1987 25-31 years
-- 1,701,330 1988 1988 25-31 years
-- 1,614,481 1985 1988 25-31 years
-- 1,830,571 1967 1990 25-31 years
-- 1,284,283 1971 1988 25-31 years
1,266,559 1,337,314 1988 1988 25-31 years
3,929,811 2,779,325 1916 1989 25-31 years
-- 5,905 n/a 1991-1993 5-10 years
----------- ----------
6,128,656 14,524,828
</TABLE>
25
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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, 1998, 1997 and 1996. The information
presented includes furniture, fixtures and equipment which are immaterial
to the Partnership.
<TABLE>
<CAPTION>
Property and Improvements 1998 1997 1996
- --------------------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
Balance at beginning of period $ 34,042,005 33,961,770 36,862,974
Additions during the period:
Acquisitions - - -
Improvements 80,940 80,235 21,969
----------------- ---------------- ---------------
34,122,945 34,042,005 36,884,943
Deductions during period:
Cost of property sold - - 2,923,173
----------------- ---------------- ---------------
Balance at close of period $ 34,122,945 34,042,005 33,961,770
================= ================ ===============
Accumulated depreciation:
Balance at beginning of period $ 13,218,092 11,849,151 11,611,719
Additions 1,306,736 1,368,941 1,418,293
Deductions during period:
Property sold - - 1,180,861
----------------- ---------------- ---------------
Balance at close of period $ 14,524,828 13,218,092 11,849,151
================= ================ ===============
</TABLE>
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 net 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 federal income tax basis of the Partnership's property and improvements at
December 31, 1998 and 1997 is $22,018,273 and $25,775,120, respectively.
(Continued)
26
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Combined operating results for Cambridge, Foothills, Countryside and
Diablo/Tamarack follows:
1998 1997 1996
---------------- ----------------- ----------------
<S> <C> <C> <C>
Net patient service revenue $ 4,505,972 4,702,017 2,969,991
---------------- ----------------- ----------------
Facility operating expenses 4,447,809 4,577,735 2,727,909
Depreciation 214,223 205,563 248,134
Fees to affiliates 370,030 390,059 261,517
Bad debts 385,000 43,061 79,682
Lease default expenses - - 35,923
---------------- ----------------- ----------------
5,417,062 5,216,418 3,353,165
---------------- ----------------- ----------------
Loss from operations $ (911,090) (514,401) (383,174)
================ ================= ================
Interest expense $ - - 67,181
================ ================= ================
</TABLE>
The 1998 and 1997 operating results consist primarily of activity at the
Cambridge facility. The 1996 operations for Cambridge were from August 1,
1996 through December 31, 1996 for Cambridge and the period from January
1, 1996 through April 30, 1996 for Countryside.
(4) Mortgage Loans Payable
<TABLE>
<CAPTION>
Mortgage loans payable consist of the following:
1998 1997
------------------ ------------------
<S> <C> <C>
Cane Creek property - note payable to bank $ 364,106 581,555
Cedarbrook property - note payable to bank 568,181 729,622
Hearthstone property - note payable to life insurance
company 1,266,559 1,306,222
McCurdy property - note payable to bank 3,929,810 4,060,032
------------------ ------------------
Total mortgage loans payable $ 6,128,656 6,677,431
================== ==================
</TABLE>
Mortgage loans payable bear interest ranging from 6.2% to 10.75% at
December 31, 1998 and 6.6% to 10.75% at December 31, 1997. These notes
are payable in monthly installments of $99,212 at December 31, 1998 and
$100,812 at December 31, 1997, including interest. The notes are secured
by properties with net book values aggregating $11,790,898 and
$12,494,825 at December 31, 1998 and 1997, respectively. The notes range
in maturity from 2001 to 2012.
(Continued)
27
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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 extension 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.
1999 $ 738,822
2000 407,500
2001 417,189
2002 258,687
2003 287,362
2004 and thereafter 4,019,096
-----------
$6,128,656
===========
(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 $310,275, $271,340 and $192,325 in 1998, 1997 and 1996,
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 $18,329,061 and
$19,339,886 at December 31, 1998 and 1997, 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 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.
(Continued)
28
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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,
1998 1997
-------------------- ------------------
(unaudited)
(in thousands)
<S> <C> <C>
Cash $ 206,393 148,073
Accounts receivable, net 1,041,487 745,994
Property and equipment, net 2,296,074 1,850,765
Intangible assets, net 2,992,757 2,243,372
Other assets 520,592 412,849
-------------------- ------------------
Total assets $7,057,303 5,401,053
==================== ==================
Long-term debt $2,828,560 1,601,824
Other liabilities 591,465 641,801
Stockholders' equity 3,637,278 3,157,428
-------------------- ------------------
Total liabilities and stockholders' equity $7,057,303 5,401,053
==================== ==================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended
December 31
---------------------------------------
1998 1997 1996
-------------------- ------------------ -----------------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Net revenue $ 2,897,567 3,017,269 2,568,155
==================== ================== =================
Net income $ 232,266 330,608 189,864
==================== ================== =================
</TABLE>
(Continued)
29
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(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
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>
1998 1997 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Salary and benefit reimbursements $ 3,074,000 3,173,000 1,859,000
================= ================== ==================
Asset management fees $ 543,000 484,000 740,000
Property management fees 315,000 330,000 208,000
Administrative and other expenses 149,000 206,000 256,000
General partner management fees 88,000 90,000 72,000
----------------- ------------------ ------------------
$ 1,905,000 1,110,000 1,276,000
================= ================== ==================
</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.
At December 31, 1998 and 1997, Capital Senior Living Corporation, whose
principal shareholders are James A. Stroud (through a trust), Jeffrey L.
Beck and Lawrence A. Cohen, indirectly owned 57% and 56%, respectively, 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, was beneficially owned b y Messrs. Beck and
Stroud until June 10, 1998 when their general partner interest was sold to
a third-party, Retirement Associates, Inc.
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
(Continued)
30
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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.
(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
-------------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
Total partners' equity - financial statement
basis $ 25,921,593 25,191,959 24,064,625
Current year tax basis net earnings
over (under) financial statement basis 945,097 321,264 (684,329)
Cumulative tax basis net earnings over
financial statement basis 4,788,558 4,452,249 5,136,578
------------------ ------------------ -----------------
Total partners' equity - federal income
tax basis $ 31,655,248 29,965,472 28,516,874
================== ================== =================
</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 (27%), $2,367,000 (26%) and
$2,367,000 (31%) of Partnership revenues in 1998, 1997 and 1996,
respectively. One property leased to an unaffiliated operator accounted
for approximately $1,004,000 (11%) and $998,000 (11%) of Partnership
revenues in 1998 and 1997, respectively.
The Partnership also derives revenue from Medicaid programs funded by the
state of Massachusetts. The Partnership derived 32% of its revenues from
the state program in Massachusetts in 1998 and 1997. The Partnership
also derived 13% of its revenue from the Medicare program in 1997.
Receivables due from state Medicaid programs aggregated $617,066 and
$372,033 at December 31, 1998 and 1997, respectively.
(Continued)
31
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The Partnership does not require collateral or other security to support
financial instruments subject to credit risk.
(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.
<TABLE>
<CAPTION>
Carrying value Fair value
------------------- --------------------
<S> <C> <C>
Mortgage loans payable $ 6,128,656 6,163,980
=================== ====================
</TABLE>
(Continued)
32
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(11) Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Fiscal 1998 Quarters
----------------------------------------------------------------------
First Second Third Fourth
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 2,052,421 2,227,430 2,213,547 2,294,177
Income before
extraordinary item 198,272 330,341 301,274 44,538*
Net income 198,272 330,341 301,274 44,538
Basic earnings per
limited partnership
unit .05 .08 .07 .01
Fiscal 1997 Quarters
----------------------------------------------------------------------
First Second Third Fourth
---------------- -------------- -------------- ----------------
Revenues $ 2,304,372 2,348,896 2,229,873 2,094,487
Income before
extraordinary item 348,820 259,236 286,026 558,252
Net income 348,820 259,236 286,026 558,252
Basic earnings per
limited partnership
unit .08 .06 .07 .13
<FN>
*In the fourth quarter of fiscal 1998, the Partnership revised its estimate of
the allowance for doubtful accounts by approximately $300,000 to address
potentially uncollectible accounts at its Cambridge facility.
</FN>
</TABLE>
Quarterly operating results are not necessarily representative of operations for
a full year.
33
<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, 1998 and 1997
Consolidated Statements of Income - Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Partnership Equity - Years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows-Years ended December 31,
1998, 1997 and 1996
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
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the last quarter of fiscal
1998.
34
<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/ Robert Lankford
---------------------------------------------
Robert Lankford
President
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Page Nos. in
Exhibit Number This Filing
- -------------- -----------
<S> <C> <C>
3 Restated Limited 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, N/A
between 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 30, 1992.
<FN>
* Filed herewith
</FN>
</TABLE>
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Halthcare Properties, L.P.
</LEGEND>
<CIK> 0000814458
<NAME> Health Care Properties, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 11,971,405
<SECURITIES> 0
<RECEIVABLES> 1,529,374
<ALLOWANCES> (686,042)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,122,945
<DEPRECIATION> (14,524,828)
<TOTAL-ASSETS> 32,758,958
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,921,593
<TOTAL-LIABILITY-AND-EQUITY> 32,758,958
<SALES> 0
<TOTAL-REVENUES> 9,316,757
<CGS> 0
<TOTAL-COSTS> 7,702,112
<OTHER-EXPENSES> 105,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 635,083
<INCOME-PRETAX> 874,427
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 874,427
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
