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, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-17695
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HEALTHCARE PROPERTIES, L.P.
---------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1317327
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
----------------------------------------------------
(Address of principal executive office)
(972) 770-5600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
YES x NO __
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<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, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
-----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 17,577,257 $ 13,723,936
Accounts receivable, less allowance for doubtful
accounts of $729,310 in 2000 and $735,106 in 1999 723,437 1,620,943
Prepaid expenses and other 54,533 305
Assets held for sale, at the lower of carrying value or
fair value less estimated costs to sell 7,572,648 9,549,086
Property and improvements, net 6,825,747 6,956,615
Deferred charges, less accumulated amortization
of $964,296 in 2000 and $989,098 in 1999 170,048 204,367
---------------- ----------------
Total assets $ 32,923,670 $ 32,055,252
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
Accounts payable and accrued expenses $ 480,800 $ 454,772
Operating facility accounts payable 114,813 137,777
Mortgage loans payable 4,987,096 5,173,281
--------------- ----------------
5,582,709 5,765,830
--------------- ----------------
Partnership equity:
Limited partners (4,148,325 units outstanding in 2000 and 1999)
27,226,327 26,189,763
General partner 114,634 99,659
--------------- ----------------
27,340,961 26,289,422
--------------- ----------------
Total liabilities and partnership equity $ 32,923,670 $ 32,055,252
=============== ================
</TABLE>
See notes to financial statements
1
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended, Three months ended,
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental $ 992,832 $ 1,092,771
Net patient services 1,435,662 1,215,507
--------------- ---------------
2,428,494 2,308,278
--------------- ---------------
Expenses:
Facility operating expenses 1,226,883 1,162,576
Depreciation 133,168 322,238
Administrative and other 326,363 397,024
Bad debts 15,000 15,000
--------------- ---------------
1,701,414 1,896,838
--------------- ---------------
Income from operations 727,080 411,440
--------------- ---------------
Other income (expenses):
Gain on disposition of property 302,787 0
Interest income 188,180 133,465
Interest expense (132,189) (150,499)
Amortization (34,319) (26,284)
--------------- ----------------
324,459 (43,318)
--------------- ----------------
Allocation of net income $ 1,036,564 $ 360,760
Limited partner 14,975 7,362
--------------- ----------------
General partner $ 1,051,539 $ 368,122
=============== ================
Net income $ 1,051,539 $ 368,122
=============== ================
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .25 $ .09
=============== ================
WEIGHTED AVERAGE NUMBER OF UNITS 4,148,325 4,148,325
=============== ================
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
Three Months Ended March 31, 2000
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
EQUITY at
December 31, 1999 $ 26,189,763 $ 99,659 $ 26,289,422
Net Income - Unaudited 1,036,564 14,975 1,051,539
-------------- ------------ --------------
EQUITY at
March 31, 2000 - Unaudited $ 27,226,327 $ 114,634 $ 27,340,961
============== ============ ==============
</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, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,051,539 $ 368,122
Adjustments to reconcile net income to
net cash provided by operating activities:
Bad debts 15,000 15,000
Depreciation and amortization 167,487 348,522
Gain on disposition of property, net (302,787) 0
Changes in assets and liabilities:
Accounts receivable 882,506 (453,694)
Prepaid expenses (54,228) 15,999
Accounts payable and accrued expenses 3,064 176,662
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,762,581 470,611
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 2,279,225 0
Purchases of property and improvement (2,300) 0
------------- -------------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 2,276,925 0
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable (186,185) (161,649)
------------- -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 3,853,321 308,962
CASH AND CASH EQUIVALENTS
Beginning of Period 13,723,936 11,971,405
------------- -------------
CASH AND CASH EQUIVALENTS
End of Period $ 17,577,257 $ 12,280,367
============= =============
CASH PAID FOR INTEREST $ 132,189 $ 150,499
============= =============
</TABLE>
See notes to financial statements
4
<PAGE>
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
(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
consolidated 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, 2000. The unaudited condensed
consolidated 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, 1999.
Net income (loss) of the Partnership and taxable income (loss) are generally
allocated 98 percent to the limited partners and 2 percent to the general
partner. The net income of the Partnership from the disposition of a property is
allocated (i) to partners with deficit capital accounts on a pro rata basis,
(ii) to limited partners until they have been paid an amount equal to the amount
of their Adjusted Investment, as defined, (iii) to the limited partners until
they have been allocated income equal to their 12 percent Liquidation
Preference, and (iv) thereafter, 80 percent to the limited partners and 20
percent to the general partner. The net loss of the Partnership from the
disposition of a property is allocated (i) to partners with positive capital
accounts on a pro rata basis and (ii) thereafter, 98 percent to the limited
partners and 2 percent to the general partner. Distributions of available cash
flow are generally distributed 98 percent to the limited partners and 2 percent
to the general partner, until the limited partners have received an annual
preferential distribution, as defined. Thereafter, available cash flow is
distributed 90 percent to the limited partners and 10 percent to the general
partner.
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"), the managing agent of the Registrant, 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 condensed consolidated financial statements.
Reimbursements and fees paid to CRGSH and CSL are as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
<S> <C> <C>
Salary and benefit reimbursements $ 842,597 $ 786,035
Administrative reimbursements 45,592 46,359
Asset management fees 61,452 117,000
Property management fees 100,314 85,086
General partner fees 24,196 23,083
-------------- --------------
$ 1,074,151 $ 1,057,563
============== ==============
</TABLE>
5
<PAGE>
Currently, Capital Senior Living Properties, Inc., formerly an affiliate of
CRGSH, holds approximately 57 percent of the outstanding units of the
Registrant. The Registrant is included in the consolidated financial statements
of Capital Senior Living Properties, Inc. and its parent company, Capital Senior
Living Corporation, a public company that files with the Securities and Exchange
Commission.
On June 10, 1998, the sole owner of the General Partner, Capital Realty Group
Corporation, sold all of its shares of CRGSH common stock to Retirement
Associates, Inc. ("Associates") for $855,000. The source of the funds is a
Promissory Note for $855,000 with a five-year term and bearing an earned
interest rate of 8 percent 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, then a write-down to fair value is recorded. The Registrant
performs such evaluations on an on-going basis. During the three months ended
March 31, 2000, 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, 2000, six of
the original twelve properties had either been sold or deeded back to the
lender, leaving the Registrant with two 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 remaining five properties with long-term net
leases to third party operators are due to expire in the years 2000 and 2001.
Such leases are subject to renewal options. As of March 31, 2000, the
Cedarbrook, Sandybrook and McCurdy facilities are classified as assets held for
sale.
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, 2000, Registrant had cash and cash equivalents aggregating
$17,577,257. The cash and cash equivalents will be used for working capital and
emergency reserves.
6
<PAGE>
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 leases, 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. There
were no cash distributions made for the first quarters ending March 31, 2000 and
1999. The Units are not publicly traded and as a result the liquidity of each
Limited Partner's individual investment is limited.
Results of Operations
Discussion of Three Months Ending March 31, 1999
Rental revenues for the three months ended March 31, 2000 decreased $99,939 from
the comparable three months ended March 31, 1999, due to decreased revenue
participation from leased facilities. Net patient services for the three months
ended March 31, 2000 increased $220,155 from the three months ended March 31,
1999 primarily due to increased occupancy and reimbursement rates at the
Cambridge facility. Interest income for the three months ended March 31, 2000
increased $54,715 from the three months ended March 31, 1999 and was primarily
due to increasing cash available for investment. A gain of $302,787 was
recognized for the three months ended March 31, 2000 due to the sale of the Cane
Creek facility.
Facility operating expenses for the three months ended March 31, 2000 increased
by $64,307 from the comparable 1999 period primarily due to increased
professional fees at the Cambridge facility. Depreciation for the three months
ended March 31, 2000, decreased $189,070 from the comparable 1999 period due to
the sale of the Cedarbrook and Cane Creek facilities and the classification of
certain assets as assets held for sale. Administrative expenses decreased
$70,661 for the three months ended March 31, 2000 in comparison to 1999 due to
decreased professional and asset management fees. There was no change in bad
debt expense for the three months ended March 31, 2000 in comparison to the 1999
period. Interest expense for the three months ended March 31, 2000 decreased by
$18,310 from the comparable 1999 period, and is due to the sale of the Cane
Creek facility and retirement of the related mortgage. Amortization expense for
the three months ended March 31, 2000 increased $8,035 from the comparable 1999
period, and is due to the write-off of certain deferred charges upon the sale of
the Cane Creek facility.
Cash and cash equivalents as of March 31, 2000 increased by $3,853,321 from the
balance at December 31, 1999. Cash flows increased by $3,544,359 for the three
months ending March 31, 2000 in comparison to the three months ending March 31,
1999 primarily due to cash proceeds from the sale of the Cane Creek facility,
collection of a $700,000 bad-debt recovery administrative claim approved by the
United States Bankruptcy Court related to the Cambridge facility and the
bankruptcy proceedings of the former lessee of that facility, and improved
operating income. Net accounts receivable of $723,437 at March 31, 2000
reflected a decrease of $897,506 from the balance at December 31, 1999 and is
due to the collection of the $700,000 administrative claim noted above and
improved collections of account receivables at the Cambridge facility. Accounts
payable, accrued expenses, and operating facility accounts payable balances
increased $3,064 at March 31, 2000, from the balance at December 31, 1999.
Following is a brief discussion of the status of Registrant's properties.
Cedarbrook, Cane Creek, Crenshaw Creek and Sandybrook Facilities
The Registrant has a non-cancelable master lease with Rebound, Inc., a
subsidiary of HealthSouth Corporation (HealthSouth). The master lease included
the Cedarbrook, Cane Creek, Crenshaw Creek and Sandybrook facilities. Due to low
occupancy, HealthSouth closed the Sandybrook facility in 1994 and the Cedarbrook
facility in 1997. HealthSouth continued to make full lease payments under the
terms of the master lease on a timely basis. Effective August 5, 1999,
HealthSouth agreed to transfer control of the Cedarbrook and Sandybrook
facilities to the Registrant and to continue making its full lease payments
under the terms of the master lease to the Registrant. On September 30, 1999,
7
<PAGE>
the Registrant sold the main facility of the Cedarbrook campus for $2,825,000,
resulting in a $772,286 gain on the sale and $2,308,734 in net cash proceeds
after payment of settlement costs and mortgage payable; the two small facilities
on the Cedarbrook campus were not sold and are held for sale by the Registrant,
along with the Sandybrook facility, as of March 31, 2000.
On January 11, 2000, the Cane Creek facility was sold to a subsidiary of
HealthSouth for $2,350,000, resulting in a $302,787 gain on the sale and
$2,143,400 in net cash proceeds after payment of settlement costs and mortgage
payable. HealthSouth still leases and operates the Crenshaw Creek facility, but
has disclosed they will close down this facility by August 1, 2000.
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. On March 21, 1997, one of the lenders agreed not to exercise
its call right until June 30, 1997. The Registrant paid off this loan upon the
sale of the Cedarbrook facility's main campus in September 1999. The lender of
the other loan verbally agreed to extend the maturity date of its note to
December 1, 2001, pending completion of final loan documents. This loan was paid
off upon the sale of the Cane Creek facility in January 2000.
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. The Registrant commenced litigation against NCAC
seeking full payment of future rentals under the lease of NCAC.
On August 1, 1996, the United States Bankruptcy Court approved the transfer of
the operations of NCA Cambridge Nursing Home to Cambridge LLC, a subsidiary of
the Registrant, thereby releasing the operations of the Cambridge facility from
the jurisdiction of the United States Bankruptcy Court. The Registrant's
subsidiary now operates this property.
The Registrant had filed an administrative claim with the trustee of the United
States Bankruptcy Court for unpaid lease payments. At December 31, 1999, the
Registrant recorded a receivable for $700,000 related to this administrative
claim, which was approved by the United States Bankruptcy Court. The $700,000
account receivable was collected on March 1, 2000. It is unlikely that material
future disbursements will be made to the Registrant regarding this matter.
Trinity Hills, McCurdy, and Hearthstone Facilities
The Trinity Hills, McCurdy and Hearthstone lessees are current in their lease
obligations to the Registrant. In addition, the Registrant believes it likely
that the lessee of the Hearthstone facility will pay additional rental amounts
to the Registrant during future years based upon increased revenues at this
facility. However, there can be no assurance of such increased revenue. Based on
the financial statements of the lessees, the Hearthstone and McCurdy facilities
are 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.
On January 18, 2000 and February 2, 2000, the parent companies of the lessees of
the Hearthstone and Trinity Hills facilities, respectively, filed for Chapter 11
bankruptcy in the United States Bankruptcy Court for the District of Delaware.
At this time, it is uncertain if bankruptcy protection would disrupt future
payments of lease obligations. Unless renewed, the Hearthstone facility lease
expires on November 30, 2001 and the Trinity Hills facility lease expires on
June 30, 2000. The Registrant is evaluating its options for the properties,
which could include selling the facilities, leasing the facilities to a third
party or converting the facilities to an alternative use.
8
<PAGE>
Year 2000 Issue
The Registrant did not experience any business interruptions related to year
2000 issues. The Registrant is continuing to monitor its computer systems and
equipment, and expects that the year 2000 issues will not have an adverse effect
on its business, financial condition or results of operations.
9
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Registrant's primary market risk exposure is from fluctuations in interest
rates and the effects of those fluctuations on the market values of its cash
equivalent short-term investments. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant was a defendant in a lawsuit brought by AmHealth (Evansville),
Inc. in the Circuit Court of Vanderburgh County, Indiana, Cause Number
82C01-9811-CP-0373 (Lawsuit), which concerned the McCurdy facility being leased
by AmHealth (Evansville), Inc. On December 10, 1999, the Registrant and AmHealth
(Evansville), Inc. entered into an Amendment of Lease whereby the parties agreed
to dismiss the lawsuit with prejudice. The Stipulation and Order of Dismissal
with Prejudice was filed with the Court on January 21, 2000. The Registrant paid
no settlement funds to AmHealth (Evansville), Inc. and, in fact, received a
letter of credit from the lessee as a safeguard to any future defaults.
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
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: __________________________________________
Robert Lankford
President
Date: May 15, 2000
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule of March 31, 2000 - 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 17,577,257
<SECURITIES> 0
<RECEIVABLES> 1,452,747
<ALLOWANCES> (729,310)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 23,437,241
<DEPRECIATION> (9,038,846)
<TOTAL-ASSETS> 32,923,670
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,340,961
<TOTAL-LIABILITY-AND-EQUITY> 32,923,670
<SALES> 0
<TOTAL-REVENUES> 2,919,461
<CGS> 0
<TOTAL-COSTS> 1,701,414
<OTHER-EXPENSES> 34,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,189
<INCOME-PRETAX> 1,051,539
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,051,539
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
