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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-26468
AMERICAN RETIREMENT VILLAS PROPERTIES II
A CALIFORNIA LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0278155
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
245 FISCHER AVENUE, SUITE D-1, COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
UNITS OF LIMITED PARTNERSHIP
(TITLE OF CLASS)
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 aggregate market value of voting Units (all voting) held by
non-affiliates of Registrant, computed by reference to the price at which such
units were sold, was $34,995,000 as of March 1, 1996, a date within sixty (60)
days of the filing of this Form 10-K. On that date there were 34,995 Units
outstanding.
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TABLE OF CONTENTS
AMERICAN RETIREMENT VILLAS PROPERTIES II,
A CALIFORNIA LIMITED PARTNERSHIP
PART I
ITEM 1. BUSINESS
Formation and General Development.
Industry Segments.
Narrative Description of Business.
Foreign and Domestic Operations and Export Sales.
ITEM 2. PROPERTIES
Covina Villa Burlingame
Montego Heights Lodge Campbell
Daly City Fremont
Fullerton Sunnyvale
Valley View Lodge of Rossmoor Willow Glen
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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PART I
ITEM 1. BUSINESS
FORMATION AND GENERAL DEVELOPMENT.
The Registrant is a California limited partnership formed in
February of 1988 to develop, finance, acquire, and operate senior citizen
housing, inclusive of assisted living facilities. The Registrant operates ten
facilities, all of which are located in California. The general partners are:
ARV Assisted Living, Inc., ("ARVAL") (formerly ARV Housing Group, Inc.), which
serves as Managing General Partner, Gary L. Davidson, John A. Booty, John S.
Jason, and Tony Rota (collectively known as "General Partners"). The General
Partners make all decisions concerning property acquisitions and dispositions of
the facilities subject to the limited partners rights to approve or disapprove
of the sale of substantially all of the Registrant's assets. The Registrant has
not made any investment which the General Partners believe puts the Registrant's
capital at unusual risk.
INDUSTRY SEGMENTS.
The Registrant considers its business to represent only one
industry segment, the development, financing, and operation of assisted living
facilities.
NARRATIVE DESCRIPTION OF BUSINESS.
The Registrant's business is the ownership and operation of
assisted living facilities. To understand the business conducted and intended to
be conducted by the Registrant, it is first necessary to understand the assisted
living industry and the market for potential residents.
Assisted living represents a combination of housing,
personalized support services, and health care designed to respond to the
individual needs of the senior elderly who need help in activities of daily
living, but do not need the medical care provided in a skilled nursing facility.
The assisted living market can be viewed as falling near the middle of the elder
care continuum, between home-based care at one end and long-term skilled nursing
facilities and acute care hospitals at the other.
The Registrant believes its assisted living business benefits
from significant trends affecting the long-term care industry. The first is an
increase in the demand for elder care resulting from the continued aging of the
U.S. population. While increasing numbers of Americans are living longer and
healthier lives, many gradually require increasing assistance with activities of
daily living, and are not able to continue to age in place at home. The second
is the effort to contain health care costs by the government, private insurers
and managed care organizations by limiting lengths of stay, services, and
reimbursement amounts to persons in acute care hospitals and skilled nursing
facilities. Assisted living offers a cost effective long-term alternative
while preserving a more independent lifestyle for those senior elderly who do
not require the broader array of medical services that acute care hospitals and
skilled nursing facilities are required to provide.
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The primary consumers of long-term health care services are
persons over the age of 65. This group represents one of the fastest growing
segments of the population. According to the U.S. Bureau of the Census data, the
number of people in the U.S. age 65 and older increased by more than 27% from
1981 to 1994. The segment of the population over 85 years of age, which
comprises the largest percentage of residents at long-term care facilities, is
projected to increase by more than 40% between the years 1990 to 2000.
Other trends benefiting the Registrant include the increased
financial net worth of the elderly population, the increasing number of women
who work outside the home and are therefore unable to care for their elderly
relatives and the increase in the population of individuals living alone. As the
ratio of senior elderly in need of assistance has increased, so too has the
number of senior elderly able to afford assisted living. Historically, the
non-institutionalized senior elderly were taken care of by their children,
however, the increased number of women in the labor force has reduced the supply
of in-home care givers. Since 1960, the population of individuals living alone
has increased significantly as a percentage of the total elderly population.
This increase has been the result of an aging population in which women outlive
men by an average of 6.8 years, rising divorce rates, and an increase in the
number of unmarried individuals.
The majority of states in the U.S. have enacted Certificates
of Need or similar legislation, which generally limit the construction of
skilled nursing facilities and the addition of beds or services in existing
skilled nursing facilities. High construction costs, limitations on government
reimbursement for the full cost of construction, and start-up expenses also act
to constrain growth in the supply of such facilities. Such legislation benefits
the assisted living industry by limiting the supply of skilled nursing beds for
the senior elderly. Cost factors are placing pressure on skilled nursing
facilities to shift their focus toward higher acuity care which enables them to
charge higher fees, thus creating a shortage of lower acuity care availability,
and thereby increasing the pool of potential assisted living residents.
While Certificates of Need generally are not required for
assisted living facilities, except in a few states, most states do require
assisted living providers to license their facilities and comply with various
regulations regarding building requirements and operating procedures and
regulations. States typically impose additional requirements on assisted living
facilities over and above the standard congregate care requirements. Further,
the limited pool of experienced assisted living staff and management, as well as
the costs and start-up expenses to construct an assisted living facility,
provide an additional barrier of entry to the assisted living business.
In response to rapidly rising health care costs, both
government and private pay sources have adopted cost containment measures that
have encouraged reduced length of stay in hospitals and skilled nursing
facilities. The federal government has acted to curtail increases in health
care costs under Medicare by limiting acute care hospital reimbursement for
specific services to preestablished fixed amounts. Private insurers have also
begun to limit reimbursement for medical services in general to predetermined
"reasonable" charges.
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These cost containment measures have produced a "push-down"
effect. As the number of patients being "pushed down" from acute care hospitals
to skilled nursing facilities increases, the demand for residential options such
as assisted living facilities to serve patients who historically have been
served by skilled nursing facilities will also increase. In addition, skilled
nursing facility operators are continuing to focus on improving occupancy and
expanding services (and fees) to subacute patients requiring very high levels of
nursing care. As the level of skilled nursing facility patients increases, the
supply of nursing facility space will be filled by patients with higher acuity
needs paying higher fees, which again will provide opportunities for assisted
living facilities to increase their occupancy and services to residents
requiring lesser levels of care than generally can be expected for patients in
skilled nursing facilities.
The Registrant provides services and care which are designed
to meet the individual needs of its residents. The services provided are
designed to enhance both the physical and mental well-being of the senior
elderly in each of the Registrant's facilities by promoting their independence
and dignity in a homelike setting. The assisted living program at the
Registrant's facilities include:
Personalized Care Plan - A primary element of the Registrant's
strategy is the concept of "personalized" care to meet each resident's specific
needs. This concept of customizing services to meet the needs of the residents
begins with the resident admissions process, where the facility's management
staff, the resident, the resident's family, and the resident's physician,
discuss the resident's needs and develop a plan for the resident's care. If
recommended by the resident's physician, additional health care or medical
services may be provided at the facility by a third party home health care
agency or other medical provider.
Basic Service and Care Package - The basic service and care
package at the Registrant's assisted living facilities generally includes the
following: meals in a communal, "home-like" setting, housekeeping, linen and
laundry service, social and recreational programs, security, utilities, and
transportation. Other care services can be provided under the basic package
based upon the individual's personalized health care plan.
Additional Services - The Registrant has designed additional
assisted living services in a three-tier program available to residents on a
personalized basis.
Level One: Assistance to residents in the self-administration of medication.
Where necessary, the assisted living staff will consult with the family, the
physician or the insurance company of a resident to designate a home health care
agency to administer the appropriate medication.
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Level Two: In addition to the services provided under Level 1, assistance with
bathing, dressing and grooming, escorting to and from meals and activities,
reading mail, writing letters, shopping and other specialized activities. These
services are provided on an as-needed basis and at the convenience of the
resident within the overall operation of the facility.
Level Three: All of the services provided by Level One and Two, and, in
addition, provision of those services on a 24-hour basis. Further, this level
provides appropriate services for individuals who need help with incontinence.
The personnel working at each facility are employees of ARVAL.
A shortage of qualified personnel may require ARVAL to enhance its wage and
benefits package in order to compete with other providers of assisted living and
senior housing to attract and retain qualified individuals. In addition, many
health care workers in the nursing home industry are unionized. While none of
ARVAL's employees are currently unionized, any unionization of workers in the
assisted living industry or at the Registrant's facilities could increase labor
costs. No assurances can be given that the facilities labor costs will not
increase, or if they do increase, that they can be matched by corresponding
increases in rental or management revenue. Currently the Registrant's ten
facilities employ approximately 330 employees.
There can be no assurance that, at any time, any assisted
living facility will be substantially occupied at current rents. If operating
expenses increase, rent restrictions imposed under rent control regulations in
the local rental market may limit the extent to which rents may be increased.
Because rent increases generally can only be implemented at the time of
expiration of leases, rental increases may lag behind increases in operating
expenses.
The performance of the Registrant's assisted living facilities
is influenced by factors affecting real estate investments, including the
general economic climate and local conditions, such as an oversupply of, or a
reduction in demand for, assisted living properties. With regard to the
Registrant's leased facilities, there can be no assurances that favorable rental
rates will be obtained upon renewal of the operating leases. Other factors
include the attractiveness of properties to tenants, zoning, rent control,
environmental quality regulations or other regulatory restrictions, competition
from other forms of housing and the ability of the Registrant to provide
adequate maintenance and insurance and to control operating costs.
The Registrant owns five of its ten facilities, one of which
is subject to a ground lease. It operates the remaining five facilities pursuant
to operating leases. Pursuant to its partnership agreement, the Registrant's
financing policy restricts the aggregate indebtedness to a maximum of 70% of the
greater of a facility's original cost or its current appraised value. Since each
specific facility required its own particular mix of cash, financing, and
development effort, the Registrant has adhered to a flexible financing/borrowing
policy. Some facilities were acquired subject to existing debt at rates which
continue to be favorable in today's commercial market. In addition, most of the
Registrant's mortgage debt was incurred through the acquisition of facilities
subject to United States Department of Housing and Urban Development ("HUD")
insured financing. The Registrant operates the HUD insured projects as assisted
living facilities providing rental, food service, daily housekeeping, and
assisted living services to senior citizen residents without HUD rental support
programs.
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The Registrant was initially capitalized through a private
placement offering of limited partnership units providing a total of $35,000,000
("Gross Offering Proceeds") and the amount of debt to which the Registrant is
subject totals approximately $7,211,000 at December 31, 1995 (the historical
cost of its assisted living facilities at that date totaled $31,878,727),
evidencing that the Registrant has adhered to its general policy of low
leverage.
Within a particular geographic location, assisted living
facilities compete principally on the basis of the quality of the housing, food,
recreational activities, and resident assistance. Competition in the five
principal market areas in which the Registrant's facilities are located is
limited, and is discussed under ITEM 2. below. In addition, other forms of
residential housing such as mobile home parks, apartments, and to a lesser
extent, single family homes, compete with assisted living facilities.
At the time the limited partners were admitted to the
partnership it was anticipated that the holding period for the Registrant's
properties would be five to seven years, which time is close to
expiring. ARVAL is exploring potential disposition strategies for the
Registrant's assets including the possible sale of the fee properties to a
third party. Any determination regarding sale will be dependent upon the
current and projected operating performance, the needs of the Registrant, the
availability of buyers and their financing and, in general, the relative merits
of continued operation as opposed to sale or termination of leases. Pursuant to
its Partnership Agreement, the Registrant may accept purchase money obligations
secured by mortgages as part of the sales consideration, depending upon then
prevailing economic conditions customary in the area in which the property is
located, credit of the buyer and available financing alternatives. In such
event, full distribution to the Partners may be delayed until the notes are
paid at maturity, sold, refinanced or otherwise liquidated.
ITEM 2. PROPERTIES
INTRODUCTION
The Registrant owns or operates subject to operating leases ten
separate facilities, all of which were acquired from unaffiliated sellers. Two
of the facilities (the improvements and a ground lease interest in Covina Villa
and fee title to Montego Heights Lodge) were purchased in separate
transactions, and eight facilities were acquired in one transaction from
Retirement Inns of America, a subsidiary of Avon Products, Inc. The Registrant
owns fee title to three of the former Avon facilities and operates the
remaining five facilities pursuant to long-term operating leases. (See
descriptions below).
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The following materials describe each facility, its location, and
highlight the terms of any lease or financing to which a facility is subject.
For a comprehensive understanding of the Registrant's marketing efforts, the
discussion concludes with a review of the competition faced by the Registrant in
each of the five broad market areas in which its ten facilities operate. For all
ten facilities the rental agreements with tenants are on a month to month basis.
COVINA VILLA
The 34,000 square foot, two story facility contains 64 residential
units and a common area including a central dining room, living room, lounges,
beauty shop and library. The site contains 1.4 acres of land at 825 W. San
Bernardino Road, Covina. Two major freeways are less than three miles away and
two community hospitals, a neighborhood shopping center and Covina Park are
located within a three block radius. The neighborhood consists of a mix of
commercial and well maintained single family homes and apartments.
The Registrant is the lessee of a long-term ground lease expiring in
2037. Monthly lease payment are approximately $8,500 and the lease provides for
cost of living increases. Ground rental for 1995 was approximately $102,600. The
facility, furniture, fixtures, and equipment are pledged as collateral security
for the ground lease. The ground lease interest in the facility is not subject
to mortgage financing. The average occupancy rates during 1995, 1994, 1993,
1992, and 1991 were 83%, 71%, 86%, 90%, and 88%, respectively. The average
monthly rental rates of occupied units for each of these same years were
$1,306, $1,258, $1,288, $1,279, and $1,244, respectively. At March 10, 1996,
58 of its 64 units were occupied for an occupancy rate of 91%.
MONTEGO HEIGHTS LODGE
The facility is located at 1400 Montego, Walnut Creek, one mile from
the Walnut Creek Civic Center and the Bart Station which links the community
with San Francisco 20 miles to the west. The facility has nearby access to
Highway 24 which connects the cities of Lafayette, Orinda, Walnut Creek and
Piedmont, and U.S. Highway 680, one mile to the West. John Muir Hospital and
Heather Farms Park, a 102 acre complex featuring recreation facilities for
entertainment, are two blocks away.
The site consists of approximately four acres of land and two and four
story connected buildings, containing 170 studio and one bedroom units. Common
areas include a central dining room, library, hobby and billiards room, living
room, private dining room, beauty shop, laundry room, auditorium and spacious
private grounds, including waterscape, a koi pond with circulating water, an
aviary and a residents' garden. The average occupancy rates during 1995, 1994,
1993, 1992, and 1991 were 90%, 84%, 86%, 85%, and 83%, respectively. The average
monthly rental rates of occupied units for each of these same years were $1,428,
$1,417, $1,382, $1,355, and $1,343, respectively. At March 10, 1996, 157 of the
facility's 170 units were occupied for an occupancy rate of 92%.
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The land and buildings are subject to a HUD insured loan with an unpaid
principal balance of $3,418,404 at December 31, 1995. The loan bears interest at
7.5% per annum, with principal and interest payments of $26,171 per month, and
is due August 1, 2018. The loan may be prepaid in full on payment of an adjusted
premium charge as required by regulations promulgated under the National Housing
Act.
THE FOLLOWING EIGHT FACILITIES WERE ACQUIRED
FROM AVON PRODUCTS, INC., IN APRIL 1989
The interior of each of the eight facilities devotes between 40% and
50% of the area to residential units. The balance consists of a common area
including a central dining room, a main living room, smaller living rooms, some
smaller private dining rooms, laundry rooms, beauty and barber shops, and
various residents' lounges. Each facility is set in a garden surrounding
containing open areas, patios, walkways, and some barbecue and other outdoor
recreational facilities.
DALY CITY; FULLERTON; VALLEY VIEW LODGE OF ROSSMOOR.
Registrant owns fee title to these three facilities.
RETIREMENT INN OF DALY CITY is a 36,874 square foot, two story building
containing 95 residential units, located on 1.15 acres of land at 501 King
Drive, Daly City, in a well maintained residential neighborhood. In addition to
the normal common area facilities, Retirement Inn of Daly City has an activity
room, a beauty shop, a general store and a private dining room. The average
occupancy rates during 1995, 1994, 1993, 1992, and 1991 were 92%, 87%, 77%, 76%,
and 81%, respectively. The average monthly rental rates of occupied units for
each of these same years were $1,172, $1,187, $1,156, $1,102, and $1,068,
respectively. At March 10, 1996, 85 of the 95 units were occupied for an
occupancy rate of 89%.
RETIREMENT INN OF FULLERTON is a 38,155 square foot, two story building
containing 68 residential units located on .99 acres at 1621 E. Commonwealth
Avenue, Fullerton, in a well maintained residential neighborhood. The site is
one mile east of the City Center and within two miles of two major freeways. The
average occupancy rates during 1995, 1994, 1993, 1992, and 1991 were 95%, 90%,
91%, 86%, and 87%, respectively. The average monthly rental rates of occupied
units for each of these same years were $1,326, $1,275, $1,274, $1,266, and
$1,264, respectively. At March 10, 1996, 56 of the 68 units were occupied for an
occupancy rate of 82%.
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The land and buildings are subject to a loan with an unpaid principal
balance of $337,333 at December 31, 1995. The loan bears interest at 1% in
excess of the bank's prime rate, with monthly principal payments of $1,333 plus
interest. All unpaid principal and interest are due December 1, 1996.
VALLEY VIEW LODGE OF ROSSMOOR is a 97,590 square foot, two story
building containing 125 residential units, located on 4.55 acres at 1228
Rossmoor Parkway, Walnut Creek, one quarter mile from the entrance to Leisure
World of Rossmoor. In addition to the normal common area facilities, Valley View
Lodge has a billiard room, an auditorium, an arts and craft studio and a
separate game and card room. This site is two miles from the Walnut Creek Civic
Center and within one mile of a major freeway. The average occupancy rates
during 1995, 1994, 1993, 1992, and 1991 were 97%, 97%, 95%, 94%, and 86%,
respectively. The average monthly rental rates of occupied units for each of
these same years were $1,714, $1,687, $1,646, $1,588, and $1,188, respectively.
At March 10, 1996, 115 of the 125 units were occupied for an occupancy rate of
92%.
The land and building are subject to a HUD insured loan with an unpaid
principal balance of $2,802,113 at December 31, 1995. The loan bears interest at
8.25% per annum, with principal and interest payments of $23,468 per month, and
is due November 1, 2016. The loan may be prepaid in full on payment of an
adjusted premium charge as required by regulations promulgated under the
National Housing Act.
BURLINGAME; CAMPBELL; FREMONT; SUNNYVALE; WILLOW GLEN.
The Registrant is the lessee on long term operating leases for each of
these five facilities. Each lessor is a limited partnership unrelated to any
General Partner or affiliate of the Registrant. Fee title to the land and each
of the five facilities is subject to a HUD insured loan and the Registrant's
monthly rent includes payment of all underlying debt service. The leases are
triple net with the Registrant being responsible for utilities, taxes and
insurance.
RETIREMENT INN OF BURLINGAME is a 35,772 square foot, four story
building containing 68 residential units located on a compact .5 acre site at
250 Myrtle Road, Burlingame, in a well maintained residential neighborhood. The
site is two miles from San Francisco International Airport and within one mile
of two major freeways. The average occupancy rates during 1995, 1994, 1993,
1992, and 1991 were 98%, 91%, 91%, 90%, and 83%, respectively. The average
monthly rental rates of occupied units for each of these same years were $1,477,
$1,451, $1,428, $1,430 and $1,433, respectively. At March 10, 1996, 63 of the 68
units were occupied for an occupancy rate of 93%.
The initial lease term expires August 26, 1997. The Registrant holds
the option to renew for two 10 year periods. Monthly rent is approximately
$18,200 and the lease does not contain any cost of living or other escalation
clauses. Lease expense for 1995 was approximately $218,300.
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RETIREMENT INN OF CAMPBELL is a 34,754 square foot, two story building
containing 72 living units located on 1.1 acres at 290 North San Tomas Acquino
Road, Campbell, in a well maintained residential neighborhood. The site is nine
miles from downtown San Jose and within three miles of two major freeways. The
average occupancy rates during 1995, 1994, 1993, 1992, and 1991 were 97%, 94%,
95%, 83%, and 94%, respectively. The average monthly rental rates of occupied
units for each of these same years were $1,338, $1,331, $1,329, $1,302, and
$1,299, respectively. At March 10, 1996, 72 of the 72 units were occupied for an
occupancy rate of 100%.
The Registrant holds the option to renew its lease for two 10
year periods. The initial lease term expired in August 1995, and the Registrant
is in negotiations to exercise its first renewal term. Monthly rent during the
initial lease term was approximately $12,670 and the lease did not contain any
cost of living or other escalation clauses. Lease expense for 1995 was
approximately $151,900.
RETIREMENT INN OF FREMONT is a 35,466 square foot, two story
Mediterranean style wood frame building containing 70 residential units located
on 1.3 acres at 38801 Hastings Street, Fremont in a well maintained residential
neighborhood. The site is within one mile of the Fremont Civic Center and is one
half block from a major thoroughfare connecting to Highway 880 which, in turn,
connects San Jose, 18 miles to the south and Oakland, 24 miles to the north.
Fire protection, emergency health care and other community services are all
within one mile. The average occupancy rates during 1995, 1994, 1993, 1992, and
1991 were 92%, 91%, 80%, 80%, and 82%, respectively. The average monthly rental
rates of occupied units for each of these same years were $1,357, $1,312,
$1,261, $1,203, and $1,187, respectively. At March 10, 1996, 58 of the 70 units
were occupied for an occupancy rate of 83%.
The initial lease term expires January of 1997. The Registrant holds
the option to renew for two 10 year periods. Monthly rent during the initial
lease term was approximately $13,900 and the lease does not contain any cost of
living or other escalation clauses. Lease expense for 1995 was approximately
$166,600.
RETIREMENT INN OF SUNNYVALE is a 61,478 square foot, two story H-shaped
building surrounding a courtyard and containing 123 residential units, located
on 2.1 acres at 175 East Remington Drive, Sunnyvale. The site is three blocks
west of El Camino Real, less than two miles from a major freeway and is served
by fire protection, emergency health care and other community services. The
average occupancy rates during 1995, 1994, 1993, 1992, and 1991 were 93%, 96%,
93%, 89%, and 81%, respectively. The average monthly rental rates of occupied
units for each of these same years were $1,369, $1,354, $1,312, $1,277, and
$1,200, respectively. At March 10, 1996, 109 of the 123 units were occupied for
an occupancy rate of 85%.
The Registrant holds the option to renew its lease for two 10 year
periods. The initial lease term expired in March 1996 and the Registrant is
currently in negotiations to exercise its first renewal term. Monthly rent
during the initial lease term was approximately $25,100 and the lease
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did not contain any cost of living or other escalation clauses. Lease expense
for 1995 was approximately $284,500.
THE INN AT WILLOW GLEN is a 47,717 square foot two story building
containing 84 residential units located on 1.5 acres at 1185 Pedro Street, San
Jose in a well maintained residential neighborhood. The site is across the
street from a racquet club, five miles from the San Jose Civic Center, one half
mile from a major freeway joining San Jose to San Francisco and is served by
fire protection, emergency health care and other community services. The average
occupancy rates during 1995, 1994, 1993, 1992, and 1991 were 98%, 97%, 94%, 97%,
and 90%, respectively. The average monthly rental rates of occupied units for
each of these same years were $1,395, $1,353, $1,284, $1,239, and $1,155,
respectively. At March 10, 1996, 82 of the 84 units were occupied for an
occupancy rate of 98%.
The initial lease term expires in November 1997. The Registrant holds
the option to renew for two 10 year periods. Monthly rent, which is fixed for
the balance of the initial term, is $16,402, plus bonus rent which is calculated
by multiplying $40,000 times the percentage by which annual rents exceed the
1981 base year. Bonus rent for 1995 approximated $1,350 per month, and this
amount is not expected to materially increase over the term of the lease. Lease
expense for 1995 was approximately $249,300.
COMPETITION/MARKETING DATA
According to its 1990 census, the U.S. Census Bureau reported that
10.6% of the California population is over 65 years of age, and projects an 8%
annual increase in the population over 85 years of age. The Registrant
considers this group over the age of 85 to constitute the assisted living
population. Census projections for 1995 indicate a population of approximately
3,567,000 people in California over 65, and an assisted living population in
California of at least 13% of those over 65 or approximately 463,700.
There are five distinct geographic market areas ("Market Areas") into
which the Registrant's 10 facilities fall. A review of these Market Areas
follows.
1. SAN FRANCISCO PENINSULA
Two of the Registrant's facilities are located in Market Area 1:
Retirement Inn of Daly City and Retirement Inn of Burlingame. These facilities
are approximately 12 miles apart. The cities of Daly City, Pacifica and the
southern portion of the City of San Francisco are the immediate market for the
Daly City facility. Burlingame, Hillsborough and San Mateo and parts of Foster
City, San Carlos and Millbrae are the immediate market for the Burlingame site.
This combined primary market area, defined as an approximate 10 mile radius from
each facility, contains approximately 1,750,000 people. The demographics in each
market reveal a general population base, household income figures and percentage
of senior citizens that meet the standards used by the General Partners in
determining feasibility for other facilities which they have developed and now
manage.
11
<PAGE> 13
Assuming 10.6% of the population is over 65 and that a minimum of 13%
of this group over age 65 constitutes the primary assisted living market, there
are currently 24,100 potential residents in the target market areas. In Market
Area 1 there are seven assisted living facilities now offering similar services
and features. These seven have a combined total of 710 units potentially housing
1,000 residents. The Retirement Inn of Daly City and the Retirement Inn of
Burlingame bring the total present capacity in Market Area 1 to 1,650 seniors
that can be housed in this fashion, or about 7% saturation of the target market.
2. GREATER SAN JOSE
Three of the Registrant's facilities are located in Market Area 2: the
Retirement Inn of Sunnyvale, the Retirement Inn of Campbell, and the Inn at
Willow Glen. The cities of Sunnyvale, Palo Alto, Los Altos, Mountain View,
Cupertino and Santa Clara comprise the primary market area for the Sunnyvale
facility. The Campbell and Willow Glen facilities, five miles from each other,
add the cities of Los Gatos, Campbell and Saratoga to their target market, but
are not contemplated to draw substantially from the communities of Mountain
View, Palo Alto and Los Altos. Each facility's primary market area is defined as
an approximate 10-mile radius from the site. Market Area 2 contains
approximately 2,100,000 people and shows favorable demographics relating to the
rental of units. The percentage of senior citizens, household income figures and
the population base meet the standards used by the General Partners in
determining feasibility for other facilities which they have developed and now
manage.
Assuming 10.6% of the population is over 65, and that a minimum of 13%
of this group over age 65 constitutes the primary assisted living, Market Area 2
contains approximately 28,900 potential residents. In Market Area 2 there are
currently 14 facilities now offering services and features similar to the
subject facilities. These facilities have a combined total of 2,400 units
potentially housing approximately 3,600 residents, or about 12% saturation of
the target market.
3. EAST BAY AREA
Three facilities are in Market Area 3: the Retirement Inn of Fremont,
Montego Heights and Valley View Lodge of Rossmoor in Walnut Creek. The cities of
Fremont, Hayward, Newark, Milpitas, Union City and San Lorenzo comprise the
Fremont site's primary market. Both Valley View Lodge and Montego Heights
locations are served most extensively by the cities of Walnut Creek, Berkeley,
Piedmont, Orinda, Lafayette, Moraga, Alamo, Danville, Pleasant Hill, Concord and
Rossmoor's Leisure World development which in itself houses approximately 8,500
seniors over the age of 65.
12
<PAGE> 14
The immediate market area is defined as a 12-mile radius due to urban
growth patterns, topography and accessibility by major thoroughfares. Market
Area 3 contains approximately 870,000 people and demonstrates household income,
percentage of senior citizens and general population base figures that meet the
standards used by the General Partners in determining feasibility for other
facilities which they have developed and manage.
Assuming 10.6 percent of the population is over 65, and that a minimum
of 13% of this group over age 65 constitutes the primary assisted living market,
Market Area 3 provides approximately 12,000 potential residents. Five
facilities, two of which are within one mile of the Retirement Inn of Fremont,
offer services and features similar to the Retirement Inn of Fremont with a
combined total of 604 units potentially housing 725 residents. Adding the
subject property results in a capacity of 805 seniors that may be accommodated
in this fashion, or about 7% saturation of the market. The total number of units
available in the Walnut Creek/Concord area, including Montego Heights Lodge and
Valley View Lodge, is approximately 2,300, or about 19% market saturation.
4. FULLERTON - NORTH ORANGE COUNTY/SOUTHWEST L.A. COUNTY
One facility is in Market Area 4: The Retirement Inn of Fullerton.
The primary market is defined as a 10-mile radius from the facility. On
this basis, Market Area 4 is comprised of the following cities: Anaheim, Brea,
Buena Park, Cerritos, Cypress, Diamond Bar, Fullerton, Garden Grove, La Habra,
La Habra Heights, La Mirada, La Palma, Norwalk, Orange, Placentia, Santa Ana,
Stanton, Westminster, Whittier, and Yorba Linda. The total population of this
primary market is 1,760,449, of which 136,264 (taken from California Cities,
Towns & Counties; Information Publications; California. 1996) are age 65 and
over. Drawing on information provided by the U. S. Census Bureau, 13% of the
population over age 65 constitutes the primary assisted living market, equaling
17,714 seniors in Market Area 4.
In Market Area 4, there are currently 14 facilities offering services
and features similar to the Retirement in of Fullerton. These facilities,
including the Retirement Inn of Fullerton, have a combined total of 2,695 units,
potentially housing approximately 3,234 seniors, or about 19% saturation of the
target market. Data compiled from surveying residents and their families reveals
that the market may be expanded by up to 33% due to units rented by residents
coming from outside the primary area.
5. COVINA
One facility is in Market Area 5: Covina Villa
The primary market is defined as a 10-mile radius from the facility. On
this basis, Market Area 5 is comprised of the following cities: Arcadia, Azusa,
Baldwin Park, City of Industry, Claremont, Covina, Diamond Bar, Duarte, El
Monte, Glendora, Irwindale, La Puente, La Verne, Monrovia, Pomona, San
Dimas,Temple City, Walnut, and West Covina. The total population of this
primary market is 972,181 of which 76,319 (taken from California Cities, Towns
& Counties; Information Publications; California. 1996) are age 65 and over.
Drawing on information provided by the U. S. Census Bureau, 13% of the
population over the age of 65 constitutes the primary assisted living market,
equaling 9,921 seniors in Market Area 5.
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<PAGE> 15
In Market Area 5, there are currently 5 facilities offering services
and features similar to the Covina Villa. These facilities, including Covina
Villa, have a combined total of 709 units, potentially housing approximately 886
seniors, or about 9% saturation of the target market. Data compiled from
surveying residents and their families reveals that the market may be expanded
by up to 33% due to units rented by residents coming from outside the primary
area.
ITEM 3. LEGAL PROCEEDINGS
There are various legal proceedings pending to which the
Registrant is a party, or to which some of its properties are subject, arising
in the normal course of business. The Registrant does not believe the ultimate
resolution of those proceedings will have a material adverse effect on the
Registrant's financial position or results of operations.
The Registrant has notified the landlords of its Campbell and
Sunnyvale facilities that the Registrant has extended the terms of those leases.
Renewal rent is being negotiated and, if not resolved, may result in arbitration
or litigation. If not resolved in favor of the Registrant, the ultimate
resolution of those proceedings may have a material adverse effect on the
Registrant's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to Unitholders during the fiscal
year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the
Registrant's securities. The Registrant repurchased and retired 5 Partnership
Units in June 1990.
14
<PAGE> 16
As of December 31, 1995, there were approximately 3,503
Unitholders of record owning 35,019.88 Units. For the years ended December 31,
1995 and 1994, the Registrant made limited partner distributions of $64.28 per
Unit and $55.45 per Unit, respectively. The return of capital to the Unitholders
for the years ended December 31, 1995 and 1994 was $39.57 and $55.45,
respectively. There were distributions of earnings for the years ending December
31, 1995 and 1994 of $24.71 and $-0-, respectively.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for each
of the Registrant's last five fiscal years. Certain of this financial data has
been derived from the Registrant's audited financial statements included
elsewhere in this Form 10-K and should be read in conjunction with those
financial statements and accompanying notes and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" at Item 7. This
table is not covered by the Independent Auditors' Report.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $16,982,297 $16,002,757 $15,084,584 $14,106,400 $13,044,494
Net Income (Loss) 873,296 (107,472) (671,794) (773,246) (1,856,734)
Net Income (Loss) (per weighted
average Limited Partner Units
outstanding) 24.71 (3.04) (19.00) (21.87) (52.53)
Total Assets 21,523,874 22,764,837 24,627,621 26,956,737 29,574,874
Partners' Capital 12,818,856 13,764,639 15,832,217 18,184,070 20,916,769
Notes Payable 7,211,460 7,189,166 7,305,980 7,416,777 7,415,662
Distributions of Earnings 24.71 -0- -0- -0- -0-
Distributions - Return of Capital 39.57 55.45 47.53 55.43 63.28
Total Distributions (per weighted
average Limited Partner units
outstanding) 64.28 55.45 47.53 55.43 63.28
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY.
The General Partners expect that the cash to be generated from
operations of all the Registrant's properties will be adequate to pay operating
expenses and provide distributions to the Partners. On a long-term basis, the
Registrant's liquidity is sustained primarily from cash flow provided by
operating activities. During 1995, net cash provided by operating activities was
15
<PAGE> 17
approximately $2,989,000 compared to $2,550,000 and $2,144,000 for the years
ended 1994 and 1993, respectively.
During 1995, the Registrant used net cash in investing
activities of approximately $891,000 compared to $389,000 and $311,000 for the
years ended 1994 and 1993, respectively. The increase in investing activities
was due to the purchase of vehicles, carpeting and roof replacements. These
three items represent approximately $517,000 of the cash used in investing
activities in 1995.
During 1995, the Registrant used net cash in financing
activities of approximately $1,761,000 compared to $1,946,000 and $1,781,000 for
the years ended 1994 and 1993, respectively.
The General Partners are not aware of any trends, other than
national economic conditions, which have had or which may be reasonably expected
to have a material favorable or unfavorable impact on revenues or income from
the operations or sale of properties. The General Partners believe that if the
inflation rate increases they will be able to pass the subsequent increases in
operating expenses onto the residents at the properties by way of higher rental
and Assisted living rates. The Registrant has long term debt of approximately
$7,211,000, as of December 31, 1995 which is due as follows: $500,000 due on
January 15, 1996 (which amount was paid), $337,000 due in December 1, 1996,
$154,000 secured by equipment is due on or before November 15, 2000, $2,802,000
is due in November 1, 2016, and $3,418,000 is due in August 1, 2018 The $500,000
repaid in January 1996 represents a line of credit which has been extended
through October 15, 1996.
CAPITAL RESOURCES.
Registrant contemplates spending approximately $550,000 for
capital expenditures during 1996 for physical improvements at its ten
facilities. The Registrant expects that the funds for these improvements should
be available from operations.
There are no known material trends, favorable or unfavorable,
in the Registrant's capital resources, and there is no expected change in the
mix of such resources.
RESULTS OF OPERATIONS.
Revenues for the years ended December 31, 1995, 1994 and 1993,
includes rental income and assisted living revenue from ten facilities, interest
earned on cash balances and other revenue. In 1995 and 1994 the Registrant's
rental revenues increased over prior years due to higher aggregate occupancy
levels and rental rates. Total revenues for the year ended December 31, 1995,
were $16,982,000 compared to $16,003,000 and $15,085,000 for the years ended
December 31, 1994 and December 31, 1993, respectively. Revenues increased by 6%
from 1994 to 1995 and by 6% from 1993 to 1994.
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<PAGE> 18
The largest component of revenue, rent, increased by
approximately 5% from 1994 to 1995 and by approximately 4% from 1993 to 1994.
The increase in rent was due to an increase of 4% in occupancy and an increase
in rental rates of 3% from 1994 to 1995 and an increase of 1% in occupancy and
an increase in rental rates of 2% from 1993 to 1994.
Revenue from assisted living increased by 17% from 1994 to
1995 and 32% from 1993 to 1994. The increase in assisted living was due to
aggressive marketing of the assisted living services and the resulting increase
in the number of residents using the program.
Interest and other revenue decreased by 11% from 1994 to 1995
and increased by 9% from 1993 to 1994. Interest income results from interest
earned on cash deposits. Other revenue generally includes processing fees and
beauty shop revenue.
Sources of revenue for the years ended December 31, 1995, 1994
and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rent $14,768,855 $14,055,979 $13,578,122
Assisted Living 2,018,661 1,728,953 1,307,323
Interest 20,434 14,577 15,704
Other 174,347 203,248 183,435
Total Revenue $16,982,297 $16,002,757 $15,084,584
</TABLE>
Total costs and expenses for the years ended 1995, 1994 and
1993 were $16,109,001, $16,110,229 and $15,756,378, respectively.
The largest component of expenses , rental property
operations, consists primarily of property management costs, payroll related
expenses, utilities, food expenses and maintenance and supplies. Rental property
operations remained the same from 1994 to 1995 and increased by 7% from 1993 to
1994.
Assisted living expenses consist primarily of the related
payroll expense. Assisted living expenses increased by 15% from 1994 to 1995 and
by 30% from 1992 to 1993. Assisted living expenses increased as a result of the
increase in the related staff providing assisted living services. The staff size
was increased due to the increase in the number of residents using the assisted
living services. This increase corresponds with the increase in assisted living
revenue.
General and administrative expenses are comprised of, but not
limited to, costs for accounting, partnership administration, bad debt, data
processing, investor relations, insurance and professional services. General and
administrative expenses increased by 15% from 1994 to 1995 and decreased 4% from
1993 to 1994. The increase in 1995 was primarily due to the
17
<PAGE> 19
increase in partnership administration fees due to the higher net operating
income generated by the facilities. The decrease in 1994 was primarily due to
the elimination of marketing commissions by the Registrant.
Depreciation and amortization expense decreased by 12% from
1994 to 1995 and decreased by 13% from 1993 to 1994. Depreciation and
amortization decreased due to a portion of fixed assets becoming fully
depreciated.
Property taxes increased by 12% from 1994 to 1995 and
decreased by 19% from 1993 to 1994. The decrease in 1994 was due to lower
property tax assessments and a $45,000 reimbursement for prior years taxes that
were overassessed.
Interest expense decreased by 2% from 1994 to 1995 and
decreased by 4% from 1993 to 1994. Interest expense is lower due to a decrease
in the principal balance outstanding on the line of credit.
Selected costs and expenses for the years ended December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rental Property Operations $9,993,572 $10,001,328 $9,326,559
Assisted living 859,322 748,148 577,606
General and Administrative 800,482 695,970 725,814
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Property Taxes 487,722 434,178 533,019
Interest 572,061 583,017 606,699
</TABLE>
FUTURE CASH DISTRIBUTIONS.
The General Partners believe that the Registrant's ability to make cash
distributions to limited partners depends on factors such as:
(i) The Registrant's ability to rent the available units and maintain
high occupancies.
(ii) The Registrant's ability to control both operating and
administrative expenses.
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<PAGE> 20
(iii) The Registrant's ability to maintain adequate working capital.
(iv) The absence of any losses from uninsured property damage (e.g.,
earthquakes) or future litigation.
(v) The Registrant's ability to generate proceeds from the sales of
its properties.
(vi) The Registrant's ability to renew existing leases under favorable
terms.
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<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INDIVIDUAL GENERAL PARTNERS OF THE REGISTRANT
GARY L. DAVIDSON. Mr. Davidson, age 61, an attorney, received his
Bachelor's Degree in 1958 and his Juris Doctor Degree in 1961 from the
University of California at Los Angeles. Mr. Davidson has practiced law in
Orange County since 1962. During his professional career, he has been active in
numerous business and professional sports ventures. In 1979, with Mr. Booty and
others, he founded the predecessor to ARVAL. Mr. Davidson serves as a Director
and Chairman of the Board of ARVAL.
JOHN A. BOOTY. Mr. Booty, age 57, is a graduate of the University of
California at Berkeley, from which he also holds a Master's Degree in Business
Administration. Mr. Booty was with Ford Motor Company Aeronutronics, Development
Research Associates and Booz Allen and Hamilton, of which Mr. Booty was a Vice
President. In 1979, with Mr. Davidson and others, he founded California
Retirement Villas Corporation which merged into ARVAL. Mr.Booty serves as a
Director and President of ARVAL.
DAVID P. COLLINS. Mr. Collins, age 58, received his Bachelor's Degree
from St. Anselm College, Manchester, New Hampshire in 1960. His first
association with the ARVAL occurred in 1982. Mr. Collins is a registered
principal with the National Association of Securities Dealers, Inc., and from
its formation in December 1985, has been President of ARV Capital Corporation.
Mr. Collins is a member and former Chairman of the Board of the Orange County
Chapter of the International Association for Financial Planners. For many years,
Mr. Collins was active in the field of international finance, mostly in the
Middle East, and in 1971, was a founder of the World Trade Center Association of
Orange County. Mr. Collins is a Director and Senior Executive Vice President of
ARVAL.
JOHN S. JASON, 60, graduated from the University of Indiana with a
degree in Business Administration. He was associated with KPMG Peat Marwick LLP
for 6 years. In 1979, with Messrs. Booty, Davidson and Rota, he founded the
predecessor to ARVAL. In February 1993, Mr. Jason retired from active service
with ARVAL and retired from his positions as a Director and as Executive Vice
President of ARVAL. Mr. Jason is currently retired and not gainfully employed.
TONY ROTA, 67, is a licensed real estate broker, and has been active in
real estate investments since 1958. In 1979, with Messrs. Booty, Davidson and
Jason, he founded the predecessor to ARVAL. In November 1992, Mr. Rota retired
from active service with ARVAL and retired from his positions as a Director and
as Vice President of ARVAL. Mr. Rota is currently retired and not gainfully
employed.
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<PAGE> 22
EXECUTIVE OFFICERS OF ARV ASSISTED LIVING, INC. ("ARVAL")
For a description of Messers. Davidson, Booty and Collins, please see
above.
GRAHAM P. ESPLEY-JONES. Mr. Espley-Jones, age 36, graduated from
Pepperdine University with an MBA and from San Diego State University with a
degree in Business Administration. Mr. Espley-Jones is a Registered
Representative and Financial Principal with the National Association of
Securities Dealers ("NASD"). From 1985 to 1988 he served as the Controller for
the real estate division of First California Savings Bank. Mr. Espley-Jones
joined ARVAL in 1988 and serves as Secretary and Chief Financial Officer.
DIRECTORS OF ARVAL
For a description of Messers. Davidson, Booty and Collins, please see
above.
R. BRUCE ANDREWS. Mr. Andrews, age 55, has served as President and
Chief Executive Officer of Nationwide Health Properties, Inc. (a New York Stock
Exchange listed REIT) since September 1989 and a director of that company since
October 1989. Mr. Andrews had previously served as a director of American
Medical International, Inc., a hospital management company, and served as its
Chief Financial Officer from 1970 to 1985 and its Chief Operating Officer in
1985 and 1986. Mr. Andrews is also a director of Alexander Haagen Properties,
Inc..
MAURICE J. DEWALD. Mr. DeWald, age 56, is Chairman and Chief Executive
Officer of Verity Financial Group based in Irvine, California. Mr. DeWald
founded Verity Financial in 1992 to develop and implement investment
opportunities in the U.S. and internationally. Previously, Mr. DeWald had a 30
year career at KPMG Peat Marwick, where he was a Managing Partner and served on
its Board of Directors. Mr. DeWald is currently a director of several other
firms, including: Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of
California, and Monarch Funds. He is also a trustee of St. John's Hospital and
Health Care Foundation and Loyola Marymount University, and serves on the
advisory Council of the University of Notre Dame School of Business. Mr DeWald
is a Certified Public Accountant.
JAMES M. PETERS. Mr. Peters, age 60, is the founder of the J. M. Peters
Company (an American Stock Exchange listed company), a California-based home
building firm operating in 14 western states. Mr. Peters served as President and
Chief Executive Officer of the J. M. Peters Company from its inception in 1975
until his retirement in 1992. During his career, Mr. Peters has been responsible
for building and marketing more than 12,000 housing units. Mr. Peters serves as
a member of the Board of Trustees of the UCLA Foundation.
JOHN J. RYDZEWSKI. Mr. Rydzewski, age 42, is an investment banker
specializing in health care finance. He has been a member of the firm Benedetto,
Gartland & Greene, Inc. since 1993. Mr. Rydzewski served as Executive Vice
President and Chief Financial Officer in 1992 for Four Winds, Inc., a provider
of behavioral health care services. He also served as a Vice President in the
health care finance group of Kidder, Peabody & Co. Incorporated from 1986 to
1992. He has served as a director of United Medical Corporation, a diversified
health services provider, and Maxim Healthcare Corporation, a behavioral health
services provider. Mr. Rydzewski received a Master of Business Administration
and a Bachelor of Science Degree from the Wharton School of the University of
Pennsylvania and is a Certified Public Accountant.
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<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the General Partners.
Property Management Fees A property management fee
(ARV Assisted Living, Inc.) of 5% of gross revenue is
paid for managerial
services including general
supervision, hiring of
onsite management personnel
employed by the Registrant,
renting of units,
installation and provision
of food service,
maintenance, and other
operations. At December 31,
1995, 1994 and 1993, the
property management fee
amounted to $849,033,
$800,197, and $754,329,
respectively.
Partnership Management Fees A fixed partnership
(ARV Assisted Living, Inc.) management fee of 10% of
cash flow before
distributions is paid for
implementing the
Partnership business plan,
supervising and managing
the Registrant's affairs
including general
administration and
coordination of legal,
audit, tax, and insurance
matters. At December 31,
1995, 1994 and 1993, the
partnership management fee
amounted to $329,905,
$251,969, and $227,719,
respectively.
Sale of Partnership Projects (General The Limited Partnership
Partners) Agreement permits payment
in the form of real estate
commissions to the General
Partners or its Affiliates.
Any such compensation shall
not exceed 3% of the gross
sales price or 50% of the
standard real estate
brokerage commission,
whichever is less. For the
year ended December 31,
1995, 1994 and 1993 no real
estate commissions were
received.
Subordinated Incentive Compensation (ARV ARVAL is entitled to
Assisted Living, Inc.) receive 15% of Proceeds of
Sale or Refinancing
subordinated to a return of
Initial Capital
Contributions plus an
8%-10% (depending on the
timing of the limited
partners' investment) per
annum cumulative, but not
compounded, return thereon
from all sources.
Partnership Interest (General Partners) 1% of all items of capital,
profit or loss, and
liquidating Distributions,
subject to a capital
account adjustment is paid
to the General Partners.
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<PAGE> 24
Reimbursed Expenses All Partnership expenses
(General Partners) are billed directly to and
paid by the Registrant. The
General Partners may be
reimbursed for the actual
cost of goods and materials
obtained from unaffiliated
entities and used for or by
the Registrant. The
Managing Partner is
reimbursed for
administrative services
necessary to the prudent
operation of Registrant,
provided that such
reimbursement is at the
lower of its actual cost or
the amount which the
Registrant would be
required to pay to
independent parties for
comparable administrative
services in the same
geographic location. Total
reimbursements to ARVAL
amounted to $5,647,746,
$5,611,925, and $5,141,800
at December 31, 1995, 1994
and 1993, respectively.
SEE FOOTNOTE 3 OF NOTES TO FINANCIAL STATEMENTS (TRANSACTIONS WITH AFFILIATES).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the compensation earned by the General Partners, as
set out under ITEM 11 above, no General Partner or Affiliate receives any direct
or indirect compensation from the Registrant. For example, the Managing Partner
receives a management fee of 5% of Gross Revenues. Because these fees are
payable without regard to whether particular facilities are generating Cash Flow
or otherwise benefiting the Registrant, a conflict of interest could arise in
that it might be to the advantage of the General Partners that a facility be
retained or re-financed rather than sold. On the other hand, an Affiliate of the
General Partners may earn a real estate commission on sale of a property,
creating incentive to sell what might be a profitable property.
The General Partners have authority to invest the Registrant's
funds in properties or entities in which they, or any Affiliate have an
interest, provided the Registrant acquires a controlling interest. In any such
investment, duplicate property management or other fees will not be permitted.
The General Partners or Affiliates may, however, purchase property in their own
names and temporarily hold title to facilitate acquisition for the Registrant,
provided that such property is purchased by the Registrant at cost (including
acquisition, closing and carrying costs). The General Partners will not
commingle Registrant's funds with those of any other person or entity.
Conflicts of interest will exist to the extent that facilities
owned or operated compete, or are in a position to compete for residents,
general managers or key employees with assisted living facilities owned or
operated by the General Partners and Affiliates in the same geographic area.
The General Partners will seek to reduce any such conflicts by offering such
persons their choice of residence or employment on comparable terms in any
facility.
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<PAGE> 25
The personnel working at each facility are employed by the
Registrant's managing partner ARVAL. ARVAL pays payroll and retirement benefit
expenses on the Registrant's behalf and is subsequently reimbursed by the
Registrant. The retirement benefit expense consists of contributions made to an
employee stock ownership plan ("ESOP"). Effective April 1, 1991, ARVAL approved
an ESOP to enable all eligible employees of ARVAL and its affiliates to own
common stock in ARVAL. The General Partners are currently considering whether or
not to continue making contributions to the ESOP.
Further conflicts may exist if and to the extent that other
affiliated owners of assisted living facilities seek to refinance or sell at the
same time as the Registrant. The General Partners will seek to reduce any such
conflicts by making prospective purchasers aware of all facilities available for
sale.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(i) Independent Auditors' Report.
(ii) Balance Sheets - December 31, 1995 and 1994.
(iii) Statements of Income - Years Ended December 31, 1995, 1994 and
1993.
(iv) Statements of Partners' Capital - Years Ended December 31,
1995, 1994 and 1993.
(v) Statements of Cash Flows - Years Ended December 31, 1995, 1994
and 1993.
(vi) Notes to Financial Statements.
(viii) Financial Statement Schedule - Schedule III - Real Estate and
Related Accumulated Depreciation and Amortization - December
31, 1995.
(b) The Registrant did not file any reports on Form 8-K during the last
quarter of fiscal year 1995.
(c) Exhibit 27 - Financial Data Schedule.
24
<PAGE> 26
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 by the undersigned, thereunto duly authorized.
AMERICAN RETIREMENT VILLAS PROPERTIES II,
A CALIFORNIA LIMITED PARTNERSHIP,
BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT.
/s/ JOHN A. BOOTY
- ------------------------------------------------------------------
By: John A. Booty, President and Director of ARVAL, Managing General
Partner
/s/ GARY L. DAVIDSON
- ------------------------------------------------------------------
By: Gary L. Davidson, Chairman of the Board and Director of ARVAL, Managing
General Partner
/s/ GRAHAM P. ESPLEY-JONES
- ------------------------------------------------------------------
By: Graham P. Espley-Jones, Chief Financial Officer and Secretary of ARVAL,
Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JOHN A. BOOTY
- ----------------------------- President and April 15, 1996
John A. Booty Director of ARVAL,
Managing General Partner
/s/ GARY L. DAVIDSON
- ----------------------------- Chairman of the Board April 15, 1996
Gary L. Davidson and Director of ARVAL,
Managing General Partner
/s/ GRAHAM P. ESPLEY-JONES
- ----------------------------- Chief Financial Officer April 15, 1996
Graham P. Espley-Jones and Secretary of ARVAL,
Managing General Partner
</TABLE>
25
<PAGE> 27
[KPMG LOGO]
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Annual Report - Form 10-K
Financial Statements and Schedule
Items 8 and 14(a)
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE> 28
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Annual Report - Form 10-K
Items 8 and 14(a)
Index to Financial Statements and Schedule
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Balance Sheets - December 31, 1995 and 1994 2
Statements of Operations - Years ended December 31, 1995, 1994 and 1993 3
Statements of Partners' Capital - Years ended December 31, 1995, 1994 and 1993 4
Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 5
Notes to Financial Statements 6
Schedule
Real Estate and Related Accumulated Depreciation and Amortization -
December 31, 1995 Schedule III
</TABLE>
All other schedules are omitted, as the required information is inapplicable or
the information is presented in the financial statements or related notes.
<PAGE> 29
[KPMG Peat Marwick LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To ARV Assisted Living, Inc. as the Managing General Partner of
American Retirement Villas Properties II:
We have audited the financial statements of American Retirement Villas
Properties II, a California limited partnership, listed in the accompanying
index. In connection with our audits of the financial statements, we have also
audited the financial statement schedule listed in the accompanying index. These
financial statements and financial statement schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule 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 financial statements referred to above present fairly, in
all material respects, the financial position of American Retirement Villas
Properties II as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
March 20, 1996
<PAGE> 30
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- ----------
<S> <C> <C>
Properties, at cost (notes 4 and 5):
Land $ 2,902,684 2,902,684
Buildings and improvements, less accumulated depreciation
of $4,579,333 in 1995 and $3,865,219 in 1994 15,179,456 15,669,092
Leasehold property and improvements, less accumulated
depreciation of $6,590,424 in 1995 and $5,595,821 in 1994 825,432 1,764,926
Furniture, fixtures and equipment, less accumulated
depreciation of $863,537 in 1995 and $1,108,392 in 1994 937,861 692,250
---------- ----------
Net properties 19,845,433 21,028,952
Cash 488,582 605,100
Other assets, including impound accounts of $625,615 in 1995
and $724,494 in 1994 1,189,859 1,130,785
----------- ----------
$21,523,874 22,764,837
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable (note 5) $ 7,211,460 7,189,166
Accounts payable and accrued expenses 758,240 772,228
Amounts payable to affiliate (note 3) 155,155 494,423
Distributions payable to Partners 580,163 544,381
----------- ----------
Total liabilities 8,705,018 9,000,198
----------- ----------
Partners' capital (deficit) (note 2):
General partners' capital (deficit) 276,099 (162,861)
Limited partners' capital, 34,995 limited partnership units
authorized, issued and outstanding 12,542,757 13,927,500
----------- ----------
Total partners' capital 12,818,856 13,764,639
----------- ----------
$21,523,874 22,764,837
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 31
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rent $14,768,855 14,055,979 13,578,122
Assisted living 2,018,661 1,728,953 1,307,323
Interest 20,434 14,577 15,704
Other 174,347 203,248 183,435
----------- ---------- ----------
Total revenues 16,982,297 16,002,757 15,084,584
----------- ---------- ----------
Costs and expenses:
Rental property operations (including
$5,514,253, $5,277,461 and $4,932,920
related to affiliates in 1995, 1994 and
1993, respectively) (note 3) 9,993,572 10,001,328 9,326,559
Assisted living (all related to
affiliates)(note 3) 859,322 748,148 577,606
General and administrative (including
$453,110, $638,482 and $613,322
related to affiliates in 1995, 1994 and
1993, respectively) (note 3) 800,482 695,970 725,814
Facilities rent (note 4) 1,178,331 1,175,414 1,155,307
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Property taxes 487,722 434,178 533,019
Advertising 141,031 112,348 117,961
Interest (note 5) 572,061 583,017 606,699
----------- ---------- ----------
Total costs and expenses 16,109,001 16,110,229 15,756,378
----------- ---------- ----------
Net income (loss) $ 873,296 (107,472) (671,794)
=========== ========== ==========
Net income (loss) per limited partner unit $ 24.71 (3.04) (19.00)
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 32
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance (deficit) at December 31, 1992 $(118,666) 18,302,736 18,184,070
Distribution to partners ($47.53 per limited
partner unit) (16,801) (1,663,258) (1,680,059)
Net loss (6,718) (665,076) (671,794)
--------- ---------- ----------
Balance (deficit) at December 31, 1993 (142,185) 15,974,402 15,832,217
Distribution to partners ($55.45 per limited
partner unit) (19,601) (1,940,505) (1,960,106)
Net loss (1,075) (106,397) (107,472)
--------- ---------- ----------
Balance (deficit) at December 31, 1994 (162,861) 13,927,500 13,764,639
Distribution to partners ($64.28 per limited
partner unit) (22,720) (2,249,306) (2,272,026)
Capital contribution - cancelation of
indebtedness (note 8) 452,947 -- 452,947
Net income 8,733 864,563 873,296
--------- ---------- ----------
Balance at December 31, 1995 $ 276,099 12,542,757 12,818,856
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 33
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Cash Flows
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 873,296 (107,472) (671,794)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Change in assets and liabilities:
Decrease (increase) in other assets (60,695) 107,570 (19,243)
Increase (decrease) in accounts payable and
accrued expenses (13,988) 127,393 67,969
Increase in amounts payable to affiliate
113,679 63,126 53,689
---------- --------- ---------
Net cash provided by operating
activities 2,988,772 2,550,443 2,144,034
---------- --------- ---------
Cash flows used in investing activities - capital
expenditures (891,340) (389,342) (310,783)
---------- --------- ---------
Cash flows from financing activities:
Principal repayments on notes payable (131,316) (116,814) (110,797)
Increase in long-term debt 153,610 -- --
Borrowings on line of credit 1,225,000 1,735,000 500,000
Repayments on line of credit (1,225,000) (1,735,000) (500,000)
Payment of loan fees -- -- (2,500)
Distributions paid (2,236,244) (1,829,017) (1,668,183)
--------- --------- ---------
Net cash used in financing
activities (2,213,950) (1,945,831) (1,781,480)
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (116,518) 215,270 51,771
Cash at beginning of year 605,100 389,830 338,059
---------- --------- --------
Cash at end of year $ 488,582 605,100 389,830
========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 572,061 583,017 607,142
========== ========= =========
Supplemental disclosure of noncash financing activities:
Distributions accrued to partners $ 35,782 544,381 413,292
Cancelation of indebtedness 452,947 -- --
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 34
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
American Retirement Villas Properties II (the Partnership) maintains its
records on the accrual method of accounting for financial reporting and
Federal and state tax purposes.
CARRYING VALUE OF REAL ESTATE
Properties are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of buildings and improvements, furniture,
fixtures and equipment, ranging from 3 to 27-1/2 years. Leasehold
property and improvements are amortized on a straight-line basis over
the lesser of the lease term or the estimated useful life of the assets.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." SFAS No. 121 requires the Partnership to adopt
the provisions of the new statement no later than fiscal 1996. SFAS 121
requires an impairment loss to be recorded as a reduction to operating
income if the sum of the expected undiscounted cash flows derived from an
asset is less than the asset's carrying value. The Partnership adopted
SFAS 121 in fiscal year 1994 without an impact to the financial
statements.
IMPOUND ACCOUNTS
Other assets includes funds held in impound accounts with the U.S.
Department of Housing and Urban Development (HUD) for payment of property
taxes, insurance and future property improvements (replacement reserves)
on certain properties with HUD financing.
LOAN FEES
Loan fees are amortized using the interest method over the term of the
notes payable and are included in other assets.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. Advance
deposits are applied to the first month's rent.
INCOME TAXES
Under provisions of the Internal Revenue Code and the California Revenue
and Taxation Code, partnerships are generally not subject to income
taxes. For tax purposes, any income or losses realized are those of the
individual partners, not the Partnership.
6
<PAGE> 35
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. The
Partnership has received an opinion of counsel as to its tax status prior
to its effectiveness for the offering of limited partnership units, but
such opinion is not binding upon the Internal Revenue Service. Following
are the Partnership's assets and liabilities as determined in accordance
with generally accepted accounting principles (GAAP) and for Federal
income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
GAAP BASIS TAX BASIS (1) GAAP BASIS TAX BASIS (1)
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Total assets $21,523,874 26,665,564 22,764,837 27,639,670
Total liabilities 8,705,018 8,666,678 9,000,198 8,905,271
</TABLE>
Following are the differences between the financial statement and tax
return income (loss):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial
statements $ 873,296 (107,472) (671,794)
Cancelation of indebtedness income
(note 8) 452,947 -- --
Depreciation differences on property (1) (636,838) (322,865) 67,565
Amortization differences on intangible
assets (1) 884,481 752,562 584,567
Other (1) (14,601) 11,824 39,781
---------- -------- ------
Taxable income (loss) per Federal
tax return (1) $1,559,285 334,049 20,119
========== ======== ======
</TABLE>
(1) Unaudited
NET LOSS PER LIMITED PARTNER UNIT
Net loss per limited partner unit was based on the weighted average
number of limited partner units outstanding of 34,995 in 1995, 1994 and
1993.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to the
1995 presentation.
7
<PAGE> 36
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
The Partnership was formed on February 9, 1988 for the purpose of
acquiring, developing and operating residential retirement facilities.
The term of the Partnership is 59 years and may be dissolved earlier
under certain circumstances.
Limited Partner units (minimum of 2 units per investor for Individual
Retirement Accounts, KEOGH'S and pension plans and 5 units for all other
investors) were offered for sale to the general public. A maximum number
of 35,000 units were offered at $1,000 per unit. The Partnership was
initially capitalized by a $1,000 contribution from a Limited Partner
and a $500 contribution from the General Partners. The Partnership
reached its maximum capitalization in October 1989, representing a total
capital investment of $35,000,000. In June 1990, the Partnership
repurchased and effectively retired 5 units for $4,600 (the balance of
unreturned initial contributions) from a Limited Partner. No additional
capital contributions will be required from any Limited Partner. Under
the Partnership Agreement, the maximum liability of the Limited Partners
is the amount of their capital contributions.
The Managing General Partner is ARV Assisted Living, Inc. (ARVAL), a
California corporation, and the individual General Partners are John A.
Booty, John S. Jason, Gary L. Davidson and Tony Rota. The individual
General Partners are shareholders of the Managing General Partner. The
General Partners are not required to make capital contributions to the
Partnership.
Profits and losses for financial and income tax reporting purposes shall
generally be allocated, other than cost recovery deductions (as defined
in the Partnership Agreement), 1% to the General Partners and 99% to the
Limited Partners. Cost recovery deductions for each year are allocated
1% to the General Partners and 99% to the Limited Partners who are
taxable investors.
Cash available for distribution from operations is to be distributed 1%
to the General Partners and 99% to the Limited Partners.
Upon any sale, refinancing or other disposition of the Partnership's
real properties, distributions will be made 1% to the General Partners
and 99% to the Limited Partners until the Limited Partners have received
an amount equal to 100% of their capital contributions plus an amount
ranging from 8% to 10% (depending upon the timing of the Limited
Partner's investment) of their capital contributions per annum,
cumulative but not compounded, from the date of each Partner's
investment. The cumulative return will be reduced, but not below zero,
by the aggregate amount of prior distributions from all sources.
Thereafter, distributions are to be 15% to the General Partners and 85%
to the Limited Partners, except that after the sale of the properties,
the proceeds of sale of any last remaining assets owned by the
Partnership shall be distributed in accordance with positive capital
account balances.
(3) TRANSACTIONS WITH AFFILIATES
The Partnership has an agreement with ARVAL providing for a property
management fee of 5% of gross revenues and a Partnership management fee
of 10% of cash flow before distribution, as defined in the Partnership
Agreement, amounting to $849,033, $800,197, $754,329 and $329,905,
$251,969, $227,719, respectively, at December 31, 1995, 1994 and 1993,
respectively.
8
<PAGE> 37
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
Payment of the Partnership management fee out of cash flow is subordinated
to a quarterly noncumulating distribution from each property to the
Limited Partners of an amount equal to an annualized return, per quarter,
of 7.5% of Capital Contributions allocated to each property.
ARVAL pays certain expenses such as repairs and maintenance, supplies,
payroll and retirement benefit expenses on behalf of the Partnership and
is subsequently reimbursed by the Partnership. The retirement benefit
expense of $27,527, $133,540 and $127,090 for the years ended December 31,
1995, 1994 and 1993, respectively, consists of contributions made to an
employee stock ownership plan (ESOP). The total reimbursements to ARVAL,
including the retirement benefit expense, are included in rental property
operations and general and administrative expenses in the accompanying
statements of operations and amounted to $5,647,746, $5,611,925 and
$5,141,800 for the years ended December 31, 1995, 1994 and 1993,
respectively.
In consideration for services rendered with respect to property
acquisitions, the Managing General Partner was paid an investment advisory
fee of a maximum of 2% of the gross offering proceeds. In addition, the
Managing General Partner was entitled to a development and processing fee
of a maximum of 5.5% of gross offering proceeds allocated to a particular
project. Investment advisory and development and processing fees were
capitalized to properties to the extent that gross offering proceeds were
allocated to the respective properties acquired.
Amounts payable to affiliate at December 31, 1995 and 1994 includes
expense reimbursements and accrued property management and partnership
management fees.
(4) PROPERTIES
COVINA VILLA
In October 1988, the Partnership purchased Covina Villa, an existing
assisted living facility in Covina, California. In conjunction with the
acquisition, the Partnership assumed a ground lease, expiring in 2037,
covering the land on which the facility is built. Pledged as collateral
for the ground lease is a security interest in the facility property and
in all furniture, fixtures and equipment which the Partnership places in
the facility. Rent expense under the ground lease for 1995, 1994 and 1993
was $102,570, $114,540 and $82,871, respectively.
RETIREMENT INNS OF AMERICA
In April 1989, the Partnership acquired the operations of eight existing
assisted living facilities located throughout California from Retirement
Inns of America, Inc. As part of the purchase agreement, the Partnership
acquired certain assets and assumed certain liabilities relating to the
operations of the facilities. The Partnership purchased three of the
facilities and assumed a tenant's position under long-term operating
leases for the other five facilities. Rent expense under the operating
leases for 1995, 1994 and 1993 was $1,070,614, $1,060,874 and $1,072,436,
respectively. The expiration dates for the leases range from August 1995
to November 1997 and have options to extend for two additional ten-year
terms.
MONTEGO HEIGHTS
In November 1989, the Partnership purchased Montego Heights, an existing
assisted living facility and related assets in Walnut Creek, California.
9
<PAGE> 38
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
Future minimum lease payments under all ground and facility leases which
are treated as operating leases are as follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
PAYMENTS
-----------
<S> <C>
Year ending December 31:
1996 $ 1,145,933
1997 903,497
1998 556,141
1999 556,141
2000 556,141
Thereafter 5,998,636
----------
$ 9,716,489
==========
</TABLE>
Pursuant to the Partnership agreement, the expiration of the minimum
holding period (5-7 years) is approaching. The Managing General Partner is
beginning to explore potential disposition strategies for the
Partnership's assets.
(5) NOTES PAYABLE
At December 31, 1995 and 1994, notes payable included the following:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
HUD financed note payable, bearing interest
at 7.5%; monthly principal and interest
payments of $26,171; due August 1, 2018;
secured by deed of trust on the Montego
Heights property. $ 3,418,404 3,473,805
HUD financed note payable, bearing interest
at 8.25%; monthly principal and interest
payments of $23,468; due November 1, 2016;
secured by deed of trust on the Valley View
Lodge property. 2,802,113 2,850,371
Notepayable to bank, secured by deed of trust
on the Fullerton property, bearing interest
at 1% in excess of the bank's prime rate
(8.5% at December 31, 1995); monthly
principal payments of $1,333 plus interest;
all unpaid principal and interest is due on
December 1, 1996. 337,333 353,333
</TABLE>
10
<PAGE> 39
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Revolving line of credit (maximum $500,000),
guaranteed by the General Partners, bearing
interest at 1.25% in excess of the bank's
prime rate (8.5% at December 31, 1995). The
revolving line of credit expires on January
15, 1996. The line was extended through
October 15, 1996. $ 500,000 500,000
Various notes payable, bearing interest at
rates from 8.67% to 10.39%, payable in
monthly principal and interest installments;
all unpaid principal and interest due on or
before November 15, 2000; secured by
equipment. 153,610 --
Notepayable, bearing interest at 10.25%,
payable in monthly principal and interest
installments of $537; all unpaid principal
and interest was paid September 29, 1995. -- 11,657
----------- ---------
$7,211,460 7,189,166
=========== ==========
</TABLE>
The annual principal payments of the notes payable are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996 $ 984,430
1997 155,910
1998 169,451
1999 180,417
2000 160,229
Thereafter 5,561,023
----------
$7,211,460
==========
</TABLE>
The Partnership's revolving line of credit was paid off in January 1996.
(6) ESOP
ARVAL offers an Employee Stock Ownership Plan (ESOP) to all eligible
employees which includes the employees of the Partnership. The amount of
stock contributed annually to the ESOP is at the discretion of ARVAL.
During 1994 and 1993, ARVAL's Board of Directors declared a contribution
that approximated 3% of each employee's payroll expense. During 1995,
ARVAL's Board of Directors declared a contribution in only the first
quarter of the year and that contribution approximated 3% of each
employee's payroll expense. The Partnership's expense was $27,527,
$133,540 and $127,090 for the ESOP (as a reimbursement to ARVAL) in 1995,
1994 and 1993, respectively.
11
<PAGE> 40
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
(7) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair
Value of Financial Instruments." The estimated fair value amounts have
been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts that could be realized in a current market exchange. The
use of different market assumptions or estimation methodologies may have a
material impact on the estimated fair value amounts.
Fair value information related to financial instruments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
FINANCIAL INSTRUMENT BOOK VALUE FAIR VALUE
-------------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash $ 489 489
Notes payable 7,211 6,464
</TABLE>
CASH
The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated interest
rate or credit concerns.
NOTES PAYABLE
For notes payable with variable interest rates, fair value is the amount
reported as payable in the financial statements. For notes payable with
fixed rates of interest, fair value is estimated using the rates currently
offered for bank borrowings with similar terms.
(8) CANCELATION OF INDEBTEDNESS
On March 31, 1995, ARVAL, the Managing General Partner of the Partnership,
decided to cancel indebtedness owed to it by the Partnership in the amount
of $452,947. This indebtedness related to accrued Partnership management
fees accumulated in prior years. As discussed at note 3, the Partnership
agreement provides that the payment of a Partnership management fee is
subordinate to a quarterly noncumulating distribution from each property
to the Limited Partners of an amount equal to an annualized return, per
quarter, of 7.5% of capital contributions allocated to each property.
ARVAL canceled the indebtedness as collection appeared unlikely.
12
<PAGE> 41
Schedule III
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Real Estate and Related Accumulated Depreciation and Amortization
December 31, 1995
<TABLE>
<CAPTION>
INITIAL COST
-------------------------------------- COSTS
BUILDINGS LEASEHOLD CAPITALIZED
AND PROPERTY AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS ACQUISITION
- ---------------- ------------ --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Covina Villa $ 3,630 -- 1,850,000 -- 498,908
Retirement Inns:
Burlingame 29,636 -- -- 937,724 509,411
Campbell -- -- -- 814,059 402,482
Daly City 29,636 500,000 1,179,185 -- 519,032
Fremont 29,636 -- -- 566,727 356,588
Fullerton 337,333 500,000 981,583 -- 612,758
Willow Glen 29,636 -- -- 1,011,390 434,473
Sunnyvale 16,068 -- -- 1,431,320 951,682
Valley View 2,817,496 1,000,000 4,017,624 -- 975,959
Montego Heights 3,418,404 900,000 7,800,000 -- 1,323,740
---------- --------- ---------- --------- ----------
$6,711,475 2,900,000 15,828,392 4,761,220 6,585,033
========== ========= ========== ========= ==========
<CAPTION>
GROSS AMOUNT
------------------------------------------------
LEASEHOLD DEPRECIABLE
BUILDINGS AND PROPERTY AND ACCUMULATED DATE OF LIVES
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS TOTAL(1) DEPRECIATION ACQUISITION (YEARS)
- ---------------- ------- ------------- ------------ --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Covina Villa -- 2,348,908 -- 2,348,908 613,180 10/88 27.5
Retirement Inns:
Burlingame -- -- 1,447,135 1,447,135 1,095,606 4/89 8.5(2)
Campbell -- -- 1,216,541 1,216,541 1,212,883 4/89 6.3(2)
Daly City 500,000 1,698,217 -- 2,198,217 472,548 4/89 27.5
Fremont -- -- 923,315 923,315 789,420 4/89 7.8(2)
Fullerton 500,000 1,594,341 -- 2,094,341 388,459 4/89 27.5
Willow Glen -- -- 1,445,863 1,445,863 1,132,021 4/89 8.7(2)
Sunnyvale -- -- 2,383,002 2,383,002 2,305,024 4/89 7.0(2)
Valley View 1,000,000 4,993,583 -- 5,993,583 1,190,106 4/89 27.5
Montego Heights 902,684 9,123,740 -- 10,026,424 1,970,510 11/89 27.5
--------- ---------- --------- ---------- ----------
2,902,684 19,758,789 7,415,856 30,077,329 11,169,757
========= ========== ========= ========== ==========
</TABLE>
Following is a summary of investment in properties for the years ended December
31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $29,797,742 29,660,641 29,621,332
Improvements 279,587 137,101 39,309
----------- ---------- ----------
Balance at end of year $30,077,329 29,797,742 29,660,641
=========== ========== ==========
</TABLE>
Following is a summary of accumulated depreciation and amortization of
investment in properties for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 9,461,040 7,723,848 6,013,365
Additions charged to expense 1,708,717 1,737,192 1,710,483
----------- --------- ---------
Balance at end of year $11,169,757 9,461,040 7,723,848
=========== ========= =========
</TABLE>
(1) Aggregate cost for Federal income tax purposes is $30,954,179 at December
31, 1995.
(2) Leasehold property and improvements are amortized over remaining terms of
ground leases, which are shorter than the estimated useful lives.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 488,582
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 488,582
<PP&E> 31,878,727
<DEPRECIATION> 12,033,294
<TOTAL-ASSETS> 21,523,874
<CURRENT-LIABILITIES> 1,493,558
<BONDS> 7,211,460
0
0
<COMMON> 0
<OTHER-SE> 12,818,856
<TOTAL-LIABILITY-AND-EQUITY> 21,523,874
<SALES> 0
<TOTAL-REVENUES> 16,982,297
<CGS> 0
<TOTAL-COSTS> 15,536,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 572,061
<INCOME-PRETAX> 873,296
<INCOME-TAX> 0
<INCOME-CONTINUING> 873,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 873,296
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
