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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(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, 1994
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, 1995, 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, invest in, own and operate residential retirement
facilities. The Registrant operates ten facilities, all of which are located in
California. The General Partners made all decisions concerning property
acquisitions and will make all decisions concerning dispositions of the
facilities. 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, investment in, ownership and operation of residential
retirement facilities.
NARRATIVE DESCRIPTION OF BUSINESS.
To understand the business done and intended to be done by the
Registrant, it is first necessary to understand the market for potential
residents.
As the average life span increases and more people live longer, the
number of senior citizens continues to grow. As quoted in the 1994 Orange County
Services Directory, the U.S. Census Bureau's statistics show that worldwide, the
number of people over 65 now increases by 800,000 per month and predict that, by
2010, the rate of increase will be 1,100,000 per month. Housing alternatives for
healthy senior citizens include residing as a senior member of a family, with a
relative, a friend, in a home or apartment, a boarding house, or a retirement
facility. The General Partners believe, based on their experience, that a
housing market exists for the senior citizen who wishes to rent a private room
or suite in a facility which provides food service, housekeeping and other
amenities which ease the daily burdens of such tasks as shopping, cooking and
cleaning. The General Partners are of the opinion that this market will continue
to grow.
Residents rent on a month-to-month basis and for one monthly rate
receive all meals, mail service, linens and laundry. The staff provides services
and security on a 24-hour basis. In addition, certain services ("Assisted
Living") are provided to residents in need of additional care such as bathing,
grooming and assisting with the self administration of medication. Higher
monthly rents are charged for such Assisted Living services. Neither medical
treatment nor facilities, however, are provided. Each project is designed to
cater to the needs of the individuals who are ambulatory, in relative good
health and without need of specialized or continuing medical attention.
Each of the Registrant's ten facilities was designed to fit its
particular site and marketplace. Also, certain common characteristics exist.
Each facility devotes approximately 40% of its space to common areas such as
recreation rooms, dining rooms, hallways, and kitchen facilities. The kitchens
are fully equipped to serve three meals a day and snacks to all residents.
Individual rooms consist of a suite containing a bathroom and sleeping and
sitting area. The buildings are set in garden settings, including patios and
other outdoor areas for resident use.
A key ingredient to the Registrant's business is obtaining and
retaining competent on-site management. While the Registrant has established
procedures and operating manuals, obtaining and maintaining competent on-site
management remains a constant challenge.
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There are no specific limits on the amount of long term financing which
might be employed on any specific facility or all of the Registrant's
facilities, collectively, except for the fact that no loan may be in an amount
which is in excess of 70% of a facility's appraised value. The Registrant owns
some of the facilities outright and has leased others. 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 debt is in connection with
projects acquired subject to HUD (United States Department of Housing and Urban
Development) insured financing. The Registrant operates the HUD insured projects
as assisted living complexes providing rental, food service, daily housekeeping,
and assisted living services to senior citizen residents without HUD rental
support programs. 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.
The Registrant was initially capitalized at $35,000,000 and the amount
of debt to which the Registrant is subject totals approximately $7,189,000 at
December 31, 1994, evidencing that the Registrant has adhered to its general
policy of low leverage.
Within a particular geographic location, residential retirement
facilities compete principally on the basis of the quality of the housing, food,
recreational activities, resident assistance and other items which make up the
American Retirement Villas package. 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, Assisted Living facilities, apartments, and to a
lesser extent, single family homes, compete with residential retirement
facilities. The General Partners believe that there is a demand for high quality
residential retirement facilities. They foresee future demand to continue to be
high in relation to supply.
The personnel working at each facility are all employed by ARV
Management, Inc., a wholly owned subsidiary of the corporate managing general
partner. The 10 facilities employ 347 employees.
Although the expiration of the minimum holding period (five to seven
years) is approaching, there is no definite plan to sell any facility in
accordance with a timetable. Any determination regarding sale will be dependent
upon the current and projected operating performance, the needs of the
Registrant, the availability of buyers and buyers' financing and, in general,
the relative merits of continued operation as opposed to sale. On any sale, the
Registrant may accept purchase money obligations secured by mortgages as part
payment, depending upon then prevailing economic conditions that are 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 leases 10 separate operating facilities, all of
which were acquired from unaffiliated sellers. Two of the facilities (the
improvements and a leasehold 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 holds a long term ground lease on each of the other five (See
descriptions below).
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.
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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 ground lease expiring in 2037. Ground
rental for 1994 was approximately $114,500 and the lease contains cost of living
increases. The furniture, fixtures, and equipment are pledged as collateral
security for the ground lease. The leasehold interest in the facility is not
subject to any loan secured by a deed of trust. The average occupancy rate
during 1994 was 71% and the average rental rate was $1,331. At March 12, 1995,
53 of its 64 units were occupied for an occupancy rate of 83%.
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 major highways to which the
facility has close access are 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 residents' garden. The average occupancy rate during 1994 was 84% and
the average rental rate was $1,406. At March 12, 1995, 156 of the facility's 170
units were occupied for an occupancy rate of 92%.
The land and buildings are subject to a loan with an unpaid principal
balance of $3,473,805 at December 31, 1994. 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, beauty shop, a general store and a private dining room. The site is within
one mile of a major freeway and
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is served by fire protection, emergency health care and other community
services. The average occupancy rate during 1994 was 87% and the average rental
rate was $1,169. At March 12, 1995, 86 of the 95 units were occupied for an
occupancy rate of 91%.
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, within two miles of two major freeways, and is
served by fire protection, emergency health care and other community services.
The average occupancy rate during 1994 was 90% and the average rental rate was
$1,279. At March 12, 1995, 66 of the 68 units were occupied for an occupancy
rate of 97%.
The land and buildings are subject to a loan with an unpaid principal
balance of $353,333 at December 31, 1994. The loan bears interest at 1% in
excess of the bank's prime rate of 8.5% at December 31, 1994, 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, within one mile of a major freeway, and is served by fire protection,
emergency health care and other community services. The average occupancy rate
during 1994 was 97% and the average rental rate was $1,704. At March 12, 1995,
122 of the 125 units were occupied for an occupancy rate of 98%.
The land and buildings related to the Valley View property are subject
to a loan with an unpaid principal balance of $2,850,371 at December 31, 1994.
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 ground leases for each of
these 5 facilities. Each lessor is a limited partnership unrelated to any
General Partner or Affiliate of the Registrant. Fee title to the land under 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 1/2 acre site at
250 Myrtle Road, Burlingame, in a well maintained residential neighborhood. The
site is two miles from San Francisco International Airport, within one mile of
two major freeways and is served by fire protection, emergency health care and
other community services. The average occupancy rate during 1994 was 91% and the
average rental rate was $1,467. At March 12, 1995, 68 of the 68 units were
occupied for an occupancy rate of 100%.
The initial lease term expires August 26, 1997. The Registrant holds
the option to renew for two 10 year periods and intends to exercise the option
for both periods. Monthly rent is $18,200 and the lease does not contain any
cost of living or other escalation clauses. Ground rental for 1994 was
approximately $218,400.
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, within three miles of two major freeways and is
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served by fire protection, emergency health care and other community services.
The average occupancy rate during 1994 was 94% and the average rental rate was
$1,305. At March 12 , 1995, 69 of the 72 units were occupied for an occupancy
rate of 96%.
The initial lease term expires August of 1995. The Registrant holds the
option to renew for two 10 year periods and intends to exercise the option for
both periods. Monthly rent is $12,670 and the lease does not contain any cost of
living or other escalation clauses. Ground rental for 1994 was approximately
$152,000.
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 rate during 1994 was 91% and the average
rental rate was $1,312. At March 12, 1995, 67 of the 70 units were occupied for
an occupancy rate of 96%.
The initial lease term expires January of 1997. The Registrant holds
the option to renew for two 10 year periods and intends to exercise this option
for both periods. Monthly rent is $13,891 and the lease does not contain any
cost of living or other escalation clauses. Ground rental for 1994 was
approximately $166,700.
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 rate during 1994 was 96% and the average rental rate was
$1,364. At March 12, 1995, 116 of the 123 units were occupied for an occupancy
rate of 94%.
The initial lease term expires March of 1996. The Registrant holds the
option to renew for two 10 year periods and intends to exercise this option for
both periods. Monthly rent is $25,165 and the lease does not contain any cost of
living or other escalation clauses. Ground rental for 1994 was approximately
$302,000.
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 rate during 1994 was 97% and the average rental rate was $1,368. At
March 12, 1995, 84 of the 84 units were occupied for an occupancy rate of 100%.
The initial lease term expires in November 1997. The Registrant holds
the option to renew for two 10 year periods and intends to exercise this option
for both periods. Monthly rent, which is fixed for the balance of the 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 1994
approximated $1,350 per month, and this amount is not expected to materially
increase over the term of the lease. Mortgage insurance premium is approximately
$720 per month in 1994. Approximately $9,000 was paid in 1994 for mortgage
insurance premiums in conjunction with the change in lenders. Ground rental for
1994 was approximately $221,700.
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COMPETITION/MARKETING DATA
The U.S. Census Bureau reports that 10.6 of the California population
is over 65 years of age, and projects an 8% annual increase in the assisted
living population. Census projections for 1994 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 facilities are 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 site. 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 site, contains approximately
1,504,000 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.
Assuming 10.6% of the population is over 65 and that a minimum of 13%
of that constitutes the primary residential care market, there are currently
20,700 potential residents in the target market areas. In Market Area 1 there
are six facilities now offering similar services and features. These six have a
combined total of 583 units potentially housing 850 residents. The Retirement
Inn of Daly City and the Retirement Inn of Burlingame bring the total present
capacity in Market Area 1 to 1,500 seniors that can be housed in this fashion,
or about 20% saturation of the target market. While the General Partners'
experience reveals that 25 to 33% of units are rented by persons who come from
outside the primary area, this addition to market size is offset partially by
indirect competition from small board and care homes, minimum service senior
apartments and life care facilities. These smaller housing categories are not
included in the figures.
2. GREATER SAN JOSE
Three facilities are in Market Area 2: the Retirement Inn of Sunnyvale,
the Retirement Inn of Campbell, and the Inn at Willow Glen are within 15 miles
of each other. The cities of Sunnyvale, Palo Alto, Los Altos, Mountain View,
Cupertino and Santa Clara comprise the primary market area for the Sunnyvale
site. The Campbell and Willow Glen properties, 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
1,810,800 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 percent of the population is over 65, and that a minimum
of 13% of this population constitutes the primary residential care market,
Market Area 2 provides nearly 25,000 potential residents. In Market Area 2 there
are currently nine facilities now offering services and features similar to the
subject properties. These facilities have a combined total of 1,900 units
potentially housing, approximately 3,000 residents, or about 26% saturation of
the target market. In the General Partners experience, 25 to 33% of the resident
population of a facility of this type will come from outside the primary market.
However, this addition to
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the market size is partially offset by indirect competition from small board and
care homes, minimum service senior apartments, and life care facilities that
include a nursing component.
In addition to the residential retirement facilities, there are 966
units available in this market Area 2 as life or assisted care accommodations.
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 sites 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.
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 800,000 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 population constitutes the primary residential care market,
Market Area 3 provides approximately 11,000 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 31% saturation of the market.
The total number of units available in the Walnut Creek/Concord area,
including Montego Heights Lodge and Valley View Lodge, are approximately 1,190,
or about 44% market saturation. The General Partners' experience reveals that 25
to 33% of units are rented by persons who come from outside the primary market
area. Nevertheless, this addition to market size is partially offset by indirect
competition from small board and care homes, minimum service senior apartments
and life care communities.
4. FULLERTON - ORANGE COUNTY
One facility is in Market Area 4: the Retirement Inn of Fullerton.
Market Area 4 contains approximately 442,000 people. Assuming that
10.6% of the population is over 65 and that a minimum of 13% of this population
constitutes the primary residential care market, there are approximately 6,000
potential residents in the primary area served by 12 facilities including the
Retirement Inn of Fullerton. These facilities offer similar features and
services. Competitive sites total 1,443 living units potentially housing 1,650
residents or about 35% market saturation. In the Registrant's experience, the
market may be expanded 25 to 33% due to units rented by residents coming from
outside the primary area. Market saturation is also increased by indirect
competition from small board and care homes, minimum service senior apartments,
and life care communities offering a continuum of care including medical
services. There are several of the latter type within the defined market not
included in the figures of available units. ARV Housing Group, Inc., a
California corporation ("ARVHG") (formerly American Retirement Villas
Corporation) manages and has a General Partner's interest in three similar
facilities located within the market area.
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The 11 competing facilities are:
Canyon Hills, Anaheim Hills. Upscale 195 unit facility. Similar prices
and services. Difficult to find location. Fringe of market area. Operating at
90% of capacity.
Acacia Villa, Fullerton. Operated by ARVHG. 66 unit licensed facility.
Operating at 92% of capacity at March 12, 1995.
Emerald Court, Anaheim. 178 unit facility (30 licensed residential care
units and 148 unlicensed units). Fewer services at higher rates. 90% occupied.
Goldstar Manor, Fullerton. 73 unit licensed facility specializing in
care for residents on government subsidy. 78% occupied.
La Palma Royale, Anaheim. 130 unit facility with operating plans
similar to Goldstar Manor. 90% occupied.
Nohl Ranch Inn. 133 unit unlicensed facility near Canyon Hills. Fewer
services than Bradford Square. Operating at 78% of capacity with Assisted Living
offered.
Villa De Palma, Placentia. 111 unit licensed facility operated by
ARVHG. 91% occupied at March 12, 1995.
West Anaheim Royale, Anaheim. 100 unit licensed facility appealing to
lower income residents and offering more care. Operating at 85% of occupancy.
Bradford Square, Fullerton. 92 unit licensed facility operated by
ARVHG. 95% occupied at March 12, 1995.
Sunnycrest Chalet, Fullerton. 130 units licensed facility 6 years old.
90% occupied. Offers Assisted Living.
Park Plaza, Orange. 99 unit facility. Features Assisted Living and
light assistance. Occupancy percentage not available.
5. COVINA
One facility is in Market Area 5: Covina Villa.
Market Area 5 contains approximately 244,000 people. Assuming 10.6% of
the population is over 65, and that a minimum of 13% of this population
constitutes the primary residential care market, there are approximately 3,400
potential residents in the market area. Currently there are four facilities
offering services and features similar to Covina Villa. These facilities have a
combined total of 495 units that may house 800 residents - about 24.5%
saturation of the target market. In addition, the General Partners' experience
reveals that 25% to 33% of units are rented by persons who come from outside the
primary area, thus adding to the potential market base.
The four competing facilities are:
Country Villa. About 3 miles from Covina Villa, this licensed facility
offers prices and services comparable to Covina Villa. The building is over 10
years old and operates at or near resident capacity of 85.
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Bridge Creek. Five miles from Covina Villa, this unlicensed facility is
operated as a hotel offering few personal services to residents. Rental rates
are comparable to Covina Villa. This facility operates at or near resident
capacity of 125.
San Dimas Retirement Center. About 9 miles from Covina Villa, this
facility caters to those on government assistance programs and those in need of
Assisted Living. Pricing is comparable to Covina Villa with less desirable
building and grounds and amenities. This facility operates at or near its
resident capacity of approximately 450 people.
Rancho Park Villa. Rancho Park Villa is owned by American Retirement
Villas Properties, an affiliate partnership managed by this Registrant's General
Partners. Because it is on the fringe of the market area approximately 8 miles
from Covina Villa, the General Partners believe that management economies are
realized while direct competition for potential residents has been minimal. This
facility is currently operating at 82% of its resident capacity of approximately
160 people.
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 affect on the Registrant's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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.
As of March 1, 1995, there were approximately 3,526 Unitholders of
record owning 35,019.88 Units. For the years ended December 31, 1994 and 1993,
the Registrant made distributions of $55.90 per Unit and $47.50 per Unit
respectively, all of which represented a return of capital to the Unitholders.
10
<PAGE> 12
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>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $ 16,002,758 $ 15,084,584 $ 14,106,400 $ 13,044,494 $ 11,656,607
Net Loss (107,471) (671,794) (773,246) (1,856,734) (1,332,025)
Net Loss
per weighted average
Limited Partner units
outstanding (3.04) (19.00) (21.87) (52.53) (37.68)
Total Assets 22,764,837 24,627,621 26,956,737 29,574,874 32,675,529
Partners' Capital 13,764,639 15,832,217 18,184,070 20,916,769 25,010,280
Notes Payable 7,189,166 7,305,980 7,416,777 7,415,662 6,666,476
Distributions Per $ 55.45 $ 47.53 $ 55.43 $ 63.28 $ 57.49
weighted average
Limited Partner units
outstanding
</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 1994, net cash provided by operating activities was
approximately $2,493,000. If needed, the Registrant believes it can obtain
additional short term working capital loans from lenders at prevailing market
interest rates. Moreover, to provide additional liquidity, the General Partners
could decide to cause the Registrant to refinance or sell one or more of its
facilities or reduce distributions. In any such event, the Registrant could
reasonably expect to receive a significant amount of net proceeds after the
repayment of any debt. Registrant's liquidity should improve during the
succeeding years as rents are anticipated to increase at a greater rate than
operating expenses while debt service remains fixed.
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.
11
<PAGE> 13
CAPITAL RESOURCES.
Registrant contemplates spending approximately $384,000 for capital
expenditures during 1995 for physical improvements at its 10 facilities. 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, 1994, 1993 and 1992, includes
rental income and Assisted Living revenue from 10 facilities, interest earned on
cash balances and other revenue. In 1994 and 1993 the Registrant's rental
revenues increased over prior years due to higher aggregate occupancy levels and
rental rates. Rental income increased by 4% from 1993 to 1994 and by 4% from
1992 to 1993. The Registrant also increased revenues from its Assisted Living
program over prior years due to its aggressive marketing of the Assisted Living
services and the resulting increase in the number of residents using the
program. Assisted Living income increased by 32% from 1993 to 1994 and by 51%
from 1992 to 1993.
Interest income decreased by 7% from 1993 to 1994 and by 31% from 1992
to 1993. Interest rates were lowered by the Federal Reserve Board in 1992, 1993
and 1994. Fluctuating interest rates, influenced by Federal Reserve Board
monetary policy and federal budget deficits, may also have an impact on future
interest income earned by the Registrant.
Other revenue increased by 11% from 1993 to 1994 and increased by 2%
from 1992 to 1993. Other revenue generally includes processing fees, beauty shop
revenue and guest meals. The increase is attributable to higher aggregate
occupancy rates in 1994.
Total revenue increased by 6% from 1993 to 1994 and by 7% from 1992 to
1993.
Sources of revenue for the years ended December 31, 1994, 1993 and 1992
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Rent $14,055,979 $13,578,122 $13,036,104
Assisted Living 1,728,953 1,307,323 867,583
Interest 14,577 15,704 22,687
Other 203,248 183,435 180,026
----------- ----------- -----------
Total Revenue $16,002,757 $15,084,584 $14,106,400
=========== =========== ===========
</TABLE>
Rental property operating expenses are comprised of, but not limited
to, property management costs, payroll related expenses, utilities, food costs
and activities expense. Rental property operations increased by 7% from 1993 to
1994 and by 7% from 1992 to 1993. The increase in rental property operating
expenses is primarily due to increased aggregate occupancy levels and the
increase of certain payroll expenses.
Assisted Living expenses increased by 30% from 1993 to 1994 and by 37%
from 1992 to 1993. Assisted Living expenses increased as a result of the
increase in the related staff providing Assisted
12
<PAGE> 14
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 decreased by 4% from 1993 to 1994 and increased 3% from
1992 to 1993. The decrease in 1994 was primarily due to the elimination of
marketing commissions by the Registrant.
Depreciation and amortization expense decreased by 13% from 1993 to
1994 and increased by 1% from 1992 to 1993. Depreciation and amortization
decreased in 1994 due to a portion of fixed assets becoming fully depreciated.
Property taxes decreased by 19% from 1993 to 1994 and increased by 3%
from 1992 to 1993. The decrease is due to a lower property tax assessment in
1994.
Interest expense decreased by 4% from 1993 to 1994 and increased by 7%
from 1992 to 1993. Interest expense for 1993 was higher than 1992's expense due
to higher interest rates on two of the Registrant's loans. In 1994 interest
expense decreased due to a lower line of credit balance.
Selected costs and expenses for the years ended December 31, 1994, 1993 and 1992
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Rental Property
Operations $10,001,328 $9,326,559 $8,706,574
Assisted Living 748,148 577,606 420,187
General and
Administrative 695,970 725,814 707,148
Ground Leases 1,175,414 1,155,307 1,147,426
Depreciation
and
Amortization 2,359,826 2,713,413 2,683,267
Property Taxes 434,178 533,019 516,073
Interest 583,017 606,699 567,589
</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.
(iii) The Registrant's ability to maintain adequate working capital.
13
<PAGE> 15
(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.
14
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
15
<PAGE> 17
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
THE GENERAL PARTNERS. John A. Booty, Gary L. Davidson, John S. Jason,
Tony Rota, and ARVHG are the General Partners of the Partnership. ARVHG is the
Managing General Partner.
JOHN A. BOOTY. Mr. Booty, age 56, 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 ARVHG. Mr. Booty serves as a
Director and President of ARVHG.
G. BRIAN CHRISTIE. Mr. Christie, age 48, an attorney, received his
Bachelor's Degree from Calvary Bible College in 1971, his Master of Theology
Degree from Dallas Theological Seminary in 1975 and his Doctor of Jurisprudence
from the University of Texas in 1979. He began his legal career with Brown,
McCarroll, Oaks, & Hartline, the largest law firm in Austin, Texas, and then
formed his own law firm concentrating primarily on real estate, banking,
corporate and securities law. Mr. Christie was most recently a partner with
Good, Wildman, Hegness & Walley in Newport Beach, California and is licensed to
practice in both California and Texas. Mr. Christie oversees all the legal work
of the ARVHG and spends his time primarily on the structuring of real estate,
securities and capital transactions. He serves as Executive Vice President and
General Counsel of ARVHG.
DAVID P. COLLINS. Mr. Collins, age 57, received his Bachelor's Degree
from St. Anselm College, Manchester, New Hampshire in 1960. In 1982, he was
first associated with the ARVHG. 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 ARVHG and
President of ARV Capital Corporation.
GARY L. DAVIDSON. Mr. Davidson, age 60, 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 ARVHG. Mr. Davidson serves as a Director
and Chairman of the Board of ARVHG.
29
<PAGE> 18
GRAHAM P. ESPLEY-JONES. Mr. Espley-Jones, age 35, 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
serves as Secretary and Chief Financial Officer of ARVHG.
JOHN S. JASON, 59, 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 ARVHG. In February, 1993 Mr. Jason retired from active service
with ARVHG and retired from his positions as a Director and as Executive Vice
President of ARVHG. Mr. Jason is currently retired and is not gainfully
employed.
TONY ROTA, 66, 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 ARVHG. In November, 1992 Mr. Rota retired
from active service with ARVHG and retired from his positions as a Director and
as Vice President of ARVHG. Mr. Rota is currently retired and is not gainfully
employed.
THEODORE D. KONOPISOS. Mr. Konopisos, 48, received his Bachelor's
Degree from San Diego State University. During his 14 years at Arnel Management
and Arnel Development, he was responsible for the overall management and
development of multi-family residential and commercial properties. Prior to
joining the Company in 1994, he served as president of his own firm which
acquired, developed and managed real estate assets, and was a consultant to
various companies specializing in managing large multi-family apartment
complexes. Mr. Konopisos serves as Executive Vice President of ARVHG.
RICHARD H. TOURTELOT. Mr. Tourtelot, age 56, is a graduate of the
University of Santa Clara, where he earned a Bachelor of Science Degree in
Economics, and he also did graduate work in Business Administration at U.C.L.A.
Prior to joining ARVHG, Mr. Tourtelot served most recently as marketing director
for a nationally known sponsor of tax credit real estate projects. Previously,
he served in executive capacities with a number of real estate development and
syndication firms, including Brim, Inc. Angeles Real Estate Corp. and California
Diversified Properties. He also served as president of his own firm, Tourtelot
Development. Mr. Tourtelot joined ARVHG in 1992 and serves as Executive Vice
President.
30
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the General Partners.
Property Management Fees A property management fee of
(ARV Housing Group, Inc. 5% of gross revenue is paid
Formerly American Retirement Villas for managerial services
Corporation) 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, 1994 the property
management fee amounted to
$800,197.
Partnership Management Fees A fixed Partnership management
(ARV Housing Group, Inc.) 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, coordination
of legal, audit, tax, and
insurance matters. At December
31, 1994 the Partnership
management fee amounted to
$251,969.
Sale of Partnership Projects (General The Limited Partnership
Partners) Agreement neither permits nor
prohibits payment or
compensation 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, 1994
no real estate commissions
were received.
Subordinated Incentive Compensation 15% of Proceeds of Sale or
(ARV Housing Group, Inc.) Refinancing subordinated to a
return of Initial Capital
Contributions plus a 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.
Reimbursed Expenses All Partnership expenses are
(General Partners) 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 will be
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.
SEE FOOTNOTE 3 OF NOTES TO FINANCIAL STATEMENTS (TRANSACTIONS WITH AFFILIATES).
31
<PAGE> 20
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 Partnership-owned
facilities compete, or are in a position to compete for residents, general
managers or key employees with retirement facilities ("Villas") 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.
The personnel working at each facility are employed by ARV Management,
Inc., a wholly owned subsidiary of the Registrant's managing partner, ARVHG.
ARVHG pays payroll and retirement benefit expenses on 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, ARVHG approved an ESOP to enable all eligible employees of ARVHG and
its affiliates to own common stock in ARVHG.
Further conflicts may exist if and to the extent that other owners of
Villas 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.
32
<PAGE> 21
<PAGE> 22
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 ALL OF THE DIRECTORS OF ARV HOUSING GROUP, INC.("ARVHG"),
MANAGING GENERAL PARTNER
/s/ JOHN A. BOOTY
- ------------------------------------------------------------------
By: John A. Booty, President and Director
/s/ GARY L. DAVIDSON
- ------------------------------------------------------------------
By: Gary L. Davidson, Chairman of the Board and Director
/s/ GRAHAM P. ESPLEY-JONES
- ------------------------------------------------------------------
By: Graham P. Espley-Jones, Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons, constituting the Directors of
the Managing General Partner, 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 January 29, 1996
John A. Booty Director, ARVHG
/s/ GARY L. DAVIDSON
- ----------------------------- Chairman of the Board January 29, 1996
Gary L. Davidson and Director, ARVHG
/s/ GRAHAM P. ESPLEY-JONES
- ----------------------------- Chief Financial Officer January 29, 1996
Graham P. Espley-Jones and Secretary, ARVHG
</TABLE>
33
