<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ___________
COMMISSION FILE NUMBER: 0-26468
AMERICAN RETIREMENT VILLAS PROPERTIES II
(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, D-1 92626
COSTA MESA, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7500
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
--- ---
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties II
(a California limited partnership)
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(unaudited) (Audited)
-------------- -----------------
<S> <C> <C>
ASSETS
Properties, at cost (notes 3,4 and 5)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,902,684 $ 2,902,684
Buildings and improvements, less accumulated depreciation of
$5,570,491 in 1996 and $5,361,962 in 1995 . . . . . . . . . . 15,049,473 15,179,456
Leasehold property and improvements, less accumulated
amortization of $5,984,429 in 1996 and $5,807,795 in 1995 . . 578,599 825,432
Furniture, fixtures and equipment, less accumulated
depreciation of $1,037,746 in 1996 and $1,108,392 in 1995 . . 903,303 937,861
----------- -----------
Net Properties . . . . . . . . . . . . . . . . . . 19,434,059 19,845,433
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,935 488,582
Loan fees, less accumulated amortization of $9,524 in 1995 and
$9,119 in 1995 . . . . . . . . . . . . . . . . . . . . . . . 1,080 1,486
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,302,075 1,188,373
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $21,058,149 $21,523,874
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes Payable (note 5) . . . . . . . . . . . . . . . . . . . $ 6,847,192 $ 7,211,460
Accounts payable and accrued expenses . . . . . . . . . . . . 869,690 758,240
Amounts payable to affiliates (note 3) . . . . . . . . . . . 165,094 155,155
Distributions payable to partners . . . . . . . . . . . . . . 566,602 580,163
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . 8,448,578 8,705,018
----------- -----------
Partners' capital
General partners' capital . . . . . . . . . . . . . . . . . 274,006 276,099
Limited partners' capital, 34,995 units outstanding . . . . 12,335,565 12,542,757
----------- -----------
Total liabilities and partners' capital . . . . . . $21,058,149 $21,523,874
=========== ===========
</TABLE>
See accompanying notes to financial statements (unaudited).
1
<PAGE> 3
American Retirement Villas Properties II
(a California limited partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,695,509 $3,696,826
Assisted living . . . . . . . . . . . . . . . . . . . . . . . 555,018 495,679
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 4,230 3,988
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,268 58,714
---------- ----------
Total revenues 4,303,025 4,255,207
---------- ----------
Costs and expenses (note 3):
Rental property operations . . . . . . . . . . . . . . . . . 2,182,267 2,256,135
Assisted living . . . . . . . . . . . . . . . . . . . . . . . 240,401 204,209
General and administrative . . . . . . . . . . . . . . . . . 465,770 454,862
Facilities rent (note 4) . . . . . . . . . . . . . . . . . . 292,805 286,699
Depreciation and amortization . . . . . . . . . . . . . . . . 478,391 526,902
Property taxes . . . . . . . . . . . . . . . . . . . . . . . 98,921 128,343
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . 30,548 31,433
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 148,384 147,550
---------- ----------
Total costs and expenses . . . . . . . . . . . . . 3,937,487 4,036,133
========== ==========
Net income . . . . . . . . . . . . . . . . . . . . $ 365,538 $ 219,086
========== ==========
Net income to General Partner . . . . . . . . . . . $ 3,655 $ 2,191
========== ==========
Net income to Limited Partner . . . . . . . . . . . $ 361,883 $ 216,895
========== ==========
Net income per Limited Partner unit . . . . . . . . $ 10.34 $ 6.20
========== ==========
</TABLE>
See accompanying notes to financial statements (unaudited).
2
<PAGE> 4
American Retirement Villas Properties II
(a California limited partnership)
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 365,538 $ 219,086
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . 478,391 526,902
Change in assets and liabilities:
Decrease in loan fees . . . . . . . . . . . . . . 406 905
(Increase) in other assets . . . . . . . . . . . . (113,702) (69,126)
Increase in accounts payable and accrued expenses 111,450 152,771
Increase in amounts payable to affiliates . . . . 9,939 83,923
--------- ---------
Net cash provided by operating activities . . 852,022 914,461
--------- ---------
Cash flows used in investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . (66,610) (269,507)
--------- ---------
Cash flows from financing activities:
Borrowings on line of credit . . . . . . . . . . . . . . . 400,000 150,000
Principal repayments on line of credit . . . . . . . . . . (725,000) (650,000)
Principal repayments on notes payable . . . . . . . . . . (39,268) (28,537)
Borrowings on capital leases . . . . . . . . . . . . . . . 0 156,196
Distributions paid . . . . . . . . . . . . . . . . . . . . (588,791) (561,124)
--------- ---------
Net cash used by financing activities . . . . (953,059) (933,465)
--------- ---------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . (167,647) (288,512)
Cash at beginning of period . . . . . . . . . . . . . . . . . 488,582 605,100
--------- ---------
Cash at end of period . . . . . . . . . . . . . . . . . . . . $ 320,935 $ 316,588
========= =========
</TABLE>
See accompanying notes to financial statements (unaudited).
3
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
American Retirement Villas Properties II
(a California limited partnership)
Notes to Financial Statements (Unaudited) (Continued)
March 31, 1996 and 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference. The financial statements
reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature.
CARRYING VALUE OF REAL ESTATE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
LOAN FEES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
RENTAL INCOME
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
INCOME TAXES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
NET INCOME PER LIMITED PARTNER UNIT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
CASH
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
4
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
American Retirement Villas Properties II
(a California limited partnership)
Notes to Financial Statements (Unaudited) (Continued)
March 31, 1996 and 1995
RECLASSIFICATIONS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(3) TRANSACTIONS WITH AFFILIATES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference, and is supplemented as
follows. For the quarter ended March 31, 1996, property management fees and
partnership administration fees of $212,761 and $76,492, respectively, were
paid or accrued to the Managing General Partner.
During the quarter ending March 31, 1995, the Managing General Partner made a
non-cash contribution of $452,947 to the Partnership consisting of forgiveness
of fees owed to the Managing General Partner. Such fees had been recognized as
expenses of the Partnership in prior periods.
(4) PROPERTIES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(5) NOTES PAYABLE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(6) ESOP
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
5
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) 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,
make necessary capital improvements, make required principal reductions, 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 the three months ended March 31, 1996, cash provided by
operating activities was $852,000 compared to cash provided by operating
activities of $914,000 for the three months ended March 31, 1995.
During the three months ended March 31, 1996, the Registrant used net cash in
investing activities of $67,000 compared to $270,000 for the three months ended
March 31, 1995. The Registrant's investing activities consisted of capital
improvements made on its ten facilities.
During the three months ended March 31, 1996, the Registrant used net cash in
financing activities of $953,000 compared to $933,000 for the three months
ended March 31, 1995. The Registrant's financing activities consisted of net
repayments under its line of credit, principal reduction on notes payable and
distributions paid to the Partners.
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 the revenues or income from the
operations or sale of properties. Six of the facilities in the Registrant's
portfolio are leased. The Managing General Partner is negotiating renewal
terms with the landlords of the Campbell and Sunnyvale properties. The rent
for these facilities may change substantially. Negotiation of the lease terms
for the Sunnyvale and Campbell facilities may also result in changes in the
terms of the Fremont and Burlingame facilities leases. Increases in rent for
the facilities may not be offset by an increase in rental and assisted living
rates and may result in a decrease in revenues or income from the operations of
the facilities. The General Partners believe that if expenses increase as a
result of inflation,they will be able to pass the subsequent increases in
operating expenses on to the residents of the facilities by way of higher
rental and assisted living rates. The Registrant has long term debt of
$6,847,192 as of March 31, 1996. Of this amount, $175,000 is due October 15,
1996 (pursuant to the terms of the Partnership's revolving line of credit
agreement), $333,333 is due December 1, 1996, and the balance is due through
regularly scheduled payments of principal and interest payments (primarily on
mortgage debt) through August 2018.
(2) CAPITAL RESOURCES
The Registrant contemplates incurring approximately $500,000 for physical
improvements and normal recurring preventative maintenance at its ten
facilities during 1996. Funds for these improvements should be available from
operations.
There are no known material trends, favorable or unfavorable, other than those
disclosed above, in the Registrant's capital resources. There is no expected
change in the mix of such resources.
(3) RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED MARCH
31, 1995.
Revenue for the three month periods ended March 31, 1996 and 1995 includes
rental income, assisted living income, interest earned on cash balances and
other revenue. Total revenues for the three months ended March 31,
6
<PAGE> 8
1996 were $4,303,000, representing an increase of approximately 1% over
revenues of $4,255,000 for the three months ended March 31, 1995.
The largest component of revenue, rental income, remained relatively unchanged
for the three months ended March 31, 1996 from the comparable period in the
prior year. Meanwhile, assisted living revenue increased approximately 12% to
$555,000 for the three months ended March 31, 1996 from $496,000 for the three
months ended March 31, 1995. The increase in assisted living revenue was
primarily the result of an aggressive marketing campaign for assisted living
services and more residents using the services.
Interest income increased approximately 6% to $4,200 for the three months ended
March 31, 1996 from $4,000 for the three months ended March 31, 1995. Other
revenue decreased 18% from $58,700 for the three months ended March 31, 1995 to
$48,300 for the three months ended March 31, 1996, primarily due to a decrease
in processing fees and beauty shop revenue.
Sources of revenue for the three months ended March 31, 1996 and March 31, 1995
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Rent $3,695,509 $3,696,826
Assisted Living 555,018 495,679
Interest 4,230 3,998
Other 48,268 58,715
---------- ----------
Total Revenue 4,303,025 $4,255,218
========== ==========
</TABLE>
Total costs and expenses for the three months ended March 31, 1996 were
$3,937,000, a decrease of 2% compared to costs and expenses of $4,036,000 for
the three months ended March 31, 1995.
The largest component of expenses, rental property operations, consists
primarily of property managements costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operations
expenses decreased approximately 3% to $2,182,000 for the three months ended
March 31, 1996 from $2,256,000 for the three months ended March 31, 1995. The
decrease was due primarily to elimination of contributions to the ESOP during
the quarter and decreases in workmen's compensation insurance expenses.
Assisted living expenses consist primarily of the related payroll expense.
This expense increased 17% to $240,000 for the three months ended March 31,
1996 from $204,000 for the three months ended March 31, 1995. The increase
corresponds directly to the increase in assisted living services revenue in the
current year and the staffing required to provide these services.
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 2% to $466,000 for the three months ended March 31, 1996
from $455,000 for the three months ended March 31, 1995.
Depreciation and amortization expense decreased by 9% from $527,000 for the
three months ended March 31, 1995 to $478,000 for the three months ended March
31, 1996. The primary reason for this decrease is the full amortization of
assets associated with the currently expired facility operating leases.
Interest expense remained relatively constant for the three months ended March
31, 1996 compared with the three months ended March 31, 1995.
7
<PAGE> 9
Selected costs and expenses for the three months ended March 31, 1996 and March
31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Rental Property Operations $2,182,267 $2,256,135
Assisted Living 240,401 204,209
General and Administrative 465,770 454,862
Depreciation and amortization 478,391 526,902
Property Taxes 98,921 128,343
Interest 148,384 147,550
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule
B. None
8
<PAGE> 10
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN RETIREMENT VILLAS PROPERTIES II
A CALIFORNIA LIMITED PARTNERSHIP
By: ARV Assisted Living, Inc.
a California Corporation
(General Partner)
By: /s/ GARY L. DAVIDSON
---------------------------
Gary L. Davidson
Chairman of the Board
Date: May 13, 1996
By: /s/ GRAHAM P. ESPLEY-JONES
---------------------------
Graham P. Espley-Jones
Chief Financial Officer
Date: May 13, 1996
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 320,935
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 320,935
<PP&E> 19,434,059
<DEPRECIATION> 12,592,666
<TOTAL-ASSETS> 21,058,149
<CURRENT-LIABILITIES> 1,601,386
<BONDS> 6,847,192
0
0
<COMMON> 0
<OTHER-SE> 12,609,571
<TOTAL-LIABILITY-AND-EQUITY> 21,058,149
<SALES> 0
<TOTAL-REVENUES> 4,303,025
<CGS> 0
<TOTAL-COSTS> 3,789,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,384
<INCOME-PRETAX> 365,538
<INCOME-TAX> 0
<INCOME-CONTINUING> 365,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365,538
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
