<PAGE> 1
================================================================================
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 JUNE 30, 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) 751-7400
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
--- ---
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties II
(a California limited partnership)
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
ASSETS (Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
Properties, at cost (notes 3,4 and 5)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,902,684 $2,902,684
Buildings and improvements, less accumulated depreciation of
$5,779,193 in 1996 and $5,361,962 in 1995 . . . . . . . . . . 14,865,698 15,179,456
Leasehold property and improvements, less accumulated
amortization of $6,095,796 in 1996 and $5,807,795 in 1995 . . 488,289 825,432
Furniture, fixtures and equipment, less accumulated
depreciation of $5,242,180 in 1996 and $1,108,392 in 1995 . . 897,187 937,861
----------- -----------
Net Properties . . . . . . . . . . . . . . . . . . 19,153,858 19,845,433
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,629 488,582
Loan fees, less accumulated amortization of $9,929 in 1996 and
$9,119 in 1995 . . . . . . . . . . . . . . . . . . . . . . . 675 1,486
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,198,280 1,188,373
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $20,648,442 $21,523,874
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes Payable (note 5) . . . . . . . . . . . . . . . . . . . $6,892,178 $7,211,460
Accounts payable and accrued expenses . . . . . . . . . . . . 834,989 758,240
Amounts payable to affiliates (note 3) . . . . . . . . . . . 144,370 155,155
Distributions payable to partners . . . . . . . . . . . . . . 39,175 580,163
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . 7,910,712 8,705,018
----------- -----------
Partners' capital
General partners' capital . . . . . . . . . . . . . . . . . 275,287 276,099
Limited partners' capital, 34,995 units outstanding . . . . 12,462,443 12,542,757
----------- -----------
Total liabilities and partners' capital . . . . . . $20,648,442 $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 FOR THE SIX MONTHS ENDED
---------------------------------- --------------------------------
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Rent . . . . . . . . . . . . . . . $3,733,358 $3,647,896 $7,428,867 $7,344,722
Assisted living . . . . . . . . . . 616,615 494,447 1,171,634 990,126
Interest . . . . . . . . . . . . . 3,108 3,923 7,338 7,921
Other . . . . . . . . . . . . . . . 52,434 33,728 100,702 92,442
---------- ---------- ---------- ----------
Total revenue 4,405,516 4,179,994 8,708,541 8,435,212
---------- ---------- ---------- ----------
Costs and expenses (note 3):
Rental property operations . . . . 2,371,880 2,431,262 4,769,268 4,885,305
Assisted living . . . . . . . . . . 240,102 215,636 480,503 419,845
General and administrative . . . . 635,283 225,901 885,931 482,855
Facilities rent (note 4) . . . . . 293,981 286,683 586,786 573,382
Depreciation and amortization . . . 412,301 534,809 890,692 1,061,711
Property taxes . . . . . . . . . . 138,673 129,413 237,594 257,755
Advertising . . . . . . . . . . . . 15,087 35,985 45,635 67,418
Interest . . . . . . . . . . . . . 145,174 147,682 293,558 295,232
---------- ---------- ---------- ----------
Total costs and expenses 4,252,481 4,007,371 8,189,968 8,043,502
---------- ---------- ---------- ----------
Net income . . . . . . . $153,035 $172,623 $518,573 $391,709
========== ========== ========== ==========
Net income to General Partner . . $1,530 $1,726 $5,186 $3,917
========== ========== ========== ==========
Net income to Limited Partners . . $151,504 $170,897 $513,387 $387,792
========== ========== ========== ==========
Net income per Limited Partner
unit . . . . . . . . . . . . . . . $4.33 $4.88 $14.67 $11.08
========== ========== ========== ==========
</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 SIX MONTHS ENDED
-------------------------------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $518,573 $391,709
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . 890,692 1,061,711
Change in assets and liabilities:
Decrease in loan fees . . . . . . . . . . . . . . 0 0
(Increase) in other assets . . . . . . . . . . . . (9,906) (106,112)
Increase in accounts payable and accrued expenses 76,749 164,709
Increase (decrease) in amounts payable to
affiliates . . . . . . . . . . . . . . . . . . . (10,785) 34,978
---------- ----------
Net cash provided by operating activities . . 1,465,323 1,546,995
---------- ----------
Cash flows used in investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . (198,307) (288,199)
Acquisition of autos . . . . . . . . . . . . . . . . . . 0 (166,196)
---------- ----------
Net cash used in investing activities. . . . . . (198,307) (454,395)
---------- ----------
Cash flows from financing activities:
Borrowings on line of credit . . . . . . . . . . . . . . . 660,000 375,000
Principal repayments on line of credit . . . . . . . . . . (900,000) (690,000)
Principal repayments on notes payable . . . . . . . . . . (79,282) (57,351)
Borrowings on capital leases . . . . . . . . . . . . . . . 0 0
Distributions paid . . . . . . . . . . . . . . . . . . . . (1,140,687) (1,118,157)
---------- ----------
Net cash used by financing activities . . . . (1,459,969) (1,490,508)
---------- ----------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . (192,953) (397,908)
Cash at beginning of period . . . . . . . . . . . . . . . . . 488,582 1,329,594
---------- ----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . $295,629 $931,686
========== ==========
</TABLE>
See accompanying notes to financial statements (unaudited).
3
<PAGE> 5
(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
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 June 30, 1996, property management fees and
partnership administration fees of $220,304 and $101,606 respectively, were
paid or accrued to the Managing General Partner.
(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.
5
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) LIQUIDITY
Currently, the Partnership has approximately $569,000 of debt maturing within
the next six months. It is the Managing General Partner's intention to
refinance this debt. To the extent such a refinancing effort is successful,
the General Partners expect that the cash to be generated from operations of
all the Partnership's properties will be adequate to pay operating expenses,
make necessary capital improvements, make required principal reductions, and
provide distributions to the Partners. In the event the Managing General
Partner is unsuccessful in refinancing these obligations, the Partnership's
ability to provide distributions to the Partners over the near term could be
temporarily impaired as operating funds would be required for the retirement of
debt. On a long-term basis, the Partnership's liquidity is sustained primarily
from cash flow provided by operating activities. During the six months ended
June 30, 1996, cash provided by operating activities was $1,465,323 compared to
cash provided by operating activities of $1,546,995 for the six months ended
June 30, 1995.
During the six months ended June 30, 1996, the Partnership used net cash in
investing activities of $198,307 compared to $454,395 for the six months
ended June 30, 1995. The Partnership's investing activities consisted of
capital improvements made on its ten facilities.
During the six months ended June 30, 1996, the Partnership used net cash in
financing activities of $1,459,969 compared to $1,490,508 for the six months
ended June 30, 1995. The Partnership's financing activities consisted of net
repayments under its line of credit, principal reduction on notes payable and
distributions paid to the Partners.
The Managing General Partner is 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 revenue or income from
the operations or sale of properties. Six of the facilities in the
Partnership's portfolio are leased to the Partnership. On June 27, 1996, the
Partnership filed actions seeking declaratory judgements against the landlords
of the Retirement Inn of Campbell ("Campbell") and the Retirement Inn of
Sunnyvale ("Sunnyvale"). The Partnership leases the Campbell and Sunnyvale
assisted living facilities under long-term leases. A dispute has arisen as to
the amount of rent due during the 10-year lease renewal periods which commenced
in August 1995 for Campbell and March 1996 for Sunnyvale. The Partnership seeks
a determination that the Partnership is not required to pay any higher rent
during the 10-year renewal periods than during the original 20-year lease terms.
In the event that the court finds against the Partnership, rent for the
Campbell and Sunnyvale facilities could increase significantly, which will
reduce distributions to Unitholders in the future. These rent increases would
be retroactive to the commencement of the lease renewal periods.
Two other facilities leased by the Partnership, the Retirement Inn of Fremont
("Fremont") and the Retirement Inn at Burlingame ("Burlingame"), are owned by
entities which are related to the entities that own the Campbell and Sunnyvale
facilities. It is not known whether the landlords of those facilities will
dispute the amount of rent due during the renewal periods beginning January
1997 for Fremont and August 1997 for Burlingame. If so, the Partnership may be
required to file litigation to determine the rights under those leases as well.
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 revenue or income
from the operations of the facilities. The Managing General Partner believes
that if expenses increase as a result of inflation, the subsequent increases in
operating expenses will most likely be able to be passed on to the residents of
the facilities by way of higher rental and assisted living rates. The
Partnership has long term debt of $6,892,178 as of June 30, 1996. Of this
amount, $240,000 is due October 15, 1996 (pursuant to the terms of the
Partnership's revolving line of credit agreement), $329,333 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.
6
<PAGE> 8
(2) CAPITAL RESOURCES
The Managing General Partner contemplates incurring approximately $500,000 for
physical improvements and normal recurring preventative maintenance at its ten
facilities during 1996. Of this amount, approximately $200,000 has been
expended as of June 30, 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 Partnership's capital resources. There is no expected
change in the mix of such resources.
(3) RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1995.
Revenue for the three month periods ended June 30, 1996 and 1995 includes
rental income, assisted living income, interest earned on cash balances and
other revenue. Total revenue for the three months ended June 30, 1996 was
$4,405,515 representing an increase of approximately 5.4% over revenues of
$4,179,994 for the three months ended June 30, 1995.
The largest component of revenue, rental income, increased approximately 2.3%
for the three months ended June 30, 1996 from the comparable period in the
prior year. Meanwhile, assisted living revenue increased approximately 24.7%
to $616,615 for the three months ended June 30, 1996 from $494,447 for the
three months ended June 30, 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 decreased approximately 20.8% to $3,108 for the three months
ended June 30, 1996 from $3,923 for the three months ended June 30, 1995.
Other revenue increased approximately 55.5% from $33,728 for the three months
ended June 30, 1995 to $52,434 for the three months ended June 30, 1996,
primarily due to a increase in processing fees and beauty shop revenue.
Sources of revenue for the three months ended June 30, 1996 and June 30, 1995
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Rent $3,733,358 $3,647,896
Assisted Living 616,615 494,447
Interest 3,108 3,923
Other 52,434 33,728
---------- ----------
Total Revenue $4,405,515 $4,179,994
========== ==========
</TABLE>
Total costs and expenses for the three months ended June 30, 1996 were
$4,252,481, an increase of 6.1% compared to costs and expenses of $4,007,370
for the three months ended June 30, 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 2.4% to $2,371,880 for the three months ended
June 30, 1996 from $2,431,262 for the three months ended June 30, 1995.
7
<PAGE> 9
Assisted living expenses consist primarily of the related payroll expense.
This expense increased approximately 11.4% to $240,102 for the three months
ended June 30, 1996 from $215,636 for the three months ended June 30, 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 181% to $635,283 for the three months ended June 30, 1996
from $225,901 for the three months ended June 30, 1995. The increase was due
primarily to a one time charge of $347,510 for costs related to preparing to
solicit the consent of the Partnership's Unitholders with respect to an
anticipated sale of the Partnership's four fee properties to a health care real
estate investment trust.
A preliminary consent solicitation statement had been filed with the Securities
and Exchange Commission (the "SEC"). The normal course of review of the
consent solicitation by the SEC was not completed before the time in which the
solicitation statement was required to be updated with audited year-end
financial statements for the Partnership. While the year-end financial
statements were being prepared and audited, that Managing General Partner
requested the appraisal firm which had previously prepared appraisals of the
four fee properties to update those appraisals. Upon receiving and reviewing
the updated appraisals, which indicated an increase in market value for each of
the fee properties, the Managing General Partner contacted the potential buyer
of the properties to determine if it was willing to increase its purchase price
accordingly. As the purchase price was not increased, the Partnership's
General Partners decided not to solicit the consent of the Partners for the
sale of the fee properties. Although the sale of the fee properties did not
occur, the General Partner provided those Unitholders seeking liquidity an
opportunity to sell their interests in the Partnership at an amount which
reflected the values contained in the updated appraisals. (See Item 5. Other
Information).
Depreciation and amortization expense decreased by 22.9% from $534,809 for the
three months ended June 30, 1995 to $412,301 for the three months ended June
30, 1996. The primary reason for this decrease is the full amortization of
assets associated with the expiration of the initial lease term of two of the
facility operating leases.
Interest expense remained relatively constant for the three months ended June
30, 1996 compared with the three months ended June 30, 1995.
Selected costs and expenses for the three months ended June 30, 1996 and June
30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Rental Property Operations $2,371,880 $2,431,262
Assisted Living 240,102 215,636
General and Administrative 635,283 225,901
Depreciation and amortization 412,301 534,809
Property Taxes 138,673 129,413
Interest 145,174 147,682
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
1995.
Revenue for the six months ended June 30, 1996 and 1995 includes rental income,
assisted living revenue from all ten facilities, interest income and other
revenue. Total revenue for the six months ended June 30, 1996 was $8,708,541
an increase of 3.2% over revenue of $8,435,211 for the six months ended June
30, 1995.
The largest component of revenue, rent, increased a little over 1% from the six
months ended June 30, 1995 to the six months ended June 30, 1996.
Revenue from assisted living increased over 18% from the six months ended June
30, 1995 to the six month period ended June 30, 1996. The increase in assisted
living revenue was due to an aggressive marketing campaign of the assisted
living services and the resulting increase in the number of residents using the
services.
Interest income decreased by approximately 7.4% and other income increased
approximately 9% over the six month period
8
<PAGE> 10
ended June 30, 1995 to the six month period ended June 30, 1996. Interest
income results from interest earned on cash deposits. Other revenue consists
primarily of processing fees and beauty shop revenue.
Sources of revenue for the six months ended June 30, 1996 and June 30, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------- ----------------
<S> <C> <C>
Rent $7,428,867 $7,344,722
Assisted Living 1,171,634 990,126
Interest and Other Income 108,040 100,363
---------- ----------
TOTAL REVENUE $8,708,541 $8,435,211
========== ==========
</TABLE>
Total costs and expenses for the six months ended June 30, 1996 were
$8,189,967, an increase of 1.8% over costs and expenses of $8,043,503 for the
six months ended June 30, 1995.
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 expense
decreased by 2.4% from the six months ended June 30, 1995 to the six months
ended June 30, 1996. The decrease in rental property operating expenses is due
to reductions in payroll-related expenses, food, utilities and maintenance and
supplies expenses.
Assisted living expenses consist mainly of the related payroll expense.
Assisted living expenses increased by over 14% from the six months ended June
30, 1995 to the six months ended June 30, 1996. 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 approximately 83% from the six months ended June 30, 1995 to
the six months ended June 30, 1996. The increase was due primarily to a one
time charge of $347,510 for costs related to preparing to solicit the consent
of the Partnership's Unitholders with respect to an anticipated sale of the
Partnership's four fee properties to a health care real estate investment
trust.
A preliminary consent solicitation statement had been filed with the Securities
and Exchange Commission (the "SEC"). The normal course of review of the
consent solicitation by the SEC was not completed before the time in which the
solicitation statement was required to be updated with audited year-end
financial statements for the Partnership. While the year-end financial
statements were being prepared and audited, that Managing General Partner
requested the appraisal firm which had previously prepared appraisals of the
four fee properties to update those appraisals. Upon receiving and reviewing
the updated appraisals, which indicated an increase in market value for each of
the fee properties, the Managing General Partner contacted the potential buyer
of the properties to determine if it was willing to increase its purchase price
accordingly. As the purchase price was not increased, the Partnership's
General Partners decided not to solicit the consent of the Partners for the
sale of the fee properties. Although the sale of the fee properties did not
occur, the General Partner provided those Unitholders seeking liquidity an
opportunity to sell their interests in the Partnership at an amount which
reflected the values contained in the updated appraisals. (See Item 5. Other
Information).
Depreciation and amortization expense decreased over 16% from the six months
ended June 30, 1995 to the six months ended June 30, 1996. Depreciation and
amortization expense decreased due to a reduction in amortization expense for
those assets associated with the Campbell and Sunnyvale leases whose terms have
expired and the assets have been fully amortized.
9
<PAGE> 11
Interest expense decreased by less than 1% for the six months ended June 30,
1995 compared to the six months ended June 30, 1996, as a result of reduced
outstanding principal on loans.
Selected costs and expenses for the six months ended June 30, 1996 and June 30,
1995 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------- ----------------
<S> <C> <C>
Rental Property Operations $4,769,268 $4,885,305
Assisted Living 480,503 419,845
General & Administrative 885,931 482,855
Depreciation & Amortization 890,692 1,061,711
Property Taxes 237,594 257,755
Interest 293,558 295,232
</TABLE>
10
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 27, 1996, the Partnership filed actions seeking declaratory judgements
against the landlords of the Retirement Inn of Campbell ("Campbell") and the
Retirement Inn of Sunnyvale ("Sunnyvale"). The Partnership leases the
Campbell and Sunnyvale assisted living facilities under long-term leases. A
dispute has arisen as to the amount of rent due during the 10-year lease
renewal periods which commenced in August 1995 for Campbell and March 1996 for
Sunnyvale. The Partnership seeks a determination that the Partnership is not
required to pay any higher rent during the 10-year renewal periods than during
the original 20-year lease terms.
In the event that the court finds against the Partnership, rent for the
Campbell and Sunnyvale facilities could increase significantly, which will
reduce distributions to Unitholders in the future. These rent increases would
be retroactive to the commencement of the lease renewal periods.
Two other facilities leased by the Partnership, the Retirement Inn of Fremont
("Fremont") and the Retirement Inn at Burlingame ("Burlingame"), are owned by
entities which are related to the entities that own the Campbell and Sunnyvale
facilities. It is not known whether the landlords of those facilities will
dispute the amount of rent due during the renewal periods beginning January
1997 for Fremont and August 1997 for Burlingame. If so, the Partnership may be
required to file litigation to determine the rights under those leases as well.
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
On May 16, 1996, the General Partner, ARV Assisted Living, Inc. ("ARV"),
initiated a tender offer for all limited partnership units in American
Retirement Villas Properties II which it did not own at a net cash price of
$720 per unit. At the close of the offer period on June 21, 1996, 1,426
unitholders validly tendered approximately 15,488 units representing
approximately 44.6% of all outstanding units.
On July 26, 1996 ARV initiated a second tender offer (the "Offer") to purchase
up to 3,715 additional limited partnership units at a net cash price of $720
per unit less second quarter distributions. If more than 3,715 units are
validly tendered and not withdrawn, ARV will accept only 3,715 units, with such
units purchased on a pro rata basis. The offer, withdrawal rights and
prorations period will expire at 5:00 p.m. Pacific Daylight Time on Friday
August 23, 1996, unless extended. If ARV acquires all 3,715 units sought in
the Offer, ARV will own approximately 55% of the outstanding units.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule
B. None
11
<PAGE> 13
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: August 14, 1996
By: /s/ Graham P. Espley-Jones
--------------------------
Graham P. Espley-Jones
Chief Financial Officer
Date: August 14, 1996
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 259,629
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,153,858
<DEPRECIATION> 17,117,169
<TOTAL-ASSETS> 20,648,441
<CURRENT-LIABILITIES> 0
<BONDS> 6,892,178
0
0
<COMMON> 0
<OTHER-SE> 12,737,730
<TOTAL-LIABILITY-AND-EQUITY> 20,648,442
<SALES> 0
<TOTAL-REVENUES> 4,405,515
<CGS> 0
<TOTAL-COSTS> 4,107,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,174
<INCOME-PRETAX> 153,034
<INCOME-TAX> 0
<INCOME-CONTINUING> 153,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153,034
<EPS-PRIMARY> 4.33
<EPS-DILUTED> 4.33
</TABLE>
