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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, 2000
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, L.P.
- --------------------------------------------------------------------------------
(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 COSTA MESA, CA 92626
- --------------------------------------- -------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
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 [ ]
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties II
(a California limited partnership)
Condensed Balance Sheets
(Unaudited)
(In thousands)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Properties, at cost:
Land $ 11,453 $ 11,453
Buildings and improvements, less accumulated
depreciation of $7,464 and $7,248 at March 31,
2000 and December 31, 1999, respectively 20,480 20,662
Leasehold property and improvements, less
accumulated depreciation of $1,250 and $1,244
at March 31, 2000 and December 31, 1999, respectively 203 209
Furniture, fixtures and equipment, less
accumulated depreciation of $1,254 and $1,145 at
March 31, 2000 and December 31, 1999, respectively 1,329 1,373
-------- --------
Net properties 33,465 33,697
Cash 2,228 2,002
Other assets 2,451 2,844
-------- --------
$ 38,144 $ 38,543
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 39,425 $ 39,545
Accounts payable 128 155
Accrued expenses 1,595 1,426
Amounts payable to affiliate 194 304
Distributions payable to Partners 33 8
-------- --------
Total liabilities 41,375 41,438
-------- --------
Commitments and contingencies
Partners' capital (deficit):
General partners' capital 283 119
Limited partners' capital, 35,020 units outstanding (3,514) (3,014)
-------- --------
Total partners' capital (3,231) (2,895)
-------- --------
$ 38,144 $ 38,543
======== ========
</TABLE>
See accompanying notes to the unaudited financial statements.
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American Retirement Villas Properties II
(a California limited partnership)
Condensed Statements of Operations
(Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
------- -------
<S> <C> <C>
Revenues:
Rent $ 4,157 $ 3,987
Assisted living 912 993
Interest and other 106 130
------- -------
Total revenues 5,175 5,110
------- -------
Costs and expenses:
Rental property operations 2,771 2,498
Assisted living 699 545
General and administrative 121 300
Communities rent 88 299
Depreciation and amortization 578 337
Property taxes 164 148
Advertising 110 34
Interest 904 217
------- -------
Total costs and expenses 5,435 4,378
------- -------
Income (loss) before income tax expense (260) 732
Income tax expense 2 --
------- -------
Net income (loss) $ (262) $ 732
======= =======
Net income (loss) per limited partnership unit $ (7.42) $ 20.69
======= =======
</TABLE>
See accompanying notes to the unaudited financial statements.
3
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American Retirement Villas Properties II
(a California limited partnership)
Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
2000 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (262) $ 732
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 578 337
Change in assets and liabilities:
(Increase) decrease in other assets 394 (82)
Increase (decrease) in accounts payable & accrued expenses 142 (175)
Increase (decrease) in amounts payable to affiliates (110) 405
------- --------
Net cash provided by operating activities 742 1,217
------- --------
Cash flows used in investing activities:
Capital expenditures (346) (332)
Purchase of previously leased communities -- (14,636)
Refund of purchase deposit, net (1) 200
------- --------
Net cash used in investing activities (347) (14,768)
------- --------
Cash flows provided by (used in) financing activities:
Principal repayments on notes payable (120) (60)
Proceeds from notes payable -- 14,677
Distributions paid (49) (348)
------- --------
Net cash provided by (used in) financing activities (169) 14,269
------- --------
Net increase in cash 226 718
Cash at beginning of period 2,002 953
------- --------
Cash at end of period $ 2,228 $ 1,671
======= ========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 904 $ 122
======= ========
</TABLE>
See accompanying notes to the unaudited financial statements.
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American Retirement Villas Properties II, L.P.
(a California limited partnership)
Notes to Condensed Financial Statements
(Unaudited)
March 31, 2000
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
We prepared the accompanying condensed financial statements of American
Retirement Villas Properties II, L.P. following the requirements of the
Securities and Exchange Commission ("SEC") for interim reporting. As permitted
under those rules, certain footnotes or other financial information that are
normally required by generally accepted accounting principles ("GAAP") can be
condensed or omitted.
The financial statements include all normal and recurring adjustments that we
consider necessary for the fair presentation of our financial position and
operating results. These are condensed financial statements. To obtain a more
detailed understanding of our results, one should also read the financial
statements and notes in our Form 10-K for 1999, which is on file with the SEC.
The results of operations can vary during each quarter of the year. Therefore,
the results and trends in these interim financial statements may not be the same
as those for the full year.
USE OF ESTIMATES
In preparing the financial statements conforming with GAAP, we have made
estimates and assumptions that affect the following:
o reported amounts of assets and liabilities at the date of the
financial statements;
o disclosure of contingent assets and liabilities at the date of the
financial statements; and
o reported amounts of revenues and expenses during the reporting
period.
Actual results could differ from those estimates.
(2) TRANSACTIONS WITH AFFILIATES
We have an agreement with ARV Assisted Living, Inc. ("ARV"), our Managing
General Partner, providing for a property management fee of five percent of
gross revenues amounting to $257,000 and $255,000 for the three-month periods
ended March 31, 2000 and 1999, respectively. Additionally, we pay to ARV a
partnership management fee of 10 percent of cash flow before distributions, as
defined in the Partnership Agreement, which amounted to $42,000 and $124,000 for
the three-month periods ended March 31, 2000 and 1999, respectively.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) For the Three Months
Ended March 31,
---------------------
Increase/
2000 1999 (decrease)
------ ------ ----------
<S> <C> <C> <C>
Revenue:
Assisted living community revenues $ 5.1 $ 5.0 1.8%
Interest and other revenue ....... 0.1 0.1 (18.3)%
------ ------ ------
Total revenues............ 5.2 5.1 1.3%
------ ------ ------
Costs and expenses:
Assisted living operating expenses 3.5 3.0 14.1%
General and administrative ....... 0.1 0.3 (59.8)%
Communities rent ................. 0.1 0.3 (70.6)%
Depreciation and amortization .... 0.6 0.3 71.6%
Property taxes ................... 0.2 0.2 11.2%
Advertising ...................... 0.1 0.1 219.7%
Interest ......................... 0.9 0.2 317.1%
------ ------ ------
Total costs and expenses . 5.5 4.4 24.2%
------ ------ ------
Net income (loss) ........ $ (0.3) $ 0.7 (135.8)%
====== ====== ======
</TABLE>
The assisted living community revenue remained relatively constant due to:
o an increase in the average rate per occupied unit to $2,099 for the
three-month period ended March 31, 2000 as compared with $2,045 for
the three-month period ended March 31, 1999; offset by:
o a decrease in average occupancy for our assisted living communities
to 87.0% for the three-month period ended March 31, 2000 as compared
with 88.0% for the three-month period ended March 31, 1999; and
o an decrease in assisted living penetration to 55.4% for the
three-month period ended March 31, 2000 compared with 55.9% for the
three-month period ended March 31, 1999.
Interest and other revenue remained relatively constant.
The increase in assisted living operating expenses is attributable to increased
payroll costs including:
o increased wages of staff;
o incentive programs; and
o increased worker's compensation premiums.
The decrease in general and administrative is attributable to:
o a reduction of administration fees paid to our managing general
partner; and
o a reduction of expenses, that were previously allocated to general
and administrative due to cost-cutting efforts.
The decrease in community rent, and increases in property taxes and depreciation
and amortization are a result of the purchase of four previously leased
communities, in March of 1999.
The increase in advertising expenses is due to additional advertising in the
2000 quarter.
The increase in interest expense is related to the loans for the purchase of the
four previously leased communities, in March of 1999, and to the increased debt
from the refinancing on June 28, 1999 of the eight owned properties.
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LIQUIDITY AND CAPITAL RESOURCES
We expect that the cash to be generated from operations of all our properties
will be adequate to pay operating expenses, make necessary capital improvements,
make required principal reductions of debt and make quarterly distributions. On
a long-term basis, our liquidity is sustained primarily from cash flow provided
by operating activities.
During the three-month period ended March 31, 2000, cash provided by operating
activities decreased to $0.7 million compared to $1.2 million for the
corresponding period in 1999. The decrease was primarily due to the operating
loss in the quarter.
During the three-month period ended March 31, 2000, our net cash used in
investing activities decreased to $0.3 million compared to $14.8 million for the
corresponding period in 1999. The decrease was a result of a purchase of our
landlords' interests in four previously leased assisted living communities in
March of 1999.
During the three-month period ended March 31, 2000, our net cash used in
financing activities was $0.2 million compared to cash provided by financing
activities of $14.3 million for the corresponding period in 1999. The cash
provided by financing activities was the result of a $14.7 million bridge loan,
which enabled us to purchase four previously leased communities from our
landlords.
As of March 31, 2000, of our ten assisted living communities, 8 are owned
directly, one is operated under a long-term operating lease, and one is owned
subject to a ground lease.
We contemplate spending approximately $725,000 for capital expenditures during
2000 for physical improvements at our communities. Funds for these improvements
are expected to be available from operations.
We 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. We believe that if the inflation rate increases we will be able to
pass the subsequent increase in operating expenses onto the residents of the
communities by way of higher rental and assisted living rates. The
implementation of price increases is intended to lead to an increase in revenue
however, those increases may result in an initial decline in occupancy and/or a
delay in increasing occupancy. If this occurs, revenues may remain constant or
even decline.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on our
fixed rate notes payable. Currently, we do not utilize interest rate swaps. You
should be aware that many of the statements contained in this section are
forward looking and should be read in conjunction with our disclosures under the
heading "Forward-Looking Statements."
For fixed rate debt, changes in interest rates generally affect the fair market
value of the debt instrument, but not our earnings or cash flows. Conversely,
for variable rate debt, changes in interest rates generally do not impact fair
market value of the debt instrument, but do affect our future earnings and cash
flows. We do not have an obligation to prepay fixed rate debt prior to maturity,
and as a result, interest rate risk and changes in fair market value should not
have a significant impact on the fixed rate debt until we would be required to
refinance such debt.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule
B. None
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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: /s/ Douglas M. Pasquale
--------------------------------
Douglas M. Pasquale
Chairman of the Board of ARVAL,
Managing General Partner.
Date: May 12, 2000
By: /s/ Abdo H. Khoury
--------------------------------
Abdo H. Khoury
Senior Vice President, and Chief
Financial Officer of ARVAL,
Managing General Partner
Date: May 12, 2000
8
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,453
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 43,433
<DEPRECIATION> 9,968
<TOTAL-ASSETS> 38,144
<CURRENT-LIABILITIES> 0
<BONDS> 39,425
0
0
<COMMON> 0
<OTHER-SE> (3,231)
<TOTAL-LIABILITY-AND-EQUITY> 38,144
<SALES> 0
<TOTAL-REVENUES> 5,175
<CGS> 0
<TOTAL-COSTS> 4,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 904
<INCOME-PRETAX> (260)
<INCOME-TAX> 2
<INCOME-CONTINUING> (262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262)
<EPS-BASIC> (7.42)<F1>
<EPS-DILUTED> (7.42)<F1>
<FN>
<F1>Net loss per limited partner unit.
</FN>
</TABLE>
