<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 MARCH 31, 1997
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: 33-30084
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------
CALIFORNIA 33-365417
(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 III, L.P.
(a California limited partnership)
Balance Sheets
<TABLE>
<CAPTION>
MAR. 31, 1997 DEC. 31, 1996
------------- -------------
(Unaudited) (Audited)
(In thousands except
per unit data)
<S> <C> <C>
ASSETS
Properties, at cost
Land $ 4,674 4,674
Building and improvements, less accumulated depreciation
of $3.6 million in 1997 and $3.4 million in 1996 19,653 18,921
Furniture, fixtures and equipment, less accumulated
depreciation of $517,000 in 1997 and $498,000 in 1996 315 322
-------- --------
Net properties 24,642 23,917
Cash 1,073 893
Restricted cash 137 137
Loan fees, net 97 105
Other assets 369 248
-------- --------
$ 26,318 25,300
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 16,615 16,023
Accounts payable and accrued expenses 1,073 734
Amounts payable to affiliates 203 138
Distributions payable to Partners 59 46
-------- --------
Total liabilities 17,950 16,941
Minority interest 50 41
-------- --------
Partners' capital (deficit) :
General partners (76) (76)
Limited partners, 18,652 units outstanding at March 31, 1997
and December 31, 1996, respectively 8,394 8,394
-------- --------
Total partners' capital 8,318 8,318
$ 26,318 25,300
======== ========
</TABLE>
<PAGE> 3
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
1997 1996
---------- ----------
(In thousands except per unit data)
<S> <C> <C>
Revenues:
Rent $ 1,377 1,305
Assisted living 137 90
Interest 2 105
Other 25 29
------- -------
Total operating revenues 1,541 1,529
------- -------
Costs and expenses:
Rental property 691 641
Assisted living 55 44
Depreciation and amortization 228 299
Interest 361 477
General and administrative 111 94
Property taxes 65 76
Advertising 9 10
Minority interest in operations 22 (3)
------- -------
Total operating costs and expenses 1,542 1,638
------- -------
Net loss $ (1) (109)
======= =======
Net loss to General Partner 0 (1)
Net loss to Limited Partner (1) (108)
Net income (loss) per limited partner unit $ (0.05) (5.83)
======= =======
</TABLE>
<PAGE> 4
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1) (109)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 228 299
Change in minority interest 9 0
Change in assets and liabilities:
(Increase) decrease in restricted cash (1) 0
(Increase) decrease in other assets (118) 35
Increase in accounts payable and accrued expenses 353 52
(Increase) decrease in amounts receivable from affiliates 0 (27)
Increase in amounts payable to affiliates 65 12
------- -------
Net cash provided by operating activities 535 262
------- -------
Cash flows from investing activities:
(Increase) decrease in restricted cash 0 (2)
Construction on land/building (915) (40)
Additions to furniture, fixtures and equipment, net (32) (36)
------- -------
Net cash used in investing activities (947) (78)
------- -------
Cash flows from financing activities:
Proceeds from construction loan 662 0
Principal repayments on long-term debt (70) (55)
Distributions paid 0 (141)
------- -------
Net cash provided by (used in) financing activities 592 (196)
------- -------
Net increase (decrease) in cash and cash equivalents 180 (12)
Cash at beginning of year 893 478
------- -------
Cash at end of year $ 1,073 466
======= =======
</TABLE>
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Notes to Financial Statements
(Unaudited) (Continued)
March 31, 1997
(1) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10K is incorporated by this reference.
BASIS OF ACCOUNTING
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10-K is incorporated by this reference.
CARRYING VALUE OF REAL ESTATE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10-K is incorporated by this reference.
ORGANIZATION COSTS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10-K is incorporated by this reference.
PRE-OPENING COSTS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 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,
1996 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,
1996 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,
1996 Form 10-K is incorporated by this reference.
<PAGE> 6
NET INCOME (LOSS) PER LIMITED PARTNER UNIT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10-K is incorporated by this reference.
CASH AND CASH EQUIVALENTS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10-K is incorporated by this reference.
RECLASSIFICATIONS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 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,
1996 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,
1996 Form 10-K is incorporated by this reference, except for the following
additional comments. For the three months ended March 31, 1997, property
management fees and partnership administration fees of $77,000 and $34,000,
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,
1996 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,
1996 Form 10-K is incorporated by this reference.
(6) GRANT INCOME
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December 31,
1996 Form 10-K is incorporated by this reference.
<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, 1997, cash provided by operating activities was
$535,000 compared to cash provided by operating activities of $262,000 for the
three months ended March 31, 1996.
During the three months ended March 31, 1997, the Registrant used net cash in
investing activities of $947,000 compared to net cash provided by investing
activities of $78,000 for the three months ended March 31, 1996. The
Registrant's investing activities consisted of capital improvements made on its
five operating properties and construction on its property in development.
During the three months ended March 31, 1997, financing activities provided net
cash of $592,000 compared to using net cash in financing activities of $196,000
for the three months ended March 31, 1996. The Registrant's financing activities
consisted of borrowings from its construction loan, 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. The General Partners believe that if the
inflation rate increases they will be able to pass the subsequent increase in
operating expenses onto the residents of the facilities by way of higher rental
and assisted living rates.
On March 12, 1997, ARVP III obtained a $7.7 construction loan from Bank United
of Texas for financing the construction of the assisted living facility known as
Villa Las Posas located in Camarillo, California. The terms of the construction
loan provide for the interest rate to be equal to 30 day LIBOR rate plus 2.75%.
In addition, the Registrant has long term debt of $16.0 million as of March 31,
1997, comprised of $4.8 million due January 1, 2007, $3.0 million due February
1, 2017, $4.0 million due February 1, 2019 and $4.2 million due November 1,
2017. The remaining balance of $62,000 consists of notes secured by equipment.
(2) CAPITAL RESOURCES
The Registrant contemplates spending approximately $130,000 for capital
expenditures during 1997 for physical improvements at its five facilities and
$7.7 million for construction costs for its Villa las Posas assisted living
facility. The funds for these improvements should be available from operations
and cash reserves while the funds for construction of the Villa las Posas
facility should be available from the construction loan with Bank United of
Texas.
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.
<PAGE> 8
(3) RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1996.
Revenue for the three month periods ended March 31, 1997 and March 31, 1996
includes rental income, assisted living income, interest earned on cash balances
and other revenue. Total revenues for the each of the three month periods ended
March 31, 1997 and March 31, 1996 were $1.5 million.
The largest component of revenue, rent, increased by over 5% from the three
months ended March 31, 1997 to the three months ended March 31, 1996. The
increase in rent was due to an increase in rental rates.
Revenue from assisted living increased more than 52% from $90,000 for the three
months ended March 31, 1996 to $137,000 for the three months ended March 31,
1997. The increase in assisted living revenue was due to the full implementation
of an assisted living services program in the Partnership facilities.
Interest and other revenue decreased approximately 80% from the three months
ended March 31, 1996 to the three months ended March 31, 1997. Interest income
results from interest earned on cash deposits. Other revenue generally includes
processing fees, and beauty shop revenue. In 1996, ARVP III received interest
income related to Heritage Pointe Claremont which was sold at the end of 1996.
According to FASB 66, interest income is recorded to the extent that interest
expense related to Heritage Point Claremont is incurred. Since the debt related
to Heritage Point Claremont has been eliminated from the financial statements of
ARVP III in conjunction with the sale of the property, interest income has
declined significantly.
Sources of revenue for the three months ended March 31, 1997 and March 31, 1996
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
(in thousands)
<S> <C> <C>
Rent $1,377 $1,305
Assisted Living 137 90
Interest 2 105
Other 25 29
------ ------
Total Revenue 1,541 1,529
====== ======
</TABLE>
Total costs and expenses for the three months ended March 31, 1997 were $1.5
million, a decrease of almost 6% over costs and expenses of $1.6 million for the
three months ended March 31, 1996.
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 expenses
for the three months ended March 31, 1997 increased approximately 8% over the
comparable three months ended March 31, 1996. The increase in rental property
operations is primarily due to increased payroll expenses.
Assisted living expenses consist primarily of related payroll expense. Assisted
living expenses increased by approximately 25% from the three months ended March
31, 1996 to the three months ended March 31, 1997. Assisted living expenses
increased due to increased levels of staffing required to providing assisted
living services commensurate with the increase in assisted living revenue.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt, data processing, investor
relations, insurance and professional services. General and administrative
expenses increased 18% from the three months ended March 31, 1996 to the three
<PAGE> 9
months ended March 31 1997. The general and administrative expenses increase is
due to increased partnership administration fees.
Depreciation and amortization expense incurred during the three months ended
March 31, 1997 decreased by $71,000 (approximately 24%) compared to the three
months ended March 31, 1996. The decrease is due to a portion of fixed assets
becoming fully depreciated.
Interest expense decreased approximately 24% to $361,000 for the three months
ended March 31, 1997 from interest expense of $477,000 incurred during the three
months ended March 31, 1996. Because the sale of Heritage Pointe Claremont was
properly recorded under the cost recovery method before the end of 1996, the
property and related debt were eliminated from the financial statements of ARVP
III. Therefore, the decrease in debt led to the decrease in interest expense.
Selected costs and expenses for the three months ended March 31, 1997 and March
31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
(in thousands)
<S> <C> <C>
Rental Property Operations 691 641
Assisted Living 55 44
General and Administrative 111 94
Depreciation and amortization 228 299
Property Taxes 65 76
Interest Expense 361 477
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE 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
<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 III
A CALIFORNIA LIMITED PARTNERSHIP
By: ARV Assisted Living, Inc.
(Managing General Partner)
By: /s/ Gary L. Davidson
-----------------------------
Gary L. Davidson
Chairman of the Board
Date: May 21, 1997
By: /s/ Graham P. Espley-Jones
-----------------------------
Graham P. Espley-Jones
Chief Financial Officer
Date: May 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,073
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,676
<PP&E> 28,712
<DEPRECIATION> 14,070
<TOTAL-ASSETS> 26,318
<CURRENT-LIABILITIES> 1,335
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,318
<SALES> 0
<TOTAL-REVENUES> 1,541
<CGS> 0
<TOTAL-COSTS> 1,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361
<INCOME-PRETAX> (1)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
