<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 JUNE 30, 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: 0-26470
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>
JUNE 30, DEC. 31,
1997 1996
ASSETS -------- --------
(Unaudited) (Audited)
(IN THOUSANDS EXCEPT
PER UNIT DATA)
<S> <C> <C>
Properties, at cost
Land $ 4,676 $ 4,674
Building and improvements, less accumulated depreciation
of $3,700 in 1997 and $3,373 in 1996 21,356 18,921
Furniture, fixtures and equipment, less accumulated depreciation
of $459 in 1997 and $498 in 1996 295 322
-------- --------
Net properties 26,327 23,917
Cash 1,007 893
Restricted cash 141 137
Loan fees, net 88 105
Other assets 353 248
-------- --------
$ 27,916 $ 25,300
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 18,287 $ 16,023
Accounts payable and accrued expenses 1,139 734
Amounts payable to affiliates 72 138
Distributions payable to Partners 54 46
-------- --------
Total liabilities 19,552 16,941
-------- --------
Minority interest 57 41
Partners' capital (deficit) :
General partners (76) (76)
Limited partners, 18,666 and 18,652 units outstanding at June 30,
1997 and December 31, 1996, respectively 8,383 8,394
-------- --------
Total partners' capital 8,307 8,318
$ 27,916 $ 25,300
======== ========
</TABLE>
<PAGE> 3
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Statements of Operations
(Unaudited)
(in thousands except per unit data)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent ............................... $1,375 $1,308 $2,752 $ 2,581
Assisted living .................... 141 100 278 190
Interest ........................... 6 92 8 197
Other .............................. 19 44 44 105
------ ------ ------ -------
Total revenues ............ 1,541 1,544 3,082 3,073
------ ------ ------ -------
COSTS AND EXPENSES:
Rental property operations ......... 685 630 1,376 1,271
Assisted living .................... 52 49 107 94
Depreciation and amortization ...... 228 299 455 598
Interest ........................... 358 477 719 953
General and administrative ......... 133 109 244 203
Property taxes ..................... 66 86 131 162
Advertising ........................ 14 5 23 15
Minority interest in operations .... 16 20 38 17
------ ------ ------ -------
Total costs and expenses .. 1,552 1,675 3,093 3,313
------ ------ ------ -------
Net income (loss) .................. (11) (131) (11) (240)
====== ====== ====== =======
Net income (loss) to General Partner -- (1) -- (2)
Net income (loss) to Limited Partner (11) (130) (11) (238)
====== ====== ====== =======
Net income (loss) per Limited
Partner unit ....................... ($0.58) ($6.94) ($0.58) ($12.77)
====== ====== ====== =======
</TABLE>
See accompanying notes to financial statements (unaudited).
<PAGE> 4
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (11) $ (240)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 455 597
Minority interest in operations 16 --
CHANGE IN ASSETS AND LIABILITIES:
Increase in other assets (100) (108)
Increase in accounts payable and accrued expenses 405 57
Increase in amounts payable to affiliates (58) (58)
------- -------
Net cash provided by operating activities 707 248
------- -------
Cash flows from investing activities:
Increase in restricted cash (4) (64)
Capital expenditures (50) (63)
Construction of building (2,802) (579)
Increase in deposit on property under contract for sale -- 1,576
------- -------
Net cash used in investing activities (2,856) 870
------- -------
Cash flows from financing activities:
Proceeds from construction loan 2,403 --
Principal repayments on long-term debt (139) (125)
Distributions paid -- (613)
------- -------
Net cash provided by (used in) financing activities
2,264 (738)
------- -------
Net increase in cash 115 380
Cash at beginning of period 892 478
------- -------
Cash at end of period $ 1,007 $ 858
======= =======
</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)
June 30, 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 June 30, 1997, property
management fees and partnership administration fees of $77,000 and $25,000,
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
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1996.
Revenue for the three month periods ended June 30, 1997 and June 30, 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
June 30, 1997 and June 30, 1996 were $1.5 million.
The largest component of revenue, rent, increased by over 5% to $1.4 million for
the three months ended June 30, 1997 from $1.3 million for the three months
ended June 30, 1996. The increase in rent was due to inflation as well as a
change to include meals as part of the base rental package.
Revenue from assisted living increased 41% from $100,000 for the three months
ended June 30, 1996 to $141,000 for the three months ended June 30, 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 82% from the three months
ended June 30, 1996 to the three months ended June 30, 1997. Interest income
currently results from interest earned on cash deposits. Other revenue generally
includes banquet income, processing fees, and beauty shop revenue.
During 1996, the Partnership met the requirements of statement of accounting
standards No. 66 ("SFAS No. 66") and thus was able to record the sale of
Heritage Pointe Claremont. In the three months ended June 30, 1996, the
Partnership received interest income related to Heritage Pointe Claremont prior
to recording the sale of the asset at the end of 1996. Under the requirements of
SFAS No. 66, interest income was recorded to the extent that interest expense
related to Heritage Point Claremont was incurred. Since the debt related to
Heritage Point Claremont has been eliminated from the financial statements of
the Partnership in conjunction with recognition of the sale of the property,
interest income has declined significantly.
In addition, other income was lower in 1997 compared to 1996 due to a change in
the billing practices for meals. In 1996, meals were charged to residents on an
a la carte plan and income derived from these meals were included in other
income. In 1997, a change was made to include meals as part of the base rental
package at the assisted living facilities.
Sources of revenue for the three months ended June 30, 1997 and June 30, 1996
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Rent $1,375 $1,308
Assisted Living 141 100
Interest 6 92
Other 19 44
------ ------
Total Revenue $1,541 $1,544
====== ======
</TABLE>
Total costs and expenses for the three months ended June 30, 1997 were $1.6
million, a decrease of over 7% compared to costs and expenses of $1.7 million
for the three months ended June 30, 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 June 30, 1997 increased approximately 9% to $685,000
for three months ended June 30, 1997 from $630,000 for the three months ended
June 30, 1996. The increase in rental property operations is primarily due to
increased payroll expenses.
<PAGE> 8
Assisted living expenses consist primarily of payroll expense related to the
provision of assisted living services. Assisted living expenses increased to
$52,000 for the three months ended June 30, 1997 from $49,000 for the three
months ended June 30, 1996. Assisted living expenses increased due to increased
levels of staffing required to providing assisted living 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 22% to $133,000 for the three months ended June 30, 1997 from
$109,000 for the three months ended June 30 1996. The general and administrative
expenses increase is due to increased accounting and corporate overhead
expenses.
Depreciation and amortization expense incurred during the three months ended
June 30, 1997 decreased by $71,000 (approximately 24%) to $228,000 compared to
$299,000 for the three months ended June 30, 1996. The decrease is due to a
portion of fixed assets becoming fully depreciated.
Interest expense decreased approximately 25% to $358,000 for the three months
ended June 30, 1997 from interest expense of $477,000 incurred during the three
months ended June 30, 1996. Following recognition of the sale of Heritage Pointe
Claremont, the property and related debt were eliminated from the financial
statements of the Partnership. As a result, the decrease in debt led to the
decrease in interest expense.
Selected costs and expenses for the three months ended June 30, 1997 and June
30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Rental Property Operations $685 $630
Assisted Living 52 49
General and Administrative 133 109
Depreciation and amortization 228 299
Property Taxes 66 86
Interest Expense 358 477
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1996.
Revenue for the six months ended June 30, 1997 and 1996 includes rental income,
assisted living revenue from all five facilities, interest income and other
revenue. Total revenue for the six months ended June 30, 1997 and June 30, 1996
was $3.1 million for both periods.
The largest component of revenue, rent, increased by $172,000 to $2.8 million
during the six months ended June 30, 1997 reflecting an approximate 7% increase
over rental income of $2.6 million earned during the six months ended June 30,
1996.
During the six month period ended June 30, 1997, assisted living revenue
increased 46% to $278,000 from assisted living revenues of $190,000 recorded
during the six months ended June 30, 1996. The increase in assisted living
revenue was due to the full implementation of a tiered assisted living services
program in conjunction with an aggressive marketing campaign within the
facilities.
Interest income and other income for the six month period ended June 30, 1997
decreased 96% and 59%, respectively, when compared to the six month period ended
June 30, 1996. The reduction of interest income reflects the elimination of
Heritage Point Claremont from the financial statements and the related interest
income.
<PAGE> 9
Other revenue, which consists primarily of banquet income, processing fees and
beauty shop revenue, was lower during the six month period ended June 30, 1996
in comparison to the six month period ended June 30, 1996. The primary reason
for the decline in revenue is the change in billing practice which includes
meals in the base rental fee.
Sources of revenue for the six months ended June 30, 1997 and June 30, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Rent $2,752 $2,581
Assisted Living 278 190
Interest 8 197
Other Income 44 105
------ ------
TOTAL REVENUE $3,082 $3,073
====== ======
</TABLE>
Total costs and expenses for the six months ended June 30, 1997 were $3.1
million, a decrease of approximately 7% over costs and expenses of $3.3 million
the six months ended June 30, 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 expense
increased by 8% to $1.4 million for the six months ended June 30, 1997 compared
to $1.3 million for the six month period ended June 30, 1996. The increase in
rental property operating expenses is primarily due to an increase in both
payroll-related and maintenance and supplies expenses.
Assisted living expenses consist mainly of payroll expense related to the
provision of assisted living services. Assisted living expenses incurred for the
six months ended June 30, 1997 increased to $107,000, an increase of 14%, from
$94,000 for 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 20% to $244,000 for the six months ended June
30, 1997 from $203,000 for the six months ended June 30, 1996.
Depreciation and amortization expense decreased $143,000 to $455,000 for the six
months ended June 30, 1997 from $598,000 for the six months ended June 30, 1996.
Depreciation and amortization expense decreased due to the full depreciation of
certain fixed assets.
Interest expense decreased by 25% to $719,000 for the six months ended June 30,
1997 compared to $953,000 for the six months ended June 30, 1996. Following
recognition of the sale of Heritage Pointe Claremont, the property and related
debt were eliminated from the financial statements of the Partnership. As a
result, the decrease in debt led to the decrease in interest expense.
Selected costs and expenses for the six months ended June 30, 1997 and June 30,
1996 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Rental Property Operations $1,376 $1,271
Assisted Living 107 94
General & Administrative 244 203
Depreciation & Amortization 455 598
Property Taxes 131 162
Interest Expense 719 953
</TABLE>
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
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 and make required principal reductions of debt.
Cash currently generated by operations is being reserved by the Partnership to
fund start-up costs to be incurred by the Villa Las Posas facility which is
expected to commence operations in the fall of 1997. On a long-term basis, the
Registrant's liquidity is sustained primarily from cash flow provided by
operating activities. During the three months ended June 30, 1997, cash provided
by operating activities was $707,000 compared to cash provided by operating
activities of $248,000 for the three months ended June 30, 1996.
During the three months ended June 30, 1997, the Registrant used net cash in
investing activities of $2.9 million compared to net cash provided by investing
activities of $870,000 for the three months ended June 30, 1996. The
Registrant's investing activities consisted of capital improvements made on its
five operating properties and construction of its assisted living facility in
development (Villa Las Posas).
During the three months ended June 30, 1997, financing activities provided net
cash of $2.3 million compared to using net cash in financing activities of
$738,000 for the three months ended June 30, 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 $18.3 million as of June 30,
1997, comprised of $4.8 million due January 1, 2007, $3.0 million due February
1, 2017, $3.9 million due February 1, 2019 and $4.2 million due November 1,
2017. The remaining balance of $61,000 consists of notes secured by equipment.
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> 11
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> 12
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: August 14, 1997
By: /s/ GRAHAM P. ESPLEY-JONES
-----------------------------
Graham P. Espley-Jones
Chief Financial Officer
Date: August 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,007
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,007
<PP&E> 25,810
<DEPRECIATION> (4,159)
<TOTAL-ASSETS> 27,916
<CURRENT-LIABILITIES> 1,265
<BONDS> 18,287
0
0
<COMMON> 0
<OTHER-SE> 8,307
<TOTAL-LIABILITY-AND-EQUITY> 27,916
<SALES> 0
<TOTAL-REVENUES> 1,541
<CGS> 0
<TOTAL-COSTS> 1,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 358
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
