<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, 1998
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
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Properties, at cost:
Land $ 4,674 $ 4,674
Buildings and improvements, less accumulated
depreciation of $4,387 and $4,122 at March 31,
1998 and December 31, 1997, respectively 24,038 24,126
Furniture, fixtures and equipment, less
accumulated depreciation of $408 and $373 at
March 31, 1998 and December 31, 1997, respectively 948 760
-------- --------
Net properties 29,660 29,560
Cash 2,259 1,086
Restricted cash 156 153
Loan fees, less accumulated amortization of
$183 and $175 at March 31, 1998 and December 31,
1997, respectively 62 70
Amounts receivable from affiliates -- 265
Other assets 243 107
-------- --------
$ 32,380 $ 31,241
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable to banks $ 16,805 $ 16,086
Notes payable to others 4,790 4,803
Accounts payable 688 974
Accrued expenses 458 328
Amounts payable to affiliate 903 383
Distributions payable to Partners 399 46
-------- --------
Total liabilities 24,043 22,620
-------- --------
Commitments and contingencies
Minority interest 79 74
-------- --------
Partners' capital (deficit):
General partners' deficit (70) (74)
Limited partners' capital, 18,666 units outstanding 8,328 8,621
-------- --------
Total partners' capital 8,258 8,547
-------- --------
$ 32,380 $ 31,241
======== ========
</TABLE>
See accompanying notes to the unaudited financial statements.
<PAGE> 3
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Statements of Operations
(unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Revenues:
Rent $ 1,909 $ 1,377
Assisted living 218 137
Interest and other 64 27
------- -------
Total revenues 2,191 1,541
------- -------
Costs and expenses:
Rental property operations 969 691
Assisted living 87 55
General and administrative 136 111
Depreciation and amortization 334 228
Property taxes 70 65
Advertising 22 9
Interest 474 361
Minority interest in operations 35 22
------- -------
Total costs and expenses 2,127 1,542
------- -------
Net income (loss) $ 64 $ (1)
======= =======
Net income (loss) per limited partner unit $ 3.40 $ (.05)
======= =======
</TABLE>
See accompanying notes to the unaudited financial statements.
<PAGE> 4
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Statements of Cash Flows
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................ $ 64 $ (1)
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization ............................................ 334 228
Interest expense on notes payable to bank added to principal ............. 115 --
Change in assets and liabilities:
Increase in restricted cash ........................................... (3) (1)
Increase in other assets .............................................. (136) (118)
(Decrease) increase in accounts payable and accrued liabilities ....... (156) 353
Increase in amounts payable from affiliates, net ...................... 785 65
Increase in minority interest ......................................... 5 9
------ ------
Net cash provided by operating activities ........................ 1,008 535
------ ------
Cash flows used in investing activities:
Improvements and building construction ..................................... (176) (915)
Additions to furniture, fixtures and equipment, net ........................ (250) (32)
------- ------
Net cash used in investing activities ............................. (426) (947)
------- ------
Cash flows from financing activities:
Proceeds from notes payable ................................................ 663 662
Principal repayments on notes payable to banks and others .................. (72) (70)
Distributions paid ......................................................... -- --
------- ------
Net cash provided by financing activities ........................ 591 592
------- ------
Net increase in cash ........................................................... 1,173 180
Cash at beginning of period .................................................... 1,086 893
------- ------
Cash at end of period .......................................................... $ 2,259 $1,073
======= ======
Supplemental disclosure of cash flow information -
Cash paid during the period for interest ................................... $ 490 $ 361
======= ======
</TABLE>
See accompanying notes to the unaudited financial statements.
<PAGE> 5
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Notes to Financial Statements
(Unaudited)
March 31, 1998
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
All adjustments, consisting only of recurring accruals, have been made that are
necessary to present fairly the financial position and results of operations for
the periods covered by this report. The results of operations for the three
months ended March 31, 1998, are not necessarily indicative of the operating
results for the full year.
Pursuant to Regulation S-X Rule 10-1(5), American Retirement Villas Properties
III, L.P.'s (the "Partnership") significant accounting policies are described in
the Partnership's December 31, 1997 Form 10-K filed with the Securities and
Exchange Commission. The Partnership follows the same accounting policies for
interim reporting purposes. This quarterly report should be read in conjunction
with such financial statements.
Certain prior period amounts have been reclassified to conform to the current
period financial statement presentation.
(2) TRANSACTIONS WITH AFFILIATES
The Partnership has an agreement with ARV Assisted Living, the Partnership's
Managing General Partner, providing for a property management fee of 5 percent
of gross revenues and a partnership management fee of 10 percent of cash flow
before distribution, as defined in the Partnership Agreement. Property
management fees and partnership administration fees were $110,000 and $51,000
for the three months ended March 31, 1998, respectively.
<PAGE> 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
Revenue includes rental income, assisted living income, interest earned on cash
balances and other revenue. Revenue increased $650,000 for the three-month
period ended March 31, 1998, respectively, compared with the corresponding
period in 1997. The increase resulted primarily from the operations of Villa Las
Posas, which opened in December 1997, and by additional residents using assisted
living services during 1998.
COSTS AND EXPENSES
Total costs and expenses includes rental property operations (consisting of, but
not limited to, property management costs, payroll related expenses, utilities,
food, and maintenance expenses), assisted living expenses, general and
administrative (comprised of, but not limited to, costs for accounting,
partnership administration, bad debt, data processing, investor relations,
insurance and professional services), facilities rent, depreciation and
amortization, property taxes, advertising and interest. Costs and expenses
increased $585,000 for the three-month period ended March 31, 1998, compared
with the corresponding period in 1997. The increase resulted primarily from the
operations of Villa Las Posas which commenced operations in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
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 of debt and
make quarterly distributions. On a long-term basis, the Partnership's liquidity
is sustained primarily from cash flow provided by operating activities. During
the three-month period ended March 31, 1998, cash provided by operating
activities increased to $1.0 million compared to $535,000 for the corresponding
period in 1997.
During the three-month period ended March 31, 1998, the Partnership's net cash
used in investing activities decreased to $426,000 compared to net cash used in
investing activities of $947,000 for the corresponding period in 1997. The
Partnership's investing activities consisted of capital improvements made on its
operating properties and remaining construction expenditures related to Villa
Las Posas.
During the three-month period ended March 31, 1998, the Partnership's net cash
provided by financing activities was $591,000 compared to net cash provided by
financing activities of $592,000 for the corresponding period in 1997. The
Partnership's financing activities consisted of borrowings from its construction
loan and principal reduction on its notes payable to banks and others.
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 Villa Las Posas. The terms of the
construction loan provide for the interest rate to be equal to 30 day LIBOR rate
plus 2.75 percent. As of March 31, 1998, the Partnership had $6.0 million
outstanding under this construction loan. In addition, the Partnership has
long-term notes payable to banks and others of $15.6 million as of March 31,
1998.
<PAGE> 7
The Partnership contemplates spending approximately $800,000 for capital
expenditures during 1998 for physical improvements at its communities, which are
expected to be available from operations.
There are no known material trends, favorable or unfavorable, in the
Partnership's capital resources, and there is no expected change in the mix of
such resources.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule
B. None
<PAGE> 8
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.
a Delaware Corporation
(Managing General Partner)
By: /s/ Howard G. Phanstiel
-----------------------------
Howard G. Phanstiel
Chief Executive Officer and
Chairman the Board
Date: May 15, 1998
By: /s/ Graham P. Espley-Jones
-----------------------------
Graham P. Espley-Jones
Chief Financial Officer
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,259
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,455
<DEPRECIATION> 4,795
<TOTAL-ASSETS> 32,380
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,258
<TOTAL-LIABILITY-AND-EQUITY> 32,380
<SALES> 0
<TOTAL-REVENUES> 2,191
<CGS> 0
<TOTAL-COSTS> 1,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474
<INCOME-PRETAX> 64
<INCOME-TAX> 0
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
</TABLE>
