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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: 0-26470
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0365417
- -------------------------------- --------------------
(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 III, L.P.
(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 $ 2,224 $ 2,224
Buildings and improvements, less accumulated
depreciation of $3,118 and $2,976 at March 31, 2000
and December 31, 1999, respectively 12,632 12,768
Furniture, fixtures and equipment, less accumulated
depreciation of $572 and $527 at March 31, 2000 and
December 31, 1999, respectively 707 746
-------- --------
Net properties 15,563 15,738
Cash 2,366 2,190
Restricted cash 170 168
Loan fees, less accumulated amortization of $305 and $240
at March 31, 2000 and December 31, 1999, respectively 338 401
Other assets 266 289
-------- --------
$ 18,703 $ 18,786
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable to banks $ 13,286 $ 13,323
Notes payable to others 2,333 2,342
Accounts payable 77 116
Accrued expenses 549 486
Amounts payable to affiliate 88 118
Distributions payable to Partners 164 286
-------- --------
Total liabilities 16,497 16,671
-------- --------
Commitments and contingencies
Minority interest 142 115
-------- --------
Partners' capital (deficit):
General partners' deficit (138) (139)
Limited partners' capital, 18,666 units outstanding 2,202 2,139
-------- --------
Total partners' capital 2,064 2,000
-------- --------
$ 18,703 $ 18,786
======== ========
</TABLE>
See accompanying notes to the unaudited financial statements.
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American Retirement Villas Properties III, L.P.
(a California limited partnership)
Condensed Statements of Income
(unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
------- -------
<S> <C> <C>
Revenues:
Rent $ 1,907 $ 1,954
Assisted living 268 265
Interest and other 91 109
------- -------
Total operating revenues 2,266 2,328
------- -------
Costs and expenses:
Rental property operations 1,115 1,088
Assisted living 179 157
General and administrative 91 119
Depreciation and amortization 271 288
Property taxes 56 80
Advertising 24 18
Interest 383 413
------- -------
Total operating costs and expenses 2,119 2,163
------- -------
Operating income 147 165
Income tax expense 3 --
------- -------
Loss from continuing operations before minority
interest in income of majority owned entities, gain on
sale of properties and change in accounting principle 144 165
Minority interest in income of majority owned entities 80 51
------- -------
Net income before gain on sale of properties
and change in accounting principle 64 114
Gain on sale of properties -- 4,739
------- -------
Net income before cumulative effect of change
in accounting principle 64 4,853
Cumulative effect of change in accounting principle -- (96)
------- -------
Net income $ 64 $ 4,757
======= =======
Net income per limited partner unit before
cumulative effect of change in accounting principle 3.39 257.40
Cumulative effect of change in accounting principle -- (5.09)
------- -------
Net income per limited partner unit $ 3.39 $252.31
======= =======
</TABLE>
See accompanying notes to the unaudited financial statements.
3
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American Retirement Villas Properties III, L.P.
(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 $ 64 $ 4,757
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 271 288
Profit on sale of properties -- (4,739)
Cumulative effect of change in accounting principle -- 96
Change in assets and liabilities:
Increase in restricted cash (2) (2)
Decrease in other assets 21 230
Increase (decrease) in accounts payable and
accrued expenses 24 (583)
Increase (decrease) in amounts payable to
affiliate, net (30) 270
Increase in minority interest 80 2
------- --------
Net cash provided by operating activities 428 319
------- --------
Cash flows provided by (used in) investing activities:
Proceeds from sale of senior apartment projects -- 4,030
Additions to furniture, fixtures and equipment (30) (18)
------- --------
Net cash provided by (used in) investing securities (30) 4,012
------- --------
Cash flows used in financing activities:
Principal repayments on notes payable to banks and others (46) (36)
Distributions paid (176) (4,083)
------- --------
Net cash used in financing activities (222) (4,119)
------- --------
Net increase in cash 176 212
Cash at beginning of period 2,190 1,900
------- --------
Cash at end of period $ 2,366 $ 2,112
======= ========
Supplemental schedule of cash flow information -
Cash paid during the period for interest $ 383 $ 413
======= ========
Supplemental schedule of non-cash investing and
financing activities:
Note receivable from sale of senior apartments $ -- $ 2,765
Notes payable assumed by the buyer of the
senior apartments -- 10,605
</TABLE>
See accompanying notes to the unaudited financial statements.
4
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American Retirement Villas Properties III, 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 III, 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.
RECENT ACCOUNTING DEVELOPMENTS
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up Activities,"
which is effective for fiscal years beginning after December 15, 1998. The SOP
provides guidance on the financial reporting of start-up activities and
organizational costs. It requires costs of start-up activities and
organizational costs to be expensed when incurred and, upon adoption, the
write-off as a cumulative effect of a change in accounting principle of any
previously capitalized start-up or organizational costs. We adopted the
provisions of SOP 98-5 on January 1, 1999 and reported a charge of approximately
$96,000 in 1999 for the cumulative effect of this change in accounting
principle.
(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 $112,000 and $116,000, for the three-month periods
ended March 31, 2000 and 1999, respectively. Additionally, we pay ARV a
partnership management fee of 10 percent of cash flow before distributions, as
defined in the Partnership Agreement, which amounted to $44,000 and $52,000 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) Increase/
2000 1999 (decrease)
------ ------ ----------
<S> <C> <C> <C>
Revenues:
Rent ............................................ $ 1.9 $ 1.9 (2.4)%
Assisted living ................................. 0.3 0.3 1.3%
Interest and other revenue ...................... 0.1 0.1 16.8%
------ ------ -----
Total operating revenues ................ 2.3 2.3 (2.7)%
------ ------ -----
Costs and expenses:
Rental property operations ...................... 1.1 1.1 2.6%
Assisted living ................................. 0.1 0.1 13.9%
General and administrative ...................... 0.1 0.1 (24.1)%
Depreciation and amortization ................... 0.3 0.3 (5.9)%
Property taxes .................................. 0.1 0.1 (29.5)%
Interest ........................................ 0.4 0.4 (7.3)%
Minority interest in operations ................. 0.1 0.1 58.4%
------ ------ -----
Total costs and expenses ................ 2.2 2.2 (0.6)%
------ ------ -----
Operating income ........................ 0.1 0.1 (41.9)%
Gain on sale of property .......................... -- 4.7 100.0%
------ ------ -----
Income before cumulative effect of change in
accounting principle ........................... 0.1 4.8 (98.6)%
Cumulative effect of change in accounting principle -- (0.1) 100.0%
------ ------ -----
Net income ............................. $ 0.1 $ 4.7 (98.6)%
====== ====== =====
</TABLE>
The decrease in rental revenue is attributable to:
o one and a half months of rent from senior apartments in 1999 due to
the sale of the three apartment projects on February 19, 1999;
offset by
o average occupancy increase at our assisted living communities to
98.5% for the three-month period ended March 31, 2000 compared to
93.4% for the three-month period ended March 31, 1999; and
o an increase in average rental rate per occupied unit to $1,704 for
the three-month period ended March 31, 2000 compared to $1,528 the
three-month period ended March 31, 1999;
Assisted living and other revenues is remained constant.
The increase in rental property operations and assisted living operating
expenses is attributable to increased wages of staff.
General and administrative expenses decreased due to a reduction of expenses
previously allocated due to cost-cutting efforts.
The decrease in depreciation and amortization expense is related to the sale of
the three senior apartments on February 19, 1999.
Property taxes decreased due to the sales of the senior apartments on February
19, 1999.
The decrease in interest expense is related to the buyers assumption of the
notes payable for the three senior apartments sold on February 19, 1999.
The increase in minority interest is a result of our improved financial results
from a community in which we hold a 50% partnership interest.
6
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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 remained constant at $0.4 million compared to $0.4 million in 1999.
During the three-month period ended March 31, 2000, our net cash used in
investing activities was $0.03 million compared to cash provided by investing
activities of $3.9 million for the corresponding period in 1999. The decrease
was a result of the sale of the three senior apartment projects in 1999.
During the three-month period ended March 31, 2000, our net cash used in
financing activities was $0.2 million compared to cash used in financing
activities of $4.1 million for the corresponding period in 1999. In 1999 the
cash used in financing activities was the result of distribution of the sale
proceeds from the senior apartment sale to the partners.
We contemplate spending approximately $300,000 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 they 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 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 III,
A CALIFORNIA LIMITED PARTNERSHIP
By: ARV Assisted Living, Inc.,
a Delaware Corporation
(Managing General Partner)
By: /s/ Douglas M. Pasquale
-----------------------------------------
Douglas M. Pasquale
Chairman of the Board of ARVAL
Date: May 12, 2000
By: /s/ Abdo H. Khoury
-----------------------------------------
Abdo H. Khoury
Senior Vice President, Chief
Financial Officer of ARVAL
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> 2,366
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,253
<DEPRECIATION> 3,690
<TOTAL-ASSETS> 18,703
<CURRENT-LIABILITIES> 0
<BONDS> 15,619
0
0
<COMMON> 0
<OTHER-SE> 2,064
<TOTAL-LIABILITY-AND-EQUITY> 18,703
<SALES> 0
<TOTAL-REVENUES> 2,266
<CGS> 0
<TOTAL-COSTS> 1,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383
<INCOME-PRETAX> 67
<INCOME-TAX> 3
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-BASIC> 3.39<F1>
<EPS-DILUTED> 3.39<F1>
<FN>
<F1>Net income per limited partner unit.
</FN>
</TABLE>
