Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-26470
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
(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, SUITE D-1, COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
UNITS OF LIMITED PARTNERSHIP
(TITLE OF CLASS)
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 No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting Units (all voting) held by non-affiliates
of Registrant, computed by reference to the price at which such units were
sold, was $30,000,000 as of March 1, 1997, a date within sixty (60) days of the
filing of this Form 10-K. On that date there were 18,666 Units outstanding.
2
TABLE OF CONTENTS
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
PART I
ITEM 1. BUSINESS
Overview.
Industry Background.
Services.
Operational History.
Competition.
Government Regulation.
Employees.
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
3
PART I
ITEM 1. BUSINESS
OVERVIEW
American Retirement Villas Properties III ("ARVP III", the "Partnership" or the
"Registrant") is the owner and operator of two assisted living facilities,
which house and provide personal care and support services to its senior
residents, and three senior apartment complexes in California and Arizona. In
addition, ARVP III is currently developing an assisted living facility with 123
units in Camarillo, California which is expected to open in the third calendar
quarter of 1997. The two assisted living facilities currently in operation
are located in California and Arizona and contain an aggregate of 256 units.
All three senior apartments are located in Southern California and contain an
aggregate of 416 units.
ARVP III is a California limited partnership, which was formed in June of 1989
to develop, finance, acquire and operate senior citizen housing. The general
partners are: ARV Assisted Living, Inc. ("ARVAL") (formerly ARV Housing Group,
Inc.), which serves as Managing General Partner, Gary L. Davidson, John A.
Booty, John S. Jason, Tony Rota, and David P. Collins (collectively known as
"General Partners"). The General Partners make all decisions concerning
property acquisitions and will make all decisions concerning dispositions of
the facilities, subject to the limited partner's rights to approve or
disapprove of the sale of substantially all of ARVP III's assets. The
Registrant has not made any investment which the General Partners believe puts
the Registrant's capital at unusual risk.
On September 15, 1989, the Registrant began offering a total of 35,000 Units at
$1,000 per unit The offering terminated on October 31, 1992 and the Registrant
realized gross offering proceeds of $18,665,000. In January and March of 1993,
the Partnership repurchased and effectively retired 10 units for $8,500 and 3
units for $2,550, from Limited Partners. During 1993, the Registrant applied
for and earned block grants totaling a gross amount of approximately $1,081,000
allocated to two of its properties. As of December 31, 1994, approximately
$1,018,000 had been received. All of the proceeds from the Offering and a
portion of the proceeds from the block grants were allocated to, and spent on
properties, which the Registrant either owns outright or through its interest
as managing general partner of the partnership which holds title to the
respective property.
Although the expiration of the minimum holding period (five to seven years) is
approaching for certain facilities, there is no definite plan to sell any
facility in accordance with a timetable. Any determination regarding sale will
be dependent upon the current and projected operating performance, the needs of
the Registrant, the availability of buyers and buyers' financing and, in
general, the relative merits of continued operation as opposed to sale. On any
sale, the Registrant may accept purchase money obligations, unsecured or
secured by mortgages as payment, depending upon then prevailing economic
conditions that are customary in the area in which the property is located,
credit of the buyer and available financing alternatives. (See ITEM 2,
"PROMISSORY NOTES RESULTING FROM THE SALE OF HERITAGE POINTE CLAREMONT"
"PROMISSORY NOTES") In such event, full distribution to the Partners may be
delayed until the notes are paid at maturity, sold, refinanced or otherwise
liquidated.
INDUSTRY BACKGROUND
ARVP III provides affordable senior apartments to qualified independent seniors
who do not need or want the services provided by congregate care or assisted
living facilities. These independent housing facilities are intended for
people who enjoy an active lifestyle but want to be free of the burdens and
responsibilities of owning and maintaining a home.
Assisted living represents a combination of housing, personalized support
services, and health care designed to respond to the individual needs of the
senior elderly who need help with activities of daily living, but do not need
the higher acuity medical care provided in a skilled nursing facility. The
assisted living market can be viewed as falling near the middle of the elder
care continuum, between home-based care at one end and long-term skilled
nursing facilities and acute care hospitals at the other.
The Registrant believes that the assisted living and senior apartment
businesses will benefit from several significant trends affecting the long-term
care industry. These are as follows:
4
Demographic trends: While increasing numbers of Americans are living longer and
healthier lives, many gradually require increasing assistance with activities
of daily living, and are not able to continue to age in place at home. The
typical resident at an assisted living facility is over the age of 65 with the
largest percentage of residents around 84 years of age. This group represents
one of the fastest growing segments of the population. According to the U.S.
Bureau of the Census data, the number of people in the U.S. age 65 and older is
expected to increase over 16% from 1996 to 2010. Moreover, the segment of the
population 85 years of age or older is projected to increase more than 51%
between the years of 1996 to 2010.
Another trend benefiting the assisted living industry is the increased
affluence of the elderly population with incomes sufficient to afford assisted
living. According to the National Planning Data Corporation Senior Life
Report, in 1990, 1.9 million people over the age of 80 were estimated to have
incomes over $15,000. By 1998, this number is projected to reach
approximately 3.3 million people, an increase of 74%.
Historically, seniors were taken care of by their children, however, the
increased number of two wage earner families has reduced the supply of in-home
caregivers who are able to care for their elderly relatives at home. At the
same time, the number of elderly people living alone has increased dramatically
which can be attributed to rising divorce rates, lifestyle choices and
longevity patterns. Assisted living facilities have and will continue to
fill this void as the number of seniors without a family support system at home
who need assistance in their daily activities increases.
Health care cost containment: In response to rapidly rising health care costs
in this country, both the federal government and private pay sources have
adopted cost containment measures that have encouraged reduced length of stay
in hospitals and skilled nursing facilities. According to the U.S. Department
of Health and Human Resources, approximately 25% to 40% of all nursing home
residents could be cared for in a less institutional and more cost effective
environment. Assisted living offers a cost-effective alternative for those
individuals who do not require the level of medical services provided by
hospitals and skilled nursing facilities.
Limited number of nursing home beds: The majority of states in the U.S. have
enacted "Certificates of Need" or similar legislation, which generally limits
the construction of skilled nursing facilities and the addition of beds or
services in existing skilled nursing facilities. This legislation, coupled
with higher construction costs, limitations on government reimbursement for the
full cost of construction and start-up expenses also act to constrain growth in
the supply of such facilities. Such restrictive legislation benefits the
assisted living industry by limiting the supply of skilled nursing beds for the
senior elderly. Moreover, cost factors are placing pressure on skilled nursing
facilities to shift their focus toward higher acuity care thus creating a
shortage of lower acuity care availability, and thereby increasing the pool of
potential assisted living residents.
SERVICES
The Registrant provides services and care, which are designed to meet the
individual needs of its residents. The services provided are designed to
enhance both the physical and mental well-being of the senior resident in each
of the Registrant's facilities by promoting their independence and dignity in a
homelike setting. The assisted living program at the Registrant's facilities
include:
Personalized Care Plan - A primary element of the Registrant's strategy is the
concept of "personalized" care to meet each resident's specific needs. This
concept of customizing services to meet the needs of the residents begins with
the resident admissions process, where the facility's management staff, the
resident, the resident's family, and
5
the resident's physician, discuss the resident's needs and develop a plan for
the resident's care. If recommended by the resident's physician, additional
health care or medical services may be provided at the facility by a third
party home health care agency or other medical provider.
Basic Service and Care Package - The basic service and care package at the
Registrant's assisted living facilities generally includes the following: meals
in a communal, "home-like" setting, housekeeping, linen and laundry service,
social and recreational programs, security, utilities, and transportation.
Other care services can be provided under the basic package based upon the
individual's personalized health care plan.
Additional Services - The Registrant has designed additional assisted living
services in a three-tier program available to residents on a personalized
basis. These services are described as follows:
o Level One: Assistance to residents in the self-administration of medication.
Where necessary, the assisted living staff will consult with the family,
the physician or the insurance company of a resident to designate a home
health care agency to administer the appropriate medication.
o Level Two: In addition to the services provided under Level One, assistance
with bathing, dressing and grooming, escorting to and from meals and
activities, reading mail, writing letters, shopping and other specialized
activities. These services are provided on an as-needed basis and at the
convenience of the resident.
o Level Three: All of the services provided by Level One and Two, and, in
addition, provision of those services on a 24-hour basis. Further, this
level provides appropriate services for individuals who require assistance
with incontinence.
COMPETITION
Assisted living providers compete principally on the basis of the quality of
care, breadth of services, location, facility appearance, price and reputation.
Because of the changing demographics in the United States and the favorable
attention that the assisted living industry has recently received, ARVP III
expects increasing competitive pressure in the future. Currently, ARVP III
competes not only with other assisted living providers but also with a number
of healthcare service providers from home healthcare companies, retirement
communities and facilities, and, to a lesser extent, convalescent centers and
nursing homes. Many of these competitors are national and regional companies
with greater financial resources than those of ARVP III. However, management
believes that most of the competitive pressure will come from local and
regional long-term care providers within the same geographical area as its
prospective residents who tend to move to facilities near their home.
GOVERNMENT REGULATION
Assisted living facilities are subject to certain state regulations and
licensing requirements. In order to qualify as a state licensed facility,
assisted living facilities must comply with regulations which address, among
other things, building codes and other ordinances, including fire safety codes,
staffing requirements, required services and care standards and resident
characteristics. Currently, both assisted living facilities are licensed and
in substantial compliance with state regulations.
No significant changes in the state regulations are expected in the near future
that would materially impact the business.
6
EMPLOYEES
Personnel at each of the Registrant's five facilities are employees of ARVAL.
As of December 31, 1996, approximately 85 people were employed at these
facilities. While none of ARVAL's employees are currently unionized, any
unionization of workers in the assisted living industry or at the Registrant's
facilities could increase labor costs. No assurances can be given that the
facilities labor costs will not increase, or if they do increase, that they can
be matched by corresponding increases in rental or management revenue. In
addition, a shortage of qualified personnel may require ARVAL to enhance its
wage and benefits package in order to compete with other providers of assisted
living and senior housing to attract and retain qualified individuals.
ITEM 2. PROPERTIES
The following table sets forth, as of December 31, 1996, the location, the date
on which operations commenced, number of units, number of beds, and the
Company's interest in the property.
ARVPIII COMMENCED
FACILITY LOCATION OPERATIONS UNITS INTEREST
-------- -------- ---------- ----- --------
ASSISTED LIVING FACILITIES
Bradford Square Placentia, CA 1992 92 Fee Owned
Chandler Villa Chandler, AZ 1992 164 Fee Owned
Villa Las Posas Camarillo, CA Anticipated 123 Fee Owned
Third Quarter 1997
SENIOR APARTMENTS
Cedar Villas Ontario, CA 1992 137 Fee Owned
Pacific Villas Pomona, CA 1992 132 Fee Owned
Villa Azusa Azusa, CA 1993 147 Fee Owned
OPERATIONAL HISTORY
The following tables summarize the average occupancy rate and average monthly
rental rate per occupied unit at each of the five facilities over the past five
years.
OCCUPANCY RATE
FACILITY 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
ASSISTED LIVING FACILITIES
Bradford Square 93% 92% 95% 93% 88%
Chandler Villa 97% 99% 99% 99% 97%
SENIOR APARTMENTS
Cedar Villa 89% 93% 93% N/A N/A
Pacific Villa 90% 90% 95% N/A N/A
Villa Azusa 94% 82% 84% N/A N/A
AVERAGE MONTHLY RENTAL RATE
FACILITY 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
ASSISTED LIVING FACILITIES
Bradford Square $1,440 $1,422 $1,387 $1,360 $1,347
Chandler Villa $833 $716 $704 $688 $679
7
SENIOR APARTMENTS
Cedar Villa $451 $448 $443 N/A N/A
Pacific Villa $579 $560 $547 N/A N/A
Villa Azusa $489 $477 $465 N/A N/A
PROMISSORY NOTES RESULTING FROM THE SALE OF HERITAGE POINTE CLAREMONT
HERITAGE POINTE CLAREMONT PARTNERS, L.P. ("HPCP")
In January 1992, the Registrant became a 50% co-general partner with Urban
Housing Systems, Inc., a California Corporation ("UHSI") which owned a 12.5%
interest, and two individuals (Michael Costa and John Huskey), each of whom
owned 18.5% of the Partnership as limited partners. The partners contributed
cash and all of their rights in several contracts to purchase, finance and
develop a senior apartment complex in Claremont, California. Among the
operating contracts was a Disposition and Development Agreement with the City
of Claremont and its Redevelopment Agency, pursuant to which HPCP proceeded to
develop plans for the project.
ACQUISITION
HPCP purchased an undeveloped parcel of land in Claremont, California from the
Claremont Redevelopment Agency for $1,300,000 on October 5, 1992, and obtained
a $5,600,000 construction loan from a commercial lender. With the loan
proceeds, HPCP built a 154-unit senior apartment complex and completed
construction in November, 1993. HPCP received its certificate of occupancy in
November of 1993 and opened in December of 1993.
SALE OF PROJECT, RECEIPT OF NOTES
On May 31, 1993, Messrs. Costa and Huskey sold their partnership interests in
HPCP to the Registrant (See above in this ITEM 2 "SENIOR APARTMENTS, GENERAL.")
In September 1993, the Registrant contracted to sell the project to Claremont
Senior Partners ("CSP") for $12,281,900. The managing general partner of the
Registrant (ARVAL) is the Special Limited Partner of CSP. The transaction
closed on December 30, 1993. CSP assumed the balance of the construction loan
of $4,852,216 (although the Registrant remained fully liable for the loan) and
the Registrant had taken back two notes receivable to finance the sale.
In September 1994, CSP obtained permanent financing, the proceeds of which were
primarily utilized to pay off the existing balance on the construction loan,
and a portion of the existing balance on the construction loan, and a portion
of the existing principal and interest on the Partnership's related promissory
notes. As a result, both promissory notes were amended and the combined balance
due was reduced to $6,076,110 (eliminating the portion related to the
construction loan). The notes bear interest at 8% and the outstanding balance
and interest are payable from excess cash flows as defined in the CSP
partnership agreement. Additionally, these notes continue to be secured by
certain CSP partners' interests in CSP and are due January 25, 2010.
In April 1996 and January 1995, CSP paid $1,444,000 and $1,145,000 to the
Partnership as principal and interest reductions of the promissory notes. Prior
to 1996, this transaction had not been treated as a completed sale for
accounting purposes under the requirements of Statements of Financial
Accounting Standards Board No. 66 ("SFAS 66"); however, the sale was considered
consummated. Accordingly, at December 31, 1995, the property was reported as
property under contract for sale with the buyer's down payment and payments on
the promissory notes reflected as deposits under contract for sale while the
promissory notes were not recorded in the accompanying consolidated balance
sheet.
Upon the receipt of the principal and interest payment from CSP in April 1996, a
sufficient investment as defined by SFAS 66 was made and the sale was
recognized. As CSP's excess cash flows do not currently exceed the interest
payment requirements, SFAS 66 requires profit on the sale to be recognized
under the cost recovery method as payments are received on the notes.
ITEM 3. LEGAL PROCEEDINGS
There are various legal proceedings pending to which the Registrant is a party,
or to which some of its properties are subject, arising in the normal course of
business. The Registrant does not believe the ultimate resolution of those
proceedings will have a material adverse affect on the Registrant's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to Unit Holders in the fourth quarter of the fiscal
year.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Registrant's securities.
In January and March of 1993, the Registrant repurchased and retired ten units
and three units, respectively.
As of December 31, 1996, there were approximately 1,844 Unit Holders of record
owning 18,666 units. For the years ended December 31, 1996 and 1995, the
Registrant made distributions of $25.02 per unit and $15.03 per unit,
respectively, of which $15.03 represented return of capital to the Unit Holders.
ITEM 6. SELECTED FINANCIAL DATA
The following table represents financial data for each of the last five years.
Certain of this financial data has been derived from the Registrant's audited
financial statements included elsewhere in this Form 10-K and should be read in
conjunction with those financial statements and accompanying notes and with
"Management's Discussion and Analysis of Financial Condition Results of
Operations" at Item 7. This table is not covered by the Independent Auditors'
Report.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except unit data)
Revenues $ 6,140 $ 6,095 $ 6,135 $ 5,382 $ 3,694
Net Income (Loss) 483 (464) (699) (775) 80
Net Income (Loss) per weighted average
Limited Partner Unit outstanding 25.63 (24.62) (37.07) (41.15) 5.04
Total Assets 25,300 32,794 34,794 35,378 29,294
Partners' Capital 8,318 8,307 9,054 12,592 14,027
Long Term Debt 16,023 20,746 21,279 19,661 14,303
Distributions of Earnings (per
weighted average Limited
Partner units outstanding 25.02 -0- -0- -0- 5.04
Distributions - Return
of Capital (per weighted average
Limited Partner units outstanding) -0- 15.03 150.71 34.45 55.39
Total Distributions (per
weighted average Limited
Partner units outstanding 25.02 15.03 150.71 34.45 60.43
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EVENT SUBSEQUENT TO DECEMBER 31, 1996
On March 12, 1997, ARVP III obtained a $7.7 million 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 the thirty-day
LIBOR rate plus 2.75%.
RESULTS OF OPERATIONS
The Partnership reported net income of $483,000 for the year ended December 31,
1996 compared to net losses of $464,000 and $699,000 for the years ended
December 31, 1995 and 1994 respectively. The 1996 net income included net
profit of $569,000 on the sale of Heritage Point Claremont.
Revenue for the years ended December 31, 1996, 1995 and 1994 include rental
income, assisted living revenue, interest earned on cash balances and other
revenue. Total revenue for each of the three years ended December 31, 1996,
1995 and 1994 was $6.1 million.
The largest component of revenue, rent income, increased by approximately
$300,000 from 1995 to 1996 after having been virtually unchanged from 1994 to
1995. The increase was primarily attributable to increased rental rates in the
partnership's assisted living facilities.
Revenue from assisted living income increased by $75,000 (22%) from 1995 to
1996 following a decrease of $20,000 (5%) from 1994 to 1995. The increase in
assisted living revenue in 1996 can be attributed to an aggressive assisted
living services marketing program and the resulting increase in the number of
residents using the program.
Interest, grants and other revenue decreased by $346,000 (53%) from 1995 to
1996 after having been virtually unchanged from 1994 to 1995. The decrease was
due to a one-time grant received in 1995 and interest payments received on the
note receivable from the sale of Heritage Pointe Claremont. Interest income
results from interest earned on cash deposits. Other revenue generally includes
processing fees and beauty shop revenue.
Sources of revenue for the years ended December 31, 1996, 1995 and 1994 are as
follows:
1996 1995 1994
---- ---- ----
(In thousands)
Rent $5,446 $5,130 $5,154
Assisted Living 419 344 364
Interest 178 500 530
Grants -0- 41 -0-
Other 97 80 87
------ ------ ------
Total Revenue $6,140 $6,095 $6,135
====== ====== ======
Total costs and expenses for the years ended 1996, 1995 and 1994 were $6.2
million, $6.6 million and $6.8 million, respectively.
The largest component of expenses, rental property operations, consist
primarily of property management costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operating expenses
increased by $142,000 from 1995 to 1996 following a decrease of $89,000 from
1994 to 1995. The
10
changes in property operating expenses are primarily due to the fluctuations in
aggregate occupancy levels and payroll expenses.
Assisted living expenses consist primarily of payroll expenses and supplies
related to the provision of assisted living services. Assisted living expenses
increased by $29,000 from 1995 to 1996 and decreased by $41,000 from 1994 to
1995. In 1996, assisted living expenses increased as a result of the increase
in the related staff providing assisted living services. The staff size was
increased due to the increase in the number of residents using the assisted
living services. This increase corresponds with the increase in assisted living
revenue. In 1995, assisted living expenses decreased as a result of the
decrease in the related staffing requirements which corresponds with the
decrease in assisted living revenue.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt expense, data processing,
investor relations, insurance and professional services. General and
administrative expense increased by $18,000 from 1995 to 1996 following a
decrease of $27,000 from 1994 to 1995. In 1996, the increase in general and
administrative expense was primarily due to inflationary increases in wages.
In 1995, the decrease was due to the elimination of marketing commissions paid
by the Registrant for leasing of the facilities.
Depreciation and amortization decreased by $251,000 from 1995 to 1996 and
decreased by $51,000 from 1994 to 1995. Depreciation and amortization
decreased due to a portion of fixed assets becoming fully depreciated.
Property taxes decreased by $52,000 from 1995 to 1996 and increased by $63,000
from 1994 to 1995 due to changes in property tax assessments. The Partnership
successfully appealed property tax assessments on certain of its properties.
Interest expense decreased by $265,000 from 1995 to 1996 and decreased by
$81,000 from 1994 to 1995. These decreases are due to the decrease in
borrowings on the Partnership's line of credit. The Partnership no longer has
the line of credit.
Selected costs and expenses for the years ended December 31, 1996, 1995 and
1994 are as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Rental Property Operations $2,639 $2,497 $2,586
Assisted Living 197 168 209
General & Administrative 420 402 429
Depreciation & Amortization 1,003 1,254 1,305
Property Taxes 281 333 270
Interest 1,603 1,868 1,949
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 and
provide distributions to the Partners. On a long-term basis, the Partnership's
liquidity is sustained primarily from cash flow provided by operating
activities. During 1996, net
11
cash provided by operating activities was approximately $1.3 million compared
to $906,000 and $835,000 for the years ended 1995 and 1994, respectively.
During 1996, ARVP III used net cash in investing activities of $71,000 compared
to net cash provided by investing activities of $755,000 and $1.2 million for
the years ended 1995 and 1994, respectively. The Registrant's investing
activities consisted of capital improvements made on its five properties,
construction costs for the property under construction and deposits received on
the property under contract for sale.
During 1996, the Partnership used net cash in financing activities of $862,000
compared to $2.7 million and $1.1 million for the years ended 1995 and 1994,
respectively. The Registrant's financing activities consisted of borrowings or
repayments on notes payable and lines of credit, construction loan draws and
distributions made to partners.
The General Partners are not aware of any trends, other than national economic
conditions, which had had or which may be reasonably expected to have a
material favorable or unfavorable impact on 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 increases in
operating expenses onto the residents at the properties by way of higher rental
and assisted living rates. The Registrant has long term debt of approximately
$16.0 million as December 31, 1996. Of this amount, $51,000 is due by December
1, 2000, $4.8 million is due by January 1, 2007, $3.0 million is due by
February 1, 2017, $4.2 million is due by November 1, 2017 and $3.9 million is
due by February 1, 2019, based on stated terms.
CAPITAL RESOURCES
The Registrant contemplates spending approximately $130,000 for capital
expenditures during 1997 for physical improvements at its five projects. The
funds for these improvements should be available from operations. With respect
to the development of the Villa Las Posas facility, the Registrant believes
that funds provided by construction borrowings will be sufficient to fund the
costs associated with the construction of the facility.
When the Registrant purchased the Pacific Villas and Cedar Villas in 1992, it
took title to the property subject to the existing financing. The financing
contained terms which allowed the lender to declare the entire amount of the
financing due upon sale. To date, the mortgage lenders have not exercised this
option. In the event the mortgage lenders do exercise this option, the
Registrant will be required to either refinance the apartment facilities or
obtain capital to repay the mortgages.
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.
12
FUTURE CASH DISTRIBUTIONS
The General Partners believe that the Registrant's ability to make cash
distributions to limited partners depends on factors such as:
(i) Future costs of long-term financing associated with the
Camarillo site.
(ii) Start-up losses incurred in the initial leasing and
operation of the Camarillo facility.
(iii) The Registrant's ability to rent the available units and
maintain high occupancies.
(iv) The Registrant's ability to control both operating and
administrative expenses.
(v) The Registrant's ability to maintain adequate working
capital.
(vi) The absence of any losses from uninsured property damage
(e.g., earthquakes) or future litigation.
(vii) The Registrant's ability to generate proceeds from the
sales of its properties.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121 ("SFAS No.121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires the Registrant to prepare an assessment of certain
long-lived assets, including many intangible assets, for possible impairment
when events or circumstances indicate the carrying amounts of these assets may
not be recoverable. The Registrant adopted this new pronouncement in fiscal
year 1994 without impact to its financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and the Report of Independent Auditors are listed at
Item 14 and are included beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INDIVIDUAL GENERAL PARTNERS OF THE REGISTRANT
GARY L. DAVIDSON. Mr. Davidson, age 62, an attorney, received his Bachelor's
Degree in 1958 and his Juris Doctor Degree in 1961 from the University of
California at Los Angeles. Mr. Davidson has practiced law in Orange County
since 1962. During his professional career, he has been active in numerous
business and professional sports ventures. In 1979, with Mr. Booty and others,
he founded the predecessor to ARVAL. Mr. Davidson serves as a Director and is
the President and Chairman of the Board of ARVAL.
JOHN A. BOOTY. Mr. Booty, age 58, is a graduate of the University of
California at Berkeley, from which he also holds a Master's Degree in Business
Administration. Mr. Booty was with Ford Motor Company Aeronutronics,
Development Research Associates and Booz Allen and Hamilton, of which Mr. Booty
was a Vice President. In 1979, with Mr. Davidson and others, he founded the
predecessor to ARVAL. In 1996 Mr. Booty retired as President of ARVAL. Mr.
Booty continues to serve as a Director of ARVAL.
DAVID P. COLLINS. Mr. Collins, age 59, received his Bachelor's Degree from St.
Anselm College, Manchester, New Hampshire in 1960. His first association with
ARVAL occurred in 1982. Mr. Collins is a registered principal with the National
Association of Securities Dealers, Inc. Mr. Collins is a member and former
Chairman of the Board of the Orange County Chapter of the International
Association for Financial Planners. For many years, Mr. Collins was active in
the field of international finance, mostly in the Middle East, and in 1971, was
a founder of the World Trade Center Association of Orange County. Mr. Collins
is a Director and Senior Executive Vice President of ARVAL.
JOHN S. JASON, 61, graduated from the University of Indiana with a degree in
Business Administration. He was associated with KPMG Peat Marwick LLP for 6
years. In 1979, with Messrs. Booty, Davidson and Rota, he founded the
predecessor to ARVAL. In February 1993, Mr. Jason retired from active service
with ARVAL and retired from his positions as a Director and as Executive Vice
President of ARVAL. Mr. Jason is currently retired.
TONY ROTA, 68, is a licensed real estate broker, and has been active in real
estate investments since 1958. In 1979, with Messrs. Booty, Davidson and Jason,
he founded the predecessor to ARVAL. In November 1992, Mr. Rota retired from
active service with ARVAL and retired from his positions as a Director and as
Vice President of ARVAL. Mr. Rota is currently retired.
EXECUTIVE OFFICERS OF ARV ASSISTED LIVING, INC. ("ARV")
For a description of Messieurs Davidson and Collins, please see above.
GRAHAM P. ESPLEY-JONES. Mr. Espley-Jones, age 37, graduated from Pepperdine
University with an MBA and from San Diego State University with a degree in
Business Administration. Mr. Espley-Jones is a Registered Representative and
Financial Principal with the National Association of Securities Dealers. From
1985 to 1988 he served as the Controller for the real estate division of First
California Savings Bank. Mr. Espley-Jones joined ARVAL in 1988 and serves as
Assistant Secretary and Chief Financial Officer.
DIRECTORS OF ARVAL
For a description of Messieurs Davidson, Booty and Collins, please see above.
14
R. BRUCE ANDREWS. Mr. Andrews, age 56, has served as President and Chief
Executive Officer of Nationwide Health Properties, Inc. (a New York Stock
Exchange listed REIT) since September 1989 and a director of that company since
October 1989. Mr. Andrews had previously served as a director of American
Medical International, Inc., a hospital management company, and served as its
Chief Financial Officer from 1970 to 1985 and its Chief Operating Officer in
1985 and 1986. Mr. Andrews is also a director of Alexander Haagen Properties,
Inc.
MAURICE J. DEWALD. Mr. DeWald, age 57, is Chairman and Chief Executive Officer
of Verity Financial Group based in Irvine, California. Mr. DeWald founded
Verity Financial in 1992 to develop and implement investment opportunities in
the U.S. and internationally. Previously, Mr. DeWald had a 30 year career at
KPMG Peat Marwick LLP, where he was a Managing Partner and served on its Board
of Directors. Mr. DeWald is currently a director of several other firms,
including: Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of California,
and Monarch Funds. He is also a trustee of St. John's Hospital and Health Care
Foundation and Loyola Marymount University, and serves on the advisory Council
of the University of Notre Dame School of Business. Mr. DeWald is a Certified
Public Accountant.
JAMES M. PETERS. Mr. Peters, age 61, is the founder of the J. M. Peters
Company (an American Stock Exchange listed company), a California-based home
building firm operating in 14 western states. Mr. Peters served as President
and Chief Executive Officer of the J. M. Peters Company from its inception in
1975 until his retirement in 1992. During his career, Mr. Peters has been
responsible for building and marketing more than 12,000 housing units. Mr.
Peters serves as a member of the Board of Trustees of the UCLA Foundation.
JOHN J. RYDZEWSKI. Mr. Rydzewski, age 43, is an investment banker specializing
in health care finance. He has been a member of the firm Benedetto, Gartland &
Greene, Inc. since 1993. Mr. Rydzewski served as Executive Vice President and
Chief Financial Officer in 1992 for Four Winds, Inc., a provider of behavioral
health care services. He also served as a Vice President in the health care
finance group of Kidder, Peabody & Co. Incorporated from 1986 to 1992. He has
served as a director of United Medical Corporation, a diversified health
services provider, and Maxim Healthcare Corporation, a behavioral health
services provider. Mr. Rydzewski received a Master of Business Administration
and a Bachelor of Science Degree from the Wharton School of the University of
Pennsylvania and is a Certified Public Accountant.
15
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the General Partners' potential compensation and
the compensation which the General Partners are earning.
Acquisition Fees
(ARV Assisted Living, Inc.) A property acquisition fee of 2% of Gross Offering Proceeds to be paid for services in
connection with the selection and purchase of Projects and related negotiations. In
addition, a development, processing and renovation fee of 3.5% of Gross Offering
Proceeds to be paid for services in connection with negotiations for or the renovation
or improvement of existing facilities and the development, processing or construction
of Projects developed by the Registrant. There were -0- property acquisitions,
development, processing and renovation fees for the years ending December 31, 1996,
1995 and 1994.
Rent-Up and Staff Training Fees
(ARV Assisted Living, Inc.) Rent-up and staff training fees of 4.5% of the Gross Offering Proceeds allocated to
each specific acquired or developed Project. Such fees will be paid for services in
connection with the opening and initial operations of the Projects including, without
limitation, design and implementation of the advertising, direct solicitation and
other campaigns to attract residents and the initial hiring and training of managers,
food service specialists, activities directors and other personnel employed in the
individual facilities. There were no rent-up and staff training fees for the years
ending December 31, 1996, 1995 and 1994.
Property Management Fees
(ARV Assisted Living, Inc.) A property management fee of 5% of gross revenues paid for managerial services
including general supervision, hiring of onsite management personnel employed by the
Registrant, renting of units, installation and provision of food service, maintenance,
and other operations. Property management fees for the years ending December 31, 1996,
1995 and 1994 were $298,000, $280,000 and $326,000, respectively.
Partnership Management Fees
(ARV Assisted Living, Inc.) A fixed partnership management fee of 10% of cash flow before distributions is paid
for implementing the Partnership business plan, supervising and management of
Partnership affairs including general administration, coordination of legal, audit,
tax, and insurance matters. Partnership management fees for the years ending December
31, 1996, 1995 and 1994 were $112,000, $92,000 and $88,000, respectively.
Sale of Partnership Projects
(ARV Assisted Living, Inc.) The Limited Partnership Agreement neither permits nor prohibits payment or
compensation in the form of real estate commissions to the General Partners or its
Affiliates which is subordinated to a return to Limited Partners of their capital
contributions plus an 8% per annum, cumulative, but not compounded, return thereon
from all sources, including prior distribution of cash flow. Any such compensation
shall not exceed 3% of the gross sales price or 50% of the standard real estate
brokerage commission, whichever is less. In fiscal 1996, 1995 and 1994, the Registrant
paid the General Partner a selling commission of $-0-, $-0- and $388,000 respectively.
Subordinated Incentive Compensation
(ARV Assisted Living, Inc.) 15% of Proceeds of Sale or Refinancing subordinated to a return of initial Capital
Contributions plus accumulative, but not compounded return on capital contributions
varying from 8% to 10% per annum. In 1996, 1995 and 1994, no incentive compensation
was paid.
Partnership Interest
(General Partners) 1% of all items of capital, profit or loss, and liquidating Distributions, subject to
a capital account adjustment.
Reimbursed Expenses & Credit
16
Enhancement (General Partners) General Partners may receive fees for personal guarantees of loans made to the
Registrant. All Registrant's expenses shall be billed directly to and paid by the
Registrant. General Partners may be reimbursed for the actual cost of goods and
materials obtained from unaffiliated entities and used for or by the Registrant. The
Managing Partner will be reimbursed for administrative services necessary to the
prudent operation of Registrant, provided that such reimbursement is at the lower of
its actual cost or the amount which the Registrant would be required to pay to
independent parties for comparable administrative services in the same geographic
location. The total reimbursements to ARVAL amounted to $1.4 million, $1.2 million and
$1.4 million for the years ending December 31, 1996, 1995 and 1994, respectively.
Finder Fees
(ARV Assisted Living, Inc.) General Partners received finders fees in conjunction with obtaining grants for the
rehabilitation of Cedar Villas and Villa Azusa. The finders fees amount to 10% of the
total grant money received by the Registrant. Finder fees for the years ending
December 31, 1996, 1995 and 1994 were $-0-, $-0- and $50,000, respectively.
Indemnity Fees
(General Partners) The General Partners received $96,000 for indemnifying and holding UHSI, holding UHSI,
Costa and Husky harmless from any liabilities as a result of the Registrant's buy out
of them. Indemnity fees for the years ending December 31, 1996, 1995 and 1994 were
paid.
SEE FOOTNOTE 3 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TRANSACTIONS WITH
AFFILIATES).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than the compensation earned by the General Partners, as set out under
ITEM 11 above, no General Partner or Affiliate receives any direct or indirect
compensation from the Registrant. For example, the Managing Partner receives a
management fee of 5% of Gross Revenues. Because these fees are payable without
regard to whether particular facilities are generating Cash Flow or otherwise
benefiting the Registrant, a conflict of interest could arise in that it might
be to the advantage of the General Partners that a facility be retained or re-
financed rather than sold. On the other hand, an Affiliate of the General
Partners may earn a real estate commission on sale of a property, creating
incentive to sell what might be a profitable property.
The General Partners have authority to invest the Registrant's funds in
properties or entities in which they, or any affiliate has an interest,
provided the Registrant acquires a controlling interest. In any such
investment, duplicate property management or other fees will not be permitted.
The General Partners or Affiliates may, however, purchase property in their own
names and temporarily hold title to facilitate acquisition for the Registrant,
provided that such property is purchased by the Registrant at cost (including
acquisition, closing and carrying costs). The General Partners will not
commingle Registrant's funds with those of any other person or entity.
Conflicts of interest will exist to the extent that facilities owned or
operated compete, or are in a position to compete for residents, general
managers or key employees with assisted living facilities owned or operated by
the General Partners and Affiliates in the same geographic area. The General
Partners will seek to reduce any such conflicts by offering such persons their
choice of residence or employment on comparable terms in any facility.
The personnel working at each facility are employed by the Registrant's
managing partner, ARVAL. ARVAL pays payroll and retirement benefit expenses on
the Registrant's behalf and is subsequently reimbursed by the Registrant. The
retirement benefit expense consists of contributions made to an employee stock
ownership plan ("ESOP"). Effective April 1, 1991, ARVAL approved an ESOP to
enable all eligible employees of ARVAL and its affiliates to own common stock
in ARVAL. The last contribution made to the ESOP was on March 31, 1995. The
General Partners are currently considering whether or not to continue making
contributions to the ESOP.
Further conflicts may exist if and to the extent that other affiliated owners
of assisted living facilities seek to refinance or sell at the same time as the
Registrant. The General Partners will seek to reduce any such conflicts by
making prospective purchasers aware of all properties available for sale.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(i) Independent Auditors' Report.
(ii) Consolidated Balance Sheets - December 31, 1996 and 1995.
(iii) Consolidated Statements of Operations - Years ended December
31, 1996, 1995 and 1994.
(iv) Consolidated Statements of Partners' Capital - Years ended
December 31, 1996, 1995 and 1994.
(v) Consolidated Statements of Cash Flows - Years ended December
31, 1996, 1995 and 1994.
(vi) Notes to Consolidated Financial Statements.
(vii) Financial Statement Schedule - Schedule III - Real Estate and
Related Accumulated Depreciation and Amortization - December
31, 1996.
(b) Reports on Form 8-K. The registrant did not file any 8-K reports
during the last quarter of 1996.
(c) Exhibit 27 - Financial Data Schedule
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
/s/ Gary L. Davidson
By: Gary L. Davidson, Chairman of the Board and Director of
ARVAL, Managing General Partner
/s/ Graham P. Espley-Jones
By: Graham P. Espley-Jones, Chief Financial Officer and
Assistant Secretary of ARVAL, Managing General Partner
/s/ John A. Booty
By: John A. Booty, Director of ARVAL,
Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gary L. Davidson Chairman of the Board April 15, 1997
Gary L. Davidson and Director of ARVAL
Managing General Partner
/s/ Graham P. Espley-Jones Chief Financial Officer April 15, 1997
Graham P. Espley-Jones and Assistant Secretary of ARVAL
Managing General Partner
/s/ John A. Booty Director of ARVAL April 15, 1997
John A. Booty Managing General Partner
19
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
(A California Limited Partnership)
Annual Report - Form 10-K
Consolidated Financial Statements and Schedule
Items 8 and 14(a)
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
20
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Annual Report - Form 10-K
Items 8 and 14(a)
Index to Consolidated Financial Statements and Schedule
Page
----
Independent Auditors' Report 1
Consolidated Balance Sheets - December 31, 1996 and 1995 2
Consolidated Statements of Operations - Years ended December 31,
1996, 1995 and 1994 3
Consolidated Statements of Partners' Capital - Years ended December 31,
1996, 1995 and 1994 4
Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Schedule
Real Estate and Related Accumulated Depreciation and
Amortization - December 31, 1996 Schedule III
All other schedules are omitted, as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
21
INDEPENDENT AUDITORS' REPORT
To ARV Assisted Living, Inc.
as the Managing General Partner
of American Retirement Villas Properties III, L.P.:
We have audited the consolidated financial statements of American Retirement
Villas Properties III, L.P., a California limited partnership, as listed in the
accompanying index. In connection with our audits of the consolidated financial
statements, we have also audited the consolidated financial statement schedule
listed in the accompanying index. These consolidated financial statements and
consolidated financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Retirement
Villas Properties III, L.P. as of December 31, 1996 and 1995 and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG PEAT MARWICK LLP
Orange County, California
March 21, 1997
F-1
22
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Balance Sheets
December 31, 1996 and 1995
ASSETS 1996 1995
-------- --------
(IN THOUSANDS EXCEPT
PER UNIT DATA)
Properties, at cost (notes 4, 5, 6 and 7):
Land $ 4,674 4,667
Building and improvements, less accumulated depreciation
of $3,373 in 1996 and $2,658 in 1995 18,921 18,237
Furniture, fixtures and equipment, less accumulated
depreciation of $498 in 1996 and $762 in 1995 322 394
-------- --------
Net properties 23,917 23,298
Property under contract for sale (notes 1 and 5) -- 8,500
Cash 893 478
Restricted cash (note 6) 137 130
Loan fees, less accumulated amortization of $140 in 1996
and $105 in 1995 105 141
Other assets 248 247
-------- --------
$ 25,300 32,794
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable (notes 4, 6 and 9) $ 16,023 16,272
Loan secured by property under contract for sale (notes 5
and 6) -- 4,474
Deposits under contract for sale (note 5) -- 2,969
Accounts payable and accrued expenses 734 488
Amounts payable to affiliates (note 3) 138 113
Distributions payable to Partners (note 2) 46 187
-------- --------
Total liabilities 16,941 24,503
Minority interest 41 (16)
-------- --------
Partners' capital (deficit) (notes 2 and 3):
General partners (76) (76)
Limited partners, 18,652 units outstanding at December 31,
1996 and 1995, respectively 8,394 8,383
-------- --------
Total partners' capital 8,318 8,307
Commitments and contingencies (notes 6 and 7)
-------- --------
$ 25,300 32,794
======== ========
See accompanying notes to consolidated financial statements.
F-2
23
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------- ------- -------
(IN THOUSANDS EXCEPT PER UNIT DATA)
Revenues:
Rent $ 5,446 5,130 5,154
Assisted living 419 344 364
Interest 178 500 530
Grants (note 7) -- 41 --
Other 97 80 87
------- ------- -------
Total operating revenues 6,140 6,095 6,135
------- ------- -------
Costs and expenses:
Rental property operations (including
$1,415, $1,285 and $1,349 related to
affiliates in 1996, 1995 and 1994,
respectively)(note 3) 2,639 2,497 2,586
Assisted living (all related to
affiliates) (note 3) 197 168 209
Depreciation and amortization 1,003 1,254 1,305
Interest (note 6) 1,603 1,868 1,949
General and administrative (including
$163, $145 and $228 related to
affiliates in 1996, 1995 and 1994,
respectively) (note 3) 420 402 429
Property taxes 281 333 270
Advertising 26 41 69
Minority interest in operations (note 4) 57 (4) 17
------- ------- -------
Total operating costs and expenses 6,226 6,559 6,834
------- ------- -------
Net operating loss (86) (464) (699)
Net profit on sale of property (note 5) 569 -- --
------- ------- -------
Net income (loss) $ 483 (464) (699)
======= ======= =======
Net income (loss) per limited partner unit $ 25.63 (24.62) (37.07)
======= ======= =======
See accompanying notes to consolidated financial statements.
F-3
24
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
TOTAL
GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL
-------- -------- ---------
(IN THOUSANDS EXCEPT PER UNIT DATA)
Balance (deficit) at December 31, 1993 $ (33) 12,625 12,592
Distributions to partners ($150.71 per
limited partner unit) (28) (2,811) (2,839)
Net loss (7) (692) (699)
----- ------ ------
Balance (deficit) at December 31, 1994 (68) 9,122 9,054
Distributions to partners ($15.03 per
limited partner unit) (3) (280) (283)
Net loss (5) (459) (464)
----- ------ ------
Balance (deficit) at December 31, 1995 (76) 8,383 8,307
Distributions to partners ($25.02 per
limited partner unit) (5) (467) (472)
Net income 5 478 483
----- ------ ------
Balance (deficit) at December 31, 1996 $ (76) 8,394 8,318
===== ====== ======
See accompanying notes to consolidated financial statements.
F-4
25
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------- ------ -------
(IN THOUSANDS EXCEPT PER UNIT DATA)
Cash flows from operating activities:
Net income (loss) $ 483 (464) (699)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,003 1,254 1,305
Gain recognized on property sold (569) -- --
Loss on disposal of property and equipment 53 -- --
Change in minority interest 57 (23) 6
Change in assets and liabilities:
(Increase) decrease in restricted cash (7) 120 --
(Increase) decrease in other assets (1) -- 199
Increase (decrease) in accounts payable and accrued
expenses 246 9 (6)
Increase in amounts payable to affiliates 72 11 29
Other 11 (1) 1
------- ------- -------
Net cash provided by operating activities 1,348 906 835
------- ------- -------
Cash flows from investing activities:
Improvements and building construction (1,455) (276) (157)
Additions to furniture, fixtures and equipment, net (90) (154) (84)
Payment of real estate commission -- -- (388)
Deposit on property under contract for sale -- 1,185 1,795
Cash received for property sold under contract 1,474 -- --
------- ------- -------
Net cash provided by (used in) investing
activities (71) 755 1,166
------- ------- -------
Cash flows from financing activities:
Decrease in amounts receivable from affiliate -- 47 209
Proceeds from notes payable 7 66 200
Principal repayments on notes payable (256) (223) (454)
Borrowings on line-of-credit agreement -- -- 300
Repayments on line-of-credit agreement -- (350) (450)
Distributions paid (613) (2,209) (916)
------- ------- -------
Net cash used in financing activities (862) (2,669) (1,111)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 415 (1,008) 890
Cash at beginning of year 478 1,486 596
------- ------- -------
Cash at end of year $ 893 478 1,486
======= ======= =======
Supplemental schedule of cash flow information - cash
paid during the year for interest (net of
capitalized interest of $0, $0 and $50,000
in 1996, 1995 and 1994, respectively) $ 1,893 1,870 1,948
======= ======= =======
Noncash - application of deposits to sale of property $ 4,601 -- --
======= ======= =======
See accompanying notes to consolidated financial statements.
F-5
26
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of American Retirement Villas
Properties III, L.P. (the Partnership) include the accounts of the
Partnership, ARVP III/Bradford Square, L.P. (ARVP III/BS), Heritage Pointe
Ontario Partners, L.P. (HPOP), and Heritage Pointe Pomona Partners, L.P.
(HPPP) at December 31, 1996 and 1995 and the years ended December 31, 1996,
1995 and 1994 and Heritage Pointe Claremont Partners, L.P. (HPCP) at
December 31, 1995 and the years ended December 31, 1995 and 1994. In April
1996, under the requirements of Statement of Financial Accounting Standards
No. 66 (SFAS No. 66), "Accounting for Sale of Real Estate," the sale of
HPCP was recorded. As a result, consolidated financial statements of the
Partnership as of and for the year ended December 31, 1996 does not include
the accounts of HPCP. The Partnership is a 50% general partner in ARVP
III/BS and effective in May 1993, became a 100% owner of HPOP, HPPP and
HPCP. The Partnership was previously a 50% general partner in HPOP, HPPP
and HPCP. All intercompany balances and transactions have been eliminated
in consolidation. The Partnership consolidates these limited partnerships
since it has a controlling financial interest. Minority interest, which is
included in accrued expenses, represents the minority partners' cost to
acquire the minority interest adjusted by their proportionate share of
subsequent earnings, losses and distributions.
BASIS OF ACCOUNTING
The Partnership maintains its records on the accrual method of accounting
for financial reporting and Federal and state tax purposes.
CARRYING VALUE OF REAL ESTATE
Properties are recorded at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives
of buildings and improvements, furniture, fixtures and equipment, ranging
from 3 to approximately 27-1/2 years.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires the Partnership to adopt
the provisions of the new statement no later than fiscal 1996. SFAS No.
121 requires an impairment loss to be recorded as a reduction to operating
income if the sum of the expected undiscounted cash flows derived from an
asset is less than the asset's carrying value. The Partnership adopted
SFAS No. 121 in fiscal year 1994 without any impact on the consolidated
financial statements.
PRE-OPENING COSTS
Costs such as fees paid for employee training, rent-up and other related
costs incurred prior to the opening of a retirement facility are deferred
and amortized using the straight-line method over a period of one year
after the facilities opening.
F-6
27
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
LOAN FEES
Amortization of loan fees is computed using the interest method over the
term of the respective note payable.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. Advance
deposits are applied to the first month's rent.
INCOME TAXES
Under provisions of the Internal Revenue Code and the California Revenue
and Taxation Code, partnerships are generally not subject to income taxes.
For tax purposes, any income or losses realized are those of the individual
partners, not the Partnership.
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. The
Partnership received an opinion of counsel as to its tax status prior to
its effectiveness for the offering of limited partnership units, but such
opinion is not binding upon the Internal Revenue Service.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles (GAAP) and for
Federal income tax reporting purposes at December 31 (in thousands):
1996 1995
---------------------------- ----------------------------
GAAP BASIS TAX BASIS(1) GAAP BASIS TAX BASIS(1)
---------- ------------ ---------- ------------
Total assets $25,300 32,513 32,794 31,467
======= ====== ====== ======
Total liabilities $16,941 21,627 24,503 17,478
======= ====== ====== ======
F-7
28
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
Following are the differences between the financial statement and tax
return income (in thousands):
1996 1995 1994
------ ------ ------
Net income (loss) per financial statements $ 483 (464) (699)
Guaranteed payments (1) 410 372 325
Depreciation differences on properties (1) 208 456 218
Amortization differences on intangible
assets (1) 57 53 73
Deferred income (1) -- (10) 15
Capitalized costs (1) -- (324)
Imputed interest (1) -- -- 178
Interest expense (1) (470) -- 240
Interest income (1) 771 -- 392
Gain (loss) on sale of assets (1) (254) -- 361
Other (1) 75 749 102
------ ------ ------
Total income per Federal tax
return (1) $1,280 832 1,205
====== ====== ======
(1) Unaudited.
NET INCOME (LOSS) PER LIMITED PARTNER UNIT
Net income (loss) per limited partner unit was based on the weighted
average number of limited partner units outstanding of 18,652 in 1996, 1995
and 1994.
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
The Partnership was formed on June 28, 1989 for the purpose of acquiring,
developing and operating residential retirement facilities and senior
apartment complexes. The term of the Partnership is 60 years and may be
dissolved earlier under certain circumstances. The Partnership commenced
operations on December 28, 1989 when the minimum number of units (1,250)
had been sold.
Limited partner units (minimum of 2 units per investor for Individual
Retirement Accounts, KEOGH'S and pension plans and 5 units for all other
investors) were offered for sale to the general public. Each limited
partner unit represents a $1,000 capital contribution. There were 18,652
Limited Partner units sold through the end of the offering in October 1992
which represented a cumulative capital investment of $18,653,000, net of
units repurchased. Under the Partnership Agreement, the maximum liability
of the Limited Partners is the amount of their capital contributions.
F-8
29
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
The Managing General Partner is ARV Assisted Living, Inc. (ARVAL), a
California corporation, and the individual General Partners are John A.
Booty, John S. Jason, Gary L. Davidson, Tony Rota and David P. Collins.
The individual General Partners are shareholders of the Managing General
Partner. The General Partners are not required to make capital
contributions to the Partnership.
Profits and losses for financial and income tax reporting purposes shall
generally be allocated, other than cost recovery deductions (as defined in
the Partnership Agreement), 1% to the General Partners and 99% to the
Limited Partners. Cost recovery deductions for each year are allocated 1%
to the General Partners and 99% to the Limited Partners who are taxable
investors.
Cash available for distribution from operations is to be distributed 1% to
the General Partners and 99% to the Limited Partners.
Upon any sale, refinancing or other disposition of the Partnership's real
properties, distributions are to be made 1% to the General Partners and 99%
to the Limited Partners until the Limited Partners have received an amount
equal to 100% of their capital contributions plus an amount ranging from 8%
to 10% (depending upon the timing of the Limited Partner's investment) of
their capital contributions per annum, cumulative but not compounded, from
the date of each Partner's investment. The cumulative return is to be
reduced, but not below zero, by the aggregate amount of prior distributions
from all sources. Thereafter, distributions are 15% to the General Partners
and 85% to the Limited Partners, except that after the sale of the
properties, the proceeds of sale of any last remaining assets owned by the
Partnership are to be distributed in accordance with positive capital
account balances.
(3) TRANSACTIONS WITH AFFILIATES
The Partnership has an agreement with ARVAL providing for a property
management fee of 5% of gross revenues and a Partnership management fee of
10% of cash flow before distributions, as defined in the Partnership
Agreement, amounting to $298,000, $280,000 and $326,000 and $112,000,
$92,000 and $88,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
ARVAL pays certain expenses, such as repairs and maintenance, supplies,
payroll and retirement benefit expenses on behalf of the Partnership and is
subsequently reimbursed by the Partnership. The retirement benefit expenses
of $0, $4,000 and $31,000 for the years ended December 31, 1996, 1995 and
1994, respectively, consists of contributions made to an employee stock
ownership plan (ESOP). The total reimbursements to ARVAL, including the
retirement benefit expense, are included in rental property operations and
general and administrative expenses in the accompanying statements of
operations and amounted to $1,365,000, $1,226,000 and $1,372,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
In consideration for services rendered with respect to property
acquisitions, the Managing General Partner is paid a property acquisition
fee of a maximum of 2% of the gross offering proceeds. In addition, the
Managing General Partner is entitled to a development, processing and
renovation fee of a maximum of 3.5% of gross offering proceeds allocated to
a particular project. The Managing General Partner is also entitled to a
maximum fee of 4.5% of gross
F-9
30
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
offering proceeds for rent-up and staff training services. Property
acquisition and development, processing and renovation fees amounted to
$1,027,000 at December 31, 1992 and were capitalized as part of the cost of
the related properties.
During 1993, the other Co-General Partner in HPOP, HPPP and HPCP assigned
its 12.5% interest in the respective partnerships to the two limited
partners giving each Limited Partner a 25% interest in each partnership.
Subsequently, in May 1994, the Partnership acquired each Limited Partner's
interests in the aforementioned partnerships for a total cost of $198,000.
During October 1992, the Partnership's offering was closed and the excess
of the syndication costs incurred over the 15% maximum of $2,800,000 was
required to be reimbursed by the General Partners in accordance with the
Partnership Agreement. As of December 31, 1995 all excess syndication costs
incurred were reimbursed from the General Partners.
During 1993, the Partnership entered into rehabilitation and affordable
housing subsidy agreements with the cities of Azusa and Ontario. In
conjunction with obtaining the grants, the Partnership paid ARVAL certain
finders fees which have been capitalized as part of the cost of the
respective property as all of the available grant monies had been received
at December 31, 1995.
During 1993, the Partnership paid predevelopment costs of $41,000 to an
unrelated third party associated with the purchase of a property which was
instead purchased by an affiliated partnership. This amount was repaid to
the Partnership by ARV Community Builders, a subsidiary of ARVAL, and
General Partner of the related partnership, in 1994.
In connection with the HPCP sales agreement, the Partnership paid the
general partner a selling commission of $388,000 in 1994.
During 1994, the Partnership borrowed $200,000 from an affiliate of the
General Partner, the balance of which was subsequently assumed by ARVAL,
including accrued interest. The 60-day note bore interest at 10%.
Amounts payable to affiliate at December 31, 1996 and 1995 includes expense
reimbursements and accrued property management and partnership management
fees.
(4) PROPERTIES
VILLA LAS POSAS
In December 1989, the Partnership purchased land in Camarillo, California
upon which to construct an assisted living facility. The total purchase
price of the land plus development costs incurred to date amounted to
$4,167,000 at December 31, 1996. The project is currently in development
and is anticipated to be completed in fiscal year 1997.
CHANDLER VILLAS
In September 1990, the Partnership purchased an existing residential
retirement facility located in Chandler, Arizona.
F-10
31
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
VILLA AZUSA
On May 26, 1993, the Partnership acquired the operations of an existing
assisted living facility. The Partnership purchased the property subject
to, but did not formally assume, a loan in favor of a bank. The remainder
of the purchase price was paid in cash.
ARVP III/BRADFORD SQUARE LTD.
On December 18, 1990, the Partnership entered into a limited partnership,
ARVP III/BS, with an unrelated third party, Bradford Square Ltd. Both
partners made an initial $1,000 cash contribution. The Partnership is the
Managing General Partner and Bradford Square Ltd. is the Limited Partner,
each with a 50% interest. Pursuant to the agreement, Bradford Square Ltd.
contributed the existing facility (Bradford Square), to ARVP III/BS, and,
the Partnership contributed cash. Income and loss is generally allocated to
the Managing General Partner and Bradford Square, Ltd. based on their
partnership interests.
Under the limited partnership agreement between the Partnership and
Bradford Square Ltd., the Partnership receives a 9% preferred return on
125% of amounts contributed to the partnership. The remaining cash flow
from operations is divided equally between the Partnership and Bradford
Square Ltd. During 1996, 1995 and 1994, the Partnership received a
preferred return of $253,000, $167,000 and $215,000, respectively.
CEDAR VILLAS
The Partnership entered into a limited partnership, HPOP, in 1992 and in
1993 acquired the other partners interests in HPOP. On October 1, 1992,
HPOP purchased an existing senior apartment facility (Cedar Villas) from an
unrelated third party. The purchase price consisted of cash and a loan in
favor of a bank collateralized by the property but not formally assumed by
the Partnership.
PACIFIC VILLAS
In 1992, the Partnership entered into another limited partnership, HPPP and
in 1993 acquired the other partners interests in HPPP. On October 1, 1992,
HPPP purchased an existing senior apartment facility (Pacific Villas) from
an unrelated third party. The purchase price consisted of a note taken back
by the seller, a loan in favor of a bank collateralized by the property but
not formally assumed by HPPP and the remainder of the purchase price was
paid in cash.
(5) SALE OF PROPERTY - HERITAGE POINTE CLAREMONT
In 1992, the Partnership entered into a limited partnership, HPCP and in
1993 acquired the other partners interests. On October 5, 1992, HPCP
purchased an undeveloped parcel of land in Claremont, California from an
unrelated third party and obtained a construction loan, secured by the
property, to finance the cost of building a senior apartment facility.
F-11
32
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
In December 1993, HPCP transferred title to the partnership's property,
valued at $9,075,000, to an affiliated partnership, Claremont Senior
Partners, L.P. (CSP) under a sales agreement. Under the terms of the sales
agreement, HPCP received two promissory notes and a nominal cash payment
amounting to, in total, approximately $12,300,000. Total selling costs
associated with this transaction were approximately $420,000.
The first promissory note accrued interest annually at a rate equal to the
U.S. Bank of Oregon's reference rate plus 2%, was due on demand on or
before June 30, 1995 and wrapped around the underlying construction loan
(the Construction Loan) assumed by the buyer upon transfer of the property.
CSP assumed all obligations of HPCP under the Construction Loan and took
title to the aforementioned property in 1993. Under the terms of this loan
assumption, HPCP remained fully liable for the existing loan balance as a
guarantor and was additionally liable and responsible for the repayment of
any additional draws on the Construction Loan by CSP. During 1993, CSP
additionally drew approximately $880,000 on the Construction Loan and made
payments totaling $2,365,000. The second promissory note accrued interest
at 8.25% which was payable monthly and was due in December 2008. Both notes
were secured by certain CSP partners' interests in CSP under the loan
agreement.
In September 1994, CSP obtained permanent financing of $4,500,000 (the
Permanent Loan, secured by deed of trust on Heritage Point Claremont,
bearing interest at 9.74% at December 31, 1995 (the bank has the option to
adjust the interest to a rate of 2.50% above the 10 year treasury constant
maturity yield and in no event shall the interest rate be less than 4% or
more than 13.74%); monthly principal and interest installments of $39,000
and all unpaid principal and interest is due on January 1, 2025), the
proceeds of which were primarily utilized to pay off the existing balance
on the Construction Loan, and a portion of the existing principal and
interest on the Partnership's related promissory notes. As a result, the
portion of the first promissory note related to the Construction Loan was
eliminated. In January 1995, both promissory notes were amended and the
combined balance due amounted to $5,097,000 at December 31, 1995. The notes
now bear interest at an annual rate of 8%. Interest only is payable on
these notes until the limited partner of CSP makes the third capital
contribution, which is required only after the CSP property reaches certain
occupancy levels. Conditions for payment of the third capital contribution
were met and received in April 1996. Thereafter, the notes are amortized
over 30 years but payment of all of the outstanding balance and interest
are payable on January 25, 2010. Further, any payment of these notes can be
made only from excess cash flows (as defined in the CSP Partnership
Agreement). Additionally, these notes continue to be secured by certain CSP
partner's interests in CSP.
In April 1996 and January 1995, CSP paid $1,444,000 and $1,145,000,
respectively, to the Partnership as principal and interest reductions of
the promissory notes.
This transaction was not treated as a sale for accounting purposes in 1994
and 1995. Under the requirements of SFAS No. 66, a sufficient investment
(as defined) by the buyer of 25% of the sales price was not made until
April 1996. Accordingly, the property was reported as property under
contract for sale, the buyer's down payment and payments on the promissory
notes were reflected as deposits under contract for sale and the promissory
notes were not recorded in the accompanying consolidated balance sheet in
1995.
F-12
33
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
Upon the receipt of the principal and interest payment from CSP in April
1996, a sufficient investment as defined by SFAS No. 66 was made and the
sale was recognized. As CSP's excess cash flows do not currently exceed the
interest payment requirements, SFAS No. 66 requires profit on the sale to
be recognized under the cost recovery method as payments are received on
the notes. The profit recognized on the sale in 1996 was calculated as
follows (in thousands):
Proceeds from sale of property
(including interest income not
previously recognized) $ 13,100
Net book value of property at
recognition date (8,405)
Gross profit not recognized (4,126)
---------
Net profit on sale of property $ 569
=========
(6) NOTES PAYABLE
At December 31, 1996 and 1995, notes payable included the following (in
thousands):
1996 1995
------- -------
Note payable in favor of a bank and not formally assumed by the
Partnership, secured by deed of trust on Pacific Villas, interest at
2.25% above the eleventh district cost of funds (4.842% at December
31, 1996); terms of promissory note required full payment of amounts
due when the property was sold to the Partnership in 1992, otherwise
monthly principal and interest installments of $32 and all unpaid
principal and interest is due on November 1, 2017 $ 4,242 4,315
Note payable in favor of a bank and not formally assumed by the
Partnership, secured by deed of trust on Cedar Villas, interest at
2.25% above the eleventh district cost of funds and in no event shall
the interest rate be less than 8% or more than 14% (8% at December 31,
1996); terms of promissory note required full payment of amounts due
when the property was sold to the Partnership in 1992, otherwise
monthly principal and interest installments of $31 and all unpaid
principal and interest is due on February 1, 2019 3,871 3,932
F-13
34
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
1996 1995
------- -------
Note payable secured by deed of trust on Chandler Villas and guaranteed
by the General Partners, interest at 5.25% with annual increase of 2%
per year in excess of the seven-year treasury yield (6.34% at December
31, 1996); monthly principal and interest installments of $27 and all
unpaid principal and interest is due on January 1, 2007 $ 2,421 2,443
Note payable secured by deed of trust on Bradford Square and guaranteed
by the General Partners, interest at 5.25% with annual increases of 2%
per year in excess of the seven-year treasury yield (6.34% at December
31, 1996); monthly principal and interest installments of $27 and all
unpaid principal and interest is due on January 1, 2007 2,421 2,443
Note payable in favor of a bank and not formally assumed by the
Partnership, secured by deed of trust on Villa Azusa, interest at
2.25% above the monthly eleventh district cost of funds (4.842% at
December 31, 1996); terms of promissory note required full payment of
amounts due when the property was sold to the Partnership, otherwise
payable in monthly principal and interest installments of $23 with all
unpaid principal and interest due on February 1, 2017 3,003 3,067
Note payable, bearing interest at 9.98%, payable in monthly principal and
interest installments of $1; all unpaid principal and interest due on
December 1, 2000; secured by equipment 51 56
Other 14 16
------- -------
$16,023 16,272
======= =======
The annual principal payments of notes payable as of December 31, 1996 are
as follows (in thousands):
Year ending December 31:
1997 $11,179
1998 69
1999 77
2000 85
2001 4,613
Thereafter --
-------
$16,023
=======
F-14
35
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
The notes payable in favor of banks, which the Partnership took subject to
but did not formally assume in the purchase of three properties, contain
provisions that required payment in full upon the sale of these properties.
The Partnership is negotiating or plans to negotiate with the banks to
assume these notes under the original payment terms, has made payments on
the notes under those terms and believes these notes will not be called by
the banks. Until such time as the notes are formally assumed by the
Partnership, however, they are considered due on demand and included in
amounts due in 1997 in the above schedule of annual principal payments.
(7) GRANT INCOME
During 1993, the Partnership entered into 30-year rehabilitation and
affordable housing subsidy agreements with the cities of Azusa and Ontario.
In conjunction with the agreements, the Partnership is to receive up to
$535,000 and $546,000 as compensation or reimbursement to rehabilitate
Villa Azusa and Cedar Villas, respectively, in order to provide low income
housing to persons 55 years of age or older. As of December 31, 1995,
$513,000 and $546,000 had been received from the cities of Azusa and
Ontario, respectively, for rehabilitation work performed. No additional
grant funds receipts are anticipated. Approximately $41,000 received from
the city of Azusa was not required to be used for rehabilitation work on
the project and, as such, these fees were recorded as grant income in 1995.
In the event that the Partnership defaults on the provisions of the
agreement within 15 years, including, but not limited to, eliminating the
low income housing status of the apartment facility, the grant money must
be returned to the respective city. No default existed at December 31,
1996.
(8) ESOP
ARVAL offers an Employee Stock Ownership Plan to all eligible employees
which includes the employees of the Partnership. The amount of stock
contributed annually to the ESOP is at the discretion of ARVHG. During
1994, ARVAL's Board of Directors declared a contribution equal to 3% of
their payroll expense. During 1995, ARVAL's Board of Directors declared a
contribution in only the first quarter of the year and that contribution
approximated 3% of each employee's payroll expense. During 1996, no
contributions were declared by ARVAL's Board of Directors. The
Partnership's expense was $0, $4,000 and $31,000 for the ESOP (as a
reimbursement to ARVAL) in 1996, 1995 and 1994, respectively.
(9) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS No. 107), "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have
been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts that could be realized in a current market exchange. The use
of different market assumptions or estimation methodologies may have a
material impact on the estimated fair value amounts.
F-15
36
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(A California Limited Partnership)
Notes to Consolidated Financial Statements, Continued
Fair value information related to financial instruments is as follows (in
thousands):
DECEMBER 31, 1996
-------------------------
FINANCIAL INSTRUMENT BOOK VALUE FAIR VALUE
-------------------- ---------- ----------
Cash $ 893 893
Notes payable 16,023 15,665
======== ========
CASH
The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated interest
rate or credit concerns.
NOTES PAYABLE
For notes payable with variable interest rates, fair value is the amount
reported as payable in the financial statements. For notes payable with
fixed rates of interest, fair value is estimated using the rates currently
offered for bank borrowings with similar terms.
(10) SUBSEQUENT EVENT
On March 7, 1997, the Partnership obtained a $7.7 million construction loan
to be used for the construction of the Camarillo facility. The loan, which
is guaranteed by ARVAL, is secured by a deed of trust on the Camarillo
facility. The loan, which was provided by Bank United of Texas, F.S.B., is
payable in monthly installments of interest only calculated at the 30-day
LIBOR rate (5.53% at December 31, 1996) plus 2.75%. The principal balance
of the loan and all accrued unpaid interest is due and payable September
30, 1998.
F-16
37
Schedule III
American Retirement Villas Properties III
(A California Limited Partnership)
Real Estate and Related Accumulated Depreciation and Amortization
December 31, 1996
(In thousands)
COSTS
CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT
--------------------------------- TO -------------------------- ACCUMULATED
BUILDING AND ACQUISITION BUILDING AND DEPRECIATION DEPRECIABLE
IMPROVEMENTS OR IMPROVEMENTS TOTAL AND DATE OF LIVES
DESCRIPTION ENCUMBRANCES LAND $ CONSTRUCTION LAND $ (1) AMORTIZATION ACQUISITION (YEARS)
- --------------- ------------ ----- ------------ ------------ ----- ------------ ------ ------------ ----------- -------
Villa Azusa $ 3,003 800 3,705 166 800 3,872 4,672 501 5/93 27-1/2
Villa Las Posas -- 1,210 572 2,710 1,249 2,917 4,166 -- 12/89 27-1/2
Bradford Square 2,421 675 2,977 227 675 3,204 3,879 691 12/90 27-1/2
Chandler Villas 2,421 300 2,902 173 300 3,065 3,365 708 9/90 27-1/2
Cedar Villas 3,871 650 4,078 249 650 4,327 4,977 683 10/92 27-1/2
Pacific Villas 4,242 1,000 4,545 365 1,000 4,910 5,910 790 10/92 27-1/2
------- ----- ------ ----- ----- ------ ------ -----
$15,958 4,635 18,779 3,890 4,674 22,295 26,969 3,373
======= ===== ====== ===== ===== ====== ====== =====
Following is a summary of investment properties for the years ended December
31, 1996, 1995 and 1994:
1996 1995 1994
------- ------ ------
Balance at beginning of year $25,562 25,236 25,079
Acquisitions -- -- --
Improvements/construction 1,758 326 157
Disposals (351) -- --
------- ------ ------
Balance at end of year $26,969 25,562 25,236
======= ====== ======
Following is a summary of accumulated depreciation and amortization of
investment in properties for the years ended December 31, 1996, 1995, and 1994:
1996 1995 1994
------ ----- -----
Balance at beginning of year $2,658 1,944 1,234
Additions charged to expense 715 714 710
------ ----- -----
Balance at end of year $3,373 2,658 1,944
====== ===== =====
(1) Aggregate cost for Federal income tax purposes is $26,216,000 at December
31, 1996.
38
Schedule III
AMERICAN RETIREMENT VILLAS PROPERTIES III
(A California Limited Partnership)