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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1999, 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: 0-17695.
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HEALTHCARE PROPERTIES, L.P.
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(Exact name of Registrant as specified in its charter)
DELAWARE 62-1317327
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization No.)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
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(Address of principal executive officers) (Zip Code)
The Registrant's telephone number, including area code: (972) 770-5600
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 [X] No [ ]
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 the 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. [X]
The Registrant's outstanding securities consist of units of limited partnership
interests which have no readily ascertainable market value since there is no
public trading market for these securities on which to base a calculation of
aggregate market value.
Documents incorporated by reference: None
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Page 1 of 18
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Exhibit Index Page 18
HEALTHCARE PROPERTIES, L.P.
1999 FORM 10-K
TABLE OF CONTENTS
Page
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PART I
Item 1 Business 3
Item 2 Properties 4
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 6
PART II
Item 5 Market for the Registrant's Common Equity
and Related Security Holder Matters 6
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk 12
Item 8 Financial Statements and Supplementary Data 12
Item 9 Changes in and Disagreements with Accountants on Accounting 12
and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 12
Item 11 Executive Compensation 13
Item 12 Security Ownership of Certain Beneficial Owners and Management 14
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16
2
PART I
ITEM 1. BUSINESS
HealthCare Properties, L.P. (Registrant), is a Delaware limited partnership
formed in March 1987 for the purpose of acquiring, leasing and operating
existing or newly constructed health care properties. The General Partner of the
Registrant is Capital Realty Group Senior Housing, Inc. (Capital).
The offering of the Registrant's limited partnership interests (the Units)
terminated on August 31, 1989, although some Units were sold to existing
investors pursuant to the Registrant's distribution reinvestment plan (the Plan)
until July of 1991 when the Plan was suspended. The Registrant received gross
proceeds from the offering of $43,373,269 and net proceeds of $38,748,791.
All of the net proceeds of the offering were originally invested in 12
properties or used for working capital reserves. The Registrant partially
financed the acquisition of eight of its original properties with non-recourse
debt. Four properties were initially unleveraged. On September 20, 1999, the
main facility on the Cedarbrook campus was sold; however, two small facilities
on the Cedarbrook campus were not sold and are still owned by the Registrant as
of December 31, 1999. As of December 31, 1999, five of the original 12
properties, including the main facility on the Cedarbrook campus, had either
been sold or deeded back to the lender, leaving the Registrant with seven
properties -- three properties secured by debt and four properties unleveraged
(the Properties). See Item 2, Properties, and Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, for a description
of the Registrant's properties and their history.
As of December 31, 1999, the Registrant had five properties leased to
unaffiliated operators under triple net leases, whereby the lessee is
responsible for all operating expenses, insurance and real estate taxes. In
August 1999, the lessee for Cedarbrook and Sandybrook, transferred its rights to
these properties to the Registrant in return for the Registrant becoming
responsible for insurance and taxes of these properties. On August 1, 1996, the
United States Bankruptcy Court approved the transfer of the operations of NCA
Cambridge Nursing Home, Inc. to Cambridge Nursing Home, LLC (Cambridge), a
subsidiary of the Registrant, thereby releasing the operations of this facility
from the jurisdiction of the Bankruptcy Court.
All of the Registrant's triple net leases with unaffiliated operators require
operators to make necessary repairs. The Registrant inspects or receives reports
from each facility at least annually to insure that necessary repairs are made.
The Registrant is responsible for debt service payments under mortgage
obligations secured by certain properties.
Both the income and expenses of operating the Properties owned by the Registrant
are subject to factors outside the control of both the Registrant and the
operators of the facilities, such as oversupply of similar properties resulting
from overbuilding, increases in unemployment or population shifts, reduced
availability of permanent mortgage funds, changes in taxes and regulations,
including healthcare regulations and zoning laws, or changes in patterns or
needs of users.
For the year ended December 31, 1999, the Registrant's Properties accounted for
100 percent of the Registrant's gross revenues.
3
The Registrant's original objective was to maintain and hold its properties for
long-term appreciation. During 1999, management of the Registrant approved and
established a plan to sell certain properties because the properties are no
longer competitive in current markets and no longer meet the Registrant's
strategic objectives. The Registrant is exploring its options regarding the net
proceeds from the sale of properties include, but not limited to, distributing
the net sale proceeds or reinvesting them in properties that demonstrate the
capability of long-term appreciation.
Employees
Capital Senior Living, Inc. (CSL), a subsidiary of Capital Senior Living
Corporation, manages the Registrant. Until June 10, 1998, CSL was an affiliate
of Capital. There were no employees of the Registrant at December 31, 1999.
Competition
The real estate business is highly competitive. The Registrant's Properties are
subject to competition from similar properties within their service area. In
addition, the health care industry markets in which the Registrant's properties
operate are also subject to intense competitive pressures, which may impact such
lessees' ability to generate sufficient revenues to fulfill their obligations to
the Registrant under their leases.
Regulatory Matters
Federal, state and local government regulations govern fitness and adequacy,
equipment, personnel and standards of medical care at a health care facility, as
well as health and fire codes. Changes in the applicable regulations could
adversely affect the operations of a property, which also could affect the
financial results of the Registrant. Risks of inadequate cost reimbursements
from various government programs such as Medicaid and Medicare also may impact
lessees' ability to fulfill their lease obligations to the Registrant. Any
impact from future health care legislation is not known at this time; however,
such impact could adversely affect cost reimbursements from various government
programs.
Impact of Inflation
To offset potential adverse effects of inflation, the Registrant has required
each of its unaffiliated tenants to execute triple-net leases with the tenant
being responsible for all operating expenses, insurance and real estate taxes.
Such leases generally require additional participating rent payments based on
certain increases in the lessee's collected revenues. To the extent that the
Registrant undertakes to operate certain facilities through wholly owned
subsidiaries, those subsidiaries, and ultimately the Registrant, will be
directly exposed to the inflationary pressures on health care industry operating
costs.
ITEM 2. PROPERTIES
The Registrant owned seven properties at December 31, 1999, consisting of four
nursing homes and three rehabilitation centers purchased between October 1987
and October 1990. Four facilities were newly constructed when purchased. Three
facilities are security for mortgage loans. Two of these loans are non-recourse
to the Registrant while one loan is guaranteed by the Registrant. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
The following table summarizes key information about each of the Registrant's
properties at December 31, 1999.
PROPERTY SUMMARY
CANE CREEK CRENSHAW CREEK SANDYBROOK
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Location Martin, TN Lancaster, SC Orlando, FL
Type Rehab Rehab Rehab
Date Purchased 11/87 6/88 9/88
Purchase Price $4,000,000 $3,900,000 $4,200,000
Original Mortgage Amount $2,200,000 $0 $0
12/31/99 Mortgage Balance $135,824 $0 $0
Mortgage Maturity December 1, 2001 N/A N/A
End of Lease Term November 2001 November 2001 November 2001
CAMBRIDGE TRINITY HILLS HEARTHSTONE MCCURDY
--------- ------------- ----------- -------
Location Cambridge, MA Ft. Worth, TX Austin, TX Evansville, IN
Type Nursing Nursing Nursing Nursing
Date Purchased 9/90 2/88 11/88 9/89
Purchase Price $5,100,000 $2,700,000 $3,625,000 $7,100,000
Original Mortgage Amount $0 $0 $1,500,000 $4,700,000
12/31/99 Mortgage Balance $0 $0 $1,222,415 $3,815,042
Mortgage Maturity N/A N/A July 1, 2002 April 1, 2012
End of Lease Term N/A June 2000 November 2000 October 2001
On September 20, 1999, the Registrant sold the main facility on the Cedarbrook
campus for $2,825,000, resulting in a $772,286 gain on the sale and $2,308,734
in net cash proceeds after payment of settlement costs and mortgage related to
this facility. Two small facilities on the Cedarbrook campus were not sold and
are still owned by the Registrant as of December 31, 1999.
At December 31, 1999, the remaining Cedarbrook facilities, Cane Creek,
Sandybrook and the McCurdy facilities, were classified as assets held for sale
on the Registrant's consolidated financial statements as the management of the
Registrant had approved and established a plan to sell these facilities. On
January 11, 2000, the Cane Creek facility was sold to its lessee for $2,350,000,
resulting in a $302,787 gain on sale and $2,143,400 in net cash proceeds after
payment of closing costs and mortgage related to this facility.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1999, the Registrant was a defendant in a lawsuit brought by
AmHealth (Evansville), Inc. in the Circuit Court of Vanderburgh County, Indiana,
Cause Number 82C01-9811-CP-0373 (Lawsuit), which concerned the McCurdy
facility being leased by AmHealth (Evansville), Inc. On December 10, 1999, the
Registrant and AmHealth (Evansville), Inc. entered into an Amendment of Lease
whereby the parties agreed to dismiss the lawsuit with prejudice. The
Stipulation and Order of Dismissal with Prejudice was filed with the Court on
January 21, 2000. The Registrant paid no settlement funds to AmHealth
(Evansville), Inc. and, in fact, received a letter of credit from the lessee as
a safeguard against future defaults.
5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
At March 1, 2000, there were 1,786 Unit Holders of record in the Registrant
owning an aggregate of 4,148,325 Units. There is no public market for these
Units and there is no plan to list the Units on a national exchange or automated
quotation system. The Registrant formerly had a liquidity reserve feature that,
under certain circumstances, permitted Unit Holders to sell their Units at a
predetermined formula. In March 1991, due to inadequate liquidity of the
Registrant and the adverse impact on Unit values caused by prior-year defaults
of certain of the Registrant's lessees, the prior General Partners suspended all
redemptions pursuant to the liquidity reserve. Due to the required valuation
formula the Registrant must use in any such redemptions, it is unlikely that the
General Partner will be able to reinstate the liquidity feature in the
foreseeable future.
Pursuant to the terms of the Partnership Agreement, there are restrictions on
the ability of the Unit Holders to transfer their Units. In all cases, the
General Partner must consent in writing to any substitution of a Unit Holder.
The Internal Revenue Code contains provisions that have an adverse impact on
investors in publicly traded partnerships. Accordingly, the General Partner has
established a policy of imposing limited restrictions on the transferability of
the Units in private transactions. This policy is intended to prevent a public
trading market from developing and may impact the ability of a Unit Holder to
liquidate his investment quickly.
In 1999, the Registrant collectively distributed $499,976 to its partners to
cover tax liabilities of the partners, and $2,263,593 in net cash proceeds from
the Cedarbrook sale. The Registrant did not make any distributions in 1998. The
ability of the Registrant to make distributions of Operating Cash Flow in the
future is dependent upon operational performance of properties operated by the
Registrant and collection of adequate rental revenues from properties leased to
third party operators (see Item 6, Selected Financial Data).
During 1998, the Registrant repurchased 24,132 limited partner units in the
amount of $144,791, or approximately $6.00 per unit.
6
ITEM 6. SELECTED FINANCIAL DATA
HEALTHCARE PROPERTIES, L.P.
(Unaudited - Not Covered By Independent Auditors' Report)
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Year-Ended December 31
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1999 1998 1997 1996 1995
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Total Assets $ 32,055,252 $ 32,758,958 $ 32,801,853 $ 32,487,547 $ 33,812,286
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Mortgage Debt $ 5,173,281 $ 6,128,656 $ 6,677,432 $ 7,207,414 $ 9,775,601
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Total Revenue From
Operations $ 9,499,819 $ 8,787,575 $ 8,977,628 $ 7,560,104 $ 8,419,024
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Weighted Average Number of Units 4,148,325 4,153,835 4,172,457 4,172,457 4,172,457
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Income (Loss) Before
Extraordinary Item $ 3,131,398 $ 874,425 $ 1,452,334 $ 684,651 $ (2,354,181)
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Extraordinary Gain $ 0 $ 0 $ 0 $ 952,692 $ 3,604,514
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Net Income $ 3,131,398 $ 874,425 $ 1,452,334 $ 1,637,343 $ 1,250,333
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Net Income (Loss) Per Unit
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Income (Loss) Before
Extraordinary Item $ 0.74 $ 0.21 $ 0.34 $ 0.16 $ (0.56)
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Extraordinary Gain $ 0 $ 0 $ 0 $ 0.23 $ 0.79
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Net Income $ 0.74 $ 0.21 $ 0.34 $ 0.39 $ 0.23
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Taxable Net Income (Loss)
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Taxable Net Income (Loss) $ 3,315,817 $ 1.822,007 $ 1,832,184 $ 794,101 $ (1,692,342)
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Per Limited Partnership Unit $ 0.80 $ 0.44 $ 0.44 $ 0.19 $ (0.41)
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Cash Distributions $ 2,763,569 $ 0 $ 325,000 $ 0 $ 0
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Per Limited Partnership Unit $ 0.67 $ 0 $ 0.08 $ 0 $ 0
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The above selected financial data should be read in conjunction with the
consolidated financial statements and the related notes appearing elsewhere in
this annual report. See Footnote 3, Property and Improvements to the
Consolidated Financial Statements, for discussion of property dispositions.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Registrant raised gross proceeds from the offering of over $43,300,000 in
limited partnership units and purchased 12 properties. The Registrant does not
anticipate additional capital investments by Unit Holders. Sources for the
Registrant's liquidity include rental revenues from lessees of certain of the
Registrant's properties, operational income from properties operated by the
Registrant, interest income on cash equivalents, potential proceeds from
mortgage financing on one or more of the Registrant's five unleveraged
properties, or potential sale proceeds from any of the Registrant's seven
properties. The Registrant anticipates sufficient cash flow to meet debt service
requirements and cover all other operational expenses. The Registrant may
reinvest net sale proceeds and available cash in additional healthcare
properties. For further information, see the discussion below on each individual
property.
The Registrant ended 1999 with cash and cash equivalents of $13,723,936,
compared to $11,971,405 at December 31, 1998. Cash and cash equivalents
primarily increased in 1999 due to positive cash flows provided by operating
activities and sale proceeds offset by regular debt service payments and
distributions.
Accounts receivable at December 31, 1999 increased to approximately $1,621,000,
compared to $843,000 at December 31, 1998 primarily due to the approval of a
$700,000 bad-debt recovery administrative claim by the United States Bankruptcy
Court of NCA Cambridge Nursing Home. The $700,000 account receivable was
subsequently collected on March 1, 2000. The allowance for doubtful accounts
increased to $735,000 at December 31, 1999 from approximately $686,000 at
December 31, 1998. This increase was the result of additional reserves at the
Cambridge facility on an increased level of older receivables balances.
Property and improvements were approximately $6,957,000 at December 31, 1999,
compared to $19,598,000 at December 31, 1998. This decrease resulted from the
sale of the Cedarbrook facility, as well as the classification of the remaining
Cedarbrook facilities, Cane Creek, Sandybrook and the McCurdy facilities to
assets held for sale.
Accounts payable and accrued expenses were approximately $455,000 at December
31, 1999, compared to $606,000 at December 31, 1998. This decrease resulted
largely from the payment of an accrued Medicare settlement.
Operating facility accounts payable were approximately $138,000 at December 31,
1999, and $103,000 at December 31, 1998.
Decreases from December 31, 1998 to 1999 in deferred charges and mortgage loans
payable primarily relate to amortization and note payments, respectively.
Two loans of the Registrant became due in January 1996; however, one loan was
extended to March 31, 1996 and subsequently extended to June 30, 1997. The
Registrant paid off this loan upon the sale of the Cedarbrook facility. The
lender of the other loan verbally agreed to extend the loan to December 1, 2001,
pending completion of final loan documents. This loan subsequently was paid off
upon the sale of the Cane Creek facility in January 2000.
8
Results of Operations
Rental revenues were approximately $4,304,000 in 1999 compared to approximately
$4,282,000 in 1998 and approximately $4,276,000 in 1997. Rental revenues from
1999, 1998 and 1997 were relatively unchanged.
Patient revenues of approximately $5,196,000 for the year ended December 31,
1999, approximately $4,506,000 for the year ended December 31, 1998, and
approximately $4,702,000 for the year ended December 31, 1997, related to the
operations at the Cambridge facility. The increase in patient revenues from 1998
to 1999 resulted from increased occupancies and reimbursement rates at the
Cambridge facility. The decrease in patient revenues from 1997 to 1998 resulted
from decreased ancillary revenues at the Cambridge facility.
Facility operating expenses were approximately $4,701,000 in 1999 compared to
approximately $4,448,000 in 1998, and approximately $4,578,000 in 1997. The
increase in facility operating expenses from 1998 to 1999 resulted from
increased nursing costs and professional fees at the Cambridge facility. The
decrease in facility operating expenses from 1997 to 1998 is primarily due to
decreased nursing costs at the Cambridge facility.
Depreciation was approximately $1,145,000 for 1999, $1,307,000 for 1998, and
$1,369,000 for 1997. Depreciation decreased in 1999 from 1998 due to the sale of
the Cedarbrook facility and cessation of depreciation expense at the time the
remaining Cedarbrook facilities, Cane Creek, Sandybrook, and McCurdy facilities
were reclassified to assets held for sale. Depreciation decreased from 1997 to
1998 due to certain equipment being fully depreciated.
Fees to related parties were approximately $1,104,000, $1,095,000, and
$1,110,000 for the years ended 1999, 1998 and 1997, respectively. Fees to these
related parties were relatively unchanged from 1999 compared to 1998 and 1997.
Bad debt expense (net of recoveries) was approximately $(248,000), $385,000, and
$43,000 for the years ended 1999, 1998, and 1997, respectively. Bad debt expense
(net of recoveries) changed from 1998 to 1999 due to a $700,000 bad debt
recovery on the Registrant's administrative claim with the United States
Bankruptcy Court of NCA Cambridge Nursing Home. Bad debt expense before
recoveries increased approximately $67,000 from 1998 to 1999 due to additional
allowance reserves at the Cambridge facility on an increased level of older
receivables. Bad debt expense increased in 1998 from 1997 due to additional
allowance reserves at the Cambridge facility on an increased level of older
receivables.
Administrative and other expenses were $387,000, $468,000, and $506,000 for the
years ended 1999, 1998, and 1997, respectively. Administrative and other
expenses decreased from 1998 to 1999 due to decreased legal fees. Administrative
and other expenses decreased from 1997 to 1998 due to decreased overhead
allocations from CSL.
9
Interest income was approximately $595,000, $524,000, and $359,000 for the years
ended 1999, 1998, and 1997, respectively. Interest income increased in 1999 and
1998 from 1997 due to additional cash available as a result of sales proceeds,
lower debt service requirements and continued positive operating cash flows.
Interest expense was approximately $584,000, $635,000, and $679,000 for the
years ended 1999, 1998, and 1997, respectively. Interest expense decreased in
1999 and 1998 from 1997 due to continuing pay-down of loan principal and the
repayment of the mortgage upon the sale of the Cedarbrook facility in 1999.
Amortization was approximately $105,000 for the years ended 1999 and 1998, and
$109,000 for the year ended 1997. Amortization decreased in 1998 from 1997,
primarily due to certain fully amortized deferred costs.
During 1999, the gain on disposition of operating property of approximately
$772,000 resulted from the sale of the Cedarbrook facility.
During 1999, other income of approximately $42,000 resulted from a distribution
from Rebound, Inc. (a subsidiary of HealthSouth Corporation). During 1997, other
income of approximately $524,000 primarily resulted from the collection of a
$71,000 distribution from Rebound, Inc. and approximately $440,000 paid in
compliance with Section 16b of the Securities and Exchange Act by Capital Senior
Living Communities, L.P., a former affiliate of the General Partner, for gains
on purchases of units made within a six month period prior to the sale of such
units.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Operations of the Registrant's Properties
Cedarbrook, Cane Creek, Crenshaw Creek and Sandybrook Facilities
Rebound, Inc., a subsidiary of HealthSouth Corporation (HealthSouth), leases the
Cane Creek, Crenshaw Creek and Sandybrook properties and the remaining
Cedarbrook facilities pursuant to a master lease with the Registrant.
Due to low occupancy, HealthSouth closed the Sandybrook facility in 1994 and the
Cedarbrook facility in 1997. HealthSouth continued to make full lease payments
under the terms of the master lease on a timely basis.
Effective August 5, 1999, HealthSouth agreed to transfer control of the
Cedarbrook and Sandybrook facilities to the Registrant and to continue making
its full lease payments under the terms of the master lease to the Registrant.
On September 30, 1999, the Registrant sold the main facility of the Cedarbrook
campus for $2,825,000, resulting in a $772,286 gain on the sale and $2,308,734
in net cash proceeds after payment of settlement costs and mortgage payable; two
small facilities on the Cedarbrook campus were not sold and are still owned by
the partnership as of December 31, 1999. On January 11, 2000, the Cane Creek
facility was sold to a subsidiary of HealthSouth for $2,350,000, resulting in a
$302,787 gain on the sale and $2,143,400 in net cash proceeds after payment of
settlement costs and mortgage payable. HealthSouth still leases and operates the
Crenshaw Creek facility. The Sandybrook facility is currently held for sale.
10
Two recourse loans, Cedarbrook and Cane Creek, were due in January 1996 in the
aggregate amount of approximately $2,400,000. Both of these notes were callable
by the lenders at any time between January 1, 1993 and November 30, 1995;
however, the lenders agreed not to exercise their call rights prior to maturity
on January 31, 1996 as long as the Partnership remained in compliance with the
loan agreements. On March 21, 1997, one of the lenders agreed not to exercise
its call right until June 30, 1997. The Registrant paid off this loan upon the
sale of the Cedarbrook facility. The lender of the other loan verbally agreed to
extend the maturity date of its note to December 1, 2001, pending completion of
final loan documents. This loan subsequently was paid off upon the sale of the
Cane Creek facility in January 2000.
Cambridge Facility
The lessee of the Cambridge facility, Nursing Centers of America-Cambridge
(NCAC), filed a voluntary petition under Chapter 11 of the Federal Bankruptcy
Code in February of 1992. The Registrant commenced litigation against NCAC
seeking full payment of future rentals under the lease of NCAC.
On August 1, 1996, the United States Bankruptcy Court approved the transfer of
the operations of NCA Cambridge Nursing Home to Cambridge LLC, a subsidiary of
the Registrant, thereby releasing the operations of the Cambridge facility from
the jurisdiction of the United States Bankruptcy Court. The Registrant's
subsidiary now operates this property.
The Registrant had filed an administrative claim with the trustee of the United
States Bankruptcy Court for unpaid lease payments. At December 31, 1999, the
Registrant recorded a receivable for $700,000 related to this administrative
claim, which was approved by the United States Bankruptcy Court. The $700,000
account receivable was subsequently collected on March 1, 2000. It is unlikely
that material future disbursements will be made to the Registrant.
Trinity Hills, McCurdy, and Hearthstone Facilities
The Trinity Hills, McCurdy and Hearthstone lessees are current in their lease
obligations to the Registrant. In addition, the Registrant believes it likely
that the lessee of the Hearthstone facility will pay additional rental amounts
to the Registrant during future years based upon increased revenues at this
facility. However, there can be no assurance of such increased revenue. Based on
the financial statements of the leasees, the Hearthstone and McCurdy facilities
are generating cash flow sufficient to fund their lease obligations, but Trinity
Hills is, at this time, not generating sufficient cash flow to fund its lease
obligations from property operations.
On January 18, 2000 and February 2, 2000, the parent companies of the lessees of
the Hearthstone and Trinity Hills facilities, respectively, filed for Chapter 11
bankruptcy in the United States Bankruptcy Court for the District of Delaware.
At this time, it is uncertain if bankruptcy protection would disrupt future
payments of lease obligations. Lease payments, including contingent rentals
received, aggregated $981,347 related to these properties in 1999.
11
Year 2000 Issue
The Registrant did not experience any business interruptions related to year
2000 issues. The Registrant is continuing to monitor its computer systems and
equipment, and expects that the year 2000 issues will not have an adverse effect
on its business, financial condition or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant's primary market risk exposure is from fluctuations in interest
rates and the effects of those fluctuations on the market values of its cash
equivalent short-term investments. The cash equivalent short-term investments
consist primarily of overnight investments that are not significantly exposed to
interest rate risk, except to the extent that changes in interest rates will
ultimately affect the amount of interest income earned on these investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the attached Consolidated Financial Statements with Independent Auditors'
Report thereon.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant is a Limited Partnership and has no directors, officers, or
significant employees.
The General Partner of the Registrant is Capital Realty Group Senior Housing,
Inc., (Capital) a Texas corporation, which was formed under the laws of the
State of Texas in 1988. Capital was a wholly owned subsidiary of Capital Realty
Group Corporation, a Texas corporation (CRG). CRG is owned by James A. Stroud
(50 percent through a trust) and by Jeffrey L. Beck (50 percent).
On June 10, 1998, the sole owner of stock of the General Partner, CRG, sold all
of its shares of CRGSH common stock to Retirement Associates, Inc. (Associates)
for $855,000. The source of the financing is a Promissory Note for $855,000 with
a five-year term and bearing an interest rate of 8 percent per annum as of
December 1, 1999. Prior to December 1, 1999, the Promissory Note had an interest
rate of 10 percent per annum; the interest rate was decreased to adjust to a
market rate and in consideration of an early, unscheduled payment of interest
due. The interest will accrue on the Promissory Note and be payable at the
maturity of the Promissory Note. Associates is the maker of the Note and Capital
is the payee. Mr. Robert Lankford is the President of Associates and has had
prior business relationships with Messrs. Beck and Stroud, the former principals
of CRGSH. From 1988 to 1997, Mr. Lankford was an independent broker with Capital
Brokerage, an affiliate of CSLC. From 1997 to the present, however, Mr. Lankford
has been a principal with Kamco Property Company Commercial Real Estate
Brokerage. In this capacity, Mr. Lankford provides independent commercial real
estate brokerage services for various clients including CSLC, which accounts for
less than 20 percent of his compensation. The address of the principal executive
offices of CRGSH is 3516 Merrell Road, Dallas, Texas 75229. The phone number is
(972) 679-7477.
12
Capital Senior Living, Inc. (CSL), a subsidiary of Capital Senior Living
Corporation (CSLC), manages the Registrant. As of December 31, 1998 the officers
and directors of Capital, the General Partner, were:
Name Position
---- --------
Robert L. Lankford President, Retirement Associates, Inc., sole
stockholder of CRGSH, the General Partner
Wayne R. Miller, Esq. Secretary, Retirement Associates, Inc.
Robert L. Lankford
Robert L. Lankford, age 45, has served as President of Retirement Associates,
Inc. since June 1997. From 1988 to 1997, Mr. Lankford was an independent broker
with Capital Realty Group Brokerage, Inc., an affiliate of CSLC. From 1997 to
the present, Mr. Lankford has been a principal with Kamco Property Company
Commercial Real Estate Brokerage. In this capacity, Mr. Lankford provides
independent commercial real estate brokerage services for various clients
including CSLC, which currently accounts for less than 20 percent of his
compensation.
Wayne R. Miller
Wayne R. Miller, age 50, has served as Secretary of Retirement Associates, Inc.
since June 1997. From 1980 to 1994, Mr. Miller was an officer, director and
shareholder of the law firm of Miller, Hiersche, Martens and Hayward, Inc. From
1994 to the present, Mr. Miller has been President, Sole Director and Sole
Shareholder of the law firm of Wayne R. Miller P.C.
Section 16 (a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Registrant pursuant to Rule 16a-3(e) of the SEC rules, the
Registrant is not aware of any failure of any officer or director of CSL or
beneficial owner of more than 10 percent of the Units to timely file with the
SEC any Form 3, 4 or 5 relating to the Registrant for 1998.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant has no officers or directors. The officers and directors of the
General Partner receive no direct current remuneration from the Registrant nor
is it proposed that they receive remuneration in such capacities. The Registrant
is required to pay certain fees to the General Partner or its affiliates, make
distributions, and allocate a share of the profits and losses of the Registrant
to the General Partner. The relationship of the General Partner (and its
directors and officer) to its affiliates is set forth above in Item 10.
Reference is also made to Note 6 of the Notes to the Consolidated Financial
Statements included herein, for a description of such distributions, allocations
and the compensation and reimbursements paid to the General Partner and former
affiliates. Also see Item 13, Certain Relationships and Related Transactions,
for additional information.
13
There are no compensatory plans or arrangements resulting from resignation or
retirement of the partners, directors or executive officers of the General
Partner that require payments to be received from the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Capital Senior Living Properties, Inc., owned by Capital Senior Living
Corporation, an SEC registrant and an affiliate of CSL, and until June 10, 1998,
an affiliate of Capital, owns 56.8 percent of outstanding Units of the
Registrant as of March 1, 2000. Otherwise, no other person or group owns more
than 5 percent of the Registrant as of March 1, 2000.
No partners, officers or directors of the General Partner directly own any Units
at March 1, 2000. However, Messrs. Beck and Stroud and their affiliates own a
substantial interest (approximately 46 percent) in the parent of Capital Senior
Living Properties, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of the Partnership Agreement, the Registrant is entitled to
engage in various transactions involving affiliates of the General Partner.
Pursuant to the Partnership Agreement, the General Partner receives a share of
the Registrant's profits and losses.
The General Partner and its affiliates are entitled to receive an Acquisition
Fee, as defined in the Registrant's Partnership Agreement, for their services
rendered to the Registrant in connection with the selection and purchase of any
property by the Registrant whether designated as real estate commissions or
other fees, however designated and however treated for tax or accounting
purposes. Aggregate Acquisition Fees payable to all persons in connection with
the purchase of the Registrant's properties may not exceed the lesser of: (a) 2
percent of the gross proceeds of the Registrant's offering; or (b) such
compensation as is customarily charged in similar arm's-length transactions. If
there are insufficient proceeds to pay such fee to the General Partner and their
affiliates, such amount will not be deferred. No amounts were earned in 1999,
1998 and 1997 in connection with such services. In connection with any
reinvestment of sale or refinancing proceeds as provided in the Partnership
Agreement, the Registrant will pay a reinvestment acquisition fee of 2 percent
of the price of additional properties payable from Net Sale or Refinancing
Proceeds utilized solely for the acquisition. No such fees were paid in 1999,
1998 or 1997.
The Registrant may pay the General Partner or its affiliates a Regulatory
Approval Fee, as defined in the Partnership Agreement, of up to 6 percent of the
costs of any newly constructed property that is acquired by the Registrant. The
services rendered in connection with such fee will include: obtaining the
appropriate certificates of need, licenses, Medicare and Medicaid clearances,
regulatory approvals of transfer as is necessary, and such other federal, state,
local and other regulatory agency approvals as are necessary, and completion of
various other items which pertain to the commencement of the operation of a
newly constructed health care facility. Said services are expected to continue
over the term for which such the Registrant properties are subject to compliance
with regulatory agencies, so as to ensure that the newly constructed property
can be placed into service on a timely basis and remain operational. This fee
will not exceed $1,150,000. The General Partner or its affiliates did not earn
any compensation in 1999, 1998 or 1997 in connection with such services. The
prior General Partners earned $455,000 since inception.
14
The Registrant may pay to the General Partner or its affiliates, for services
rendered in connection with the refinancing of a the Registrant property, a
mortgage placement fee equal to the lesser of: (a) 2 percent of the refinancing
proceeds of the Registrant property; or (b) fees which are competitive for
similar services in the geographical area where the Registrant property is
located. The amount earned by the General Partner in 1997 for the extension of
the Hearthstone loan was $13,245. No such fees were paid in 1999 and 1998.
The Registrant may pay to the General Partner or its affiliates, for services
rendered in connection with the sale of a the Registrant property, and shall be
entitled to receive the lessor of: (a) 3 percent of the sale price of the
Registrant's property, or (b) an amount not to exceed 50 percent of the standard
real estate commission. Amounts earned by the General Partner in 1999 for the
sale of Cedarbrook were $84,750. No such fees were paid in 1998 and 1997.
Since most of the Registrant's properties have long-term, triple-net leases and
others have independent fee management engagements for most services, the
General Partner or its former affiliates received 1 percent of the monthly gross
rental or operating revenues, totaling approximately $96,000, $88,000, and
$90,000, in 1999, 1998, and 1997, respectively. Property management fees paid to
the General Partner or to its managing agent, CSL, were approximately $370,000,
$315,000, and $330,000, in 1999, 1998, and 1997, respectively. Asset management
fees paid to the General Partner or to its managing agent, CSL, were
approximately $468,000, $543,000, and $484,000, in 1999, 1998, and 1997,
respectively.
The General Partner may be reimbursed for its direct expenses relating to
offering and administration of the Registrant. The General Partner, its
affiliates or its managing agent, CSL, received approximately $170,000,
$149,000, and $206,000 reimbursements for such out-of-pocket expenses in 1999,
1998, and 1997, respectively. In addition, the General Partner, its affiliates
or its managing agent, CSL, received approximately $3,126,000, $3,074,000, and
$3,173,000 for salary and benefit reimbursements.
In addition, a former owner of the General Partner is chairman of the board and
principal stockholder of a bank, United Texas Bank of Dallas, where the
Registrant holds the majority of its operating cash accounts.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
The following documents were filed as part of this report:
o Independent Auditors' Report;
o Consolidated Balance Sheets -December 31, 1999 and 1998;
o Consolidated Statements of Income - Three years ended December 31,1999;
o Consolidated Statements of Partnership Equity - Three years ended December
31, 1999;
o Consolidated Statements of Cash Flows - Three years ended December 31,
1999; and
o Notes to Consolidated Financial Statements.
Financial Statement Schedules
All schedules have been omitted because they are inapplicable, not required, or
the information is included in the consolidated financial statements or notes
thereto.
Exhibits
The list of exhibits is incorporated herein by reference to the exhibit index on
page 38 of this report.
Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal 1999.
16
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 of the undersigned, thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: Capital Realty Group Senior Housing, Inc.,
General Partner
By: /s/ Robert L. Lankford
----------------------
Robert L. Lankford, President
March 28, 2000
17
EXHIBIT INDEX
Page Nos. in
Exhibit Number This Filing
- -------------- ------------
3 Restated Limited Partnership Agreement is incorporated N/A
by reference to Exhibit A to the Prospectus of the Registrant
dated August 31, 1987, as filed with the Commission
pursuant to Rule 424(b).
10 Restructuring Agreement dated November 30, 1992, N/A
between the Registrant and Rebound, Inc. with exhibits.
27* Financial Data Schedule (included only in Edgar filing) -
28 Partnership Management Agreement, dated July 29, 1992, N/A
with Capital Realty Group Properties, Inc. as filed with
the Commission in the Third Quarter 10-Q,
dated September 30, 1992.
* Filed herewith
18
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Partners
HealthCare Properties, L.P.:
We have audited the accompanying consolidated balance sheets of HealthCare
Properties, L.P. and subsidiaries (a Delaware limited partnership) as of
December 31, 1999 and 1998, and the related consolidated statements of income,
partnership equity and cash flows for each of the years in the three-year period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements 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 HealthCare
Properties, L.P. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
February 4, 2000, except as
to the third paragraph of
Note 13 which is as of
March 1, 2000
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
------------------ -----------------
Cash and cash equivalents $ 13,723,936 11,971,405
Accounts receivable, less allowance for doubtful accounts of
$735,106 in 1999 and $686,042 in 1998 (Notes 2, 9 and 11) 1,620,943 843,332
Prepaid expenses 305 36,605
Assets held for sale, at the lower of carrying value or fair
value less estimated costs to sell 9,549,086 --
Property and improvements, net (Notes 3, 4 and 5) 6,956,615 19,598,117
Deferred charges, less accumulated amortization of $989,098
in 1999 and $981,895 in 1998 204,367 309,499
------------------ -----------------
Total assets $ 32,055,252 32,758,958
================== =================
Liabilities and Partnership Equity
Accounts payable and accrued expenses $ 454,772 606,044
Operating facility accounts payable 137,777 102,665
Mortgage loans payable (Note 4) 5,173,281 6,128,656
------------------ -----------------
5,765,830 6,837,365
------------------ -----------------
Partnership equity:
Limited partners (4,148,325 units at December 31, 1999
and 1998) 26,189,763 25,869,116
General partner 99,659 52,477
------------------ -----------------
26,289,422 25,921,593
------------------ -----------------
Total liabilities and partnership equity $ 32,055,252 32,758,958
================== =================
See accompanying notes to consolidate financial statements.
2
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Income
Three years ended December 31, 1999
1999 1998 1997
---------------- ---------------- -----------------
Revenues (Notes 5 and 9):
Net patient service $ 5,196,080 4,505,972 4,702,017
Rental 4,303,739 4,281,603 4,275,611
---------------- ---------------- -----------------
9,499,819 8,787,575 8,977,628
---------------- ---------------- -----------------
Expenses:
Facility operating expenses 4,700,597 4,447,809 4,577,735
Depreciation 1,144,939 1,306,736 1,368,941
Fees to related parties (Note 6) 1,104,000 1,094,957 1,110,278
Bad debt expense, net of recoveries of $700,000
in 1999; none in 1998 and 1997 (Note 2) (248,484) 385,000 43,061
Administrative and other 386,943 467,610 520,423
---------------- ---------------- -----------------
7,087,995 7,702,112 7,620,438
---------------- ---------------- -----------------
Income from operations 2,411,824 1,085,463 1,357,190
---------------- ---------------- -----------------
Other income (expense):
Interest income 594,715 524,180 358,856
Interest expense (584,204) (635,083) (678,905)
Amortization (105,132) (105,135) (108,851)
Gain on disposition of operating property,
net (Note 3) 772,286 -- --
Other (Note 7) 41,909 5,000 524,044
---------------- ---------------- -----------------
719,574 (211,038) 95,144
---------------- ---------------- -----------------
Net income $ 3,131,398 874,425 1,452,334
================ ================ =================
Allocation of net income:
Limited partners $ 3,084,216 856,936 1,423,287
General partner 47,182 17,489 29,047
---------------- ---------------- -----------------
$ 3,131,398 874,425 1,452,334
================ ================ =================
Basic per limited partnership unit calculations:
Net income $ .74 .21 .34
================ ================ =================
Distributions $ .67 -- .08
================ ================ =================
Weighted average number of units 4,148,325 4,153,835 4,172,457
================ ================ =================
See accompanying notes to consolidated financial statements.
3
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Partnership Equity
Three years ended December 31, 1999
Limited General
Partners Partner Total
---------------- ---------------- -----------------
Equity at December 31, 1996 $ 24,058,684 5,941 24,064,625
Net income 1,423,287 29,047 1,452,334
Distributions (325,000) -- (325,000)
---------------- ---------------- -----------------
Equity at December 31, 1997 25,156,971 34,988 25,191,959
Net income 856,936 17,489 874,425
Repurchase of 24,132 Limited Partner Units
subsequently canceled (144,791) -- (144,791)
---------------- ---------------- -----------------
Equity at December 31, 1998 25,869,116 52,477 25,921,593
Net income 3,084,216 47,182 3,131,398
Distributions (2,763,569) -- (2,763,569)
---------------- ---------------- -----------------
Equity at December 31, 1999 $ 26,189,763 99,659 26,289,422
================ ================ =================
See accompanying notes to consolidated financial statements.
4
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Three years ended December 31, 1999
1999 1998 1997
---------------- ---------------- -----------------
Cash flows from operating activities:
Net income $ 3,131,398 874,425 1,452,334
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,250,071 1,411,871 1,477,792
Bad debt expense, net of recoveries (248,484) 385,000 43,061
Gain on disposition of operating
property, net (772,286) -- --
Changes in assets and liabilities, net of
effects of property disposition:
Accounts receivable (529,127) (428,303) (48,856)
Prepaid expenses 36,300 13,616 35,074
Accounts payable and accrued expenses (116,160) (223,754) (283,045)
---------------- ---------------- -----------------
Net cash provided by operating
activities 2,751,712 2,032,855 2,676,360
---------------- ---------------- -----------------
Cash flows from investing activities:
Purchases of property and improvements (20,191) (80,940) (80,235)
Proceeds from sale of property 2,739,954 -- --
---------------- ---------------- -----------------
Net cash provided by (used in)
investing activities 2,719,763 (80,940) (80,235)
---------------- ---------------- -----------------
Cash flows from financing activities:
Payments on mortgage loans payable (955,375) (548,775) (529,983)
Distributions to limited partners (2,763,569) -- (325,000)
Increase in deferred charges -- (9,062) (14,479)
Repurchase of limited partner units -- (144,791) --
---------------- ---------------- -----------------
Net cash used in financing activities (3,718,944) (702,628) (869,462)
---------------- ---------------- -----------------
Net increase in cash and cash equivalents 1,752,531 1,249,287 1,726,663
Cash and cash equivalents at beginning of year 11,971,405 10,722,118 8,995,455
---------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 13,723,936 11,971,405 10,722,118
================ ================ =================
Cash paid for interest $ 579,261 635,083 678,905
================ ================ =================
See accompanying notes to consolidated financial statements.
5
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) General
HealthCare Properties, L.P. (HCP or the Partnership) is a Delaware
limited partnership established for the purpose of acquiring, leasing and
operating existing or newly constructed long-term health care properties.
These properties are operated by the Partnership or are leased to
qualified operators who provide specialized health care services. Capital
Realty Group Senior Housing, Inc. (CRG) is the sole general partner of
the Partnership. Effective February 1, 1995, Capital Senior Living, Inc.
(CSL), an affiliate of CRG until June 10,1998, became the managing agent
for the Partnership replacing CRG.
At December 31, 1995, CRG owned approximately 9% of the Partnership's
limited partner units. During 1996, Capital Senior Living Communities,
L.P. (CSLC), an affiliate of CRG, acquired CRG's 9% interest in the
Partnership. At December 31, 1996, CSLC owned approximately 31% of the
Partnership's limited partner units. In 1997, the assets of CSLC were
sold to Capital Senior Living Properties (CSLP), a subsidiary of Capital
Senior Living Corporation (HCP is included in the consolidated financial
statements of Capital Senior Living Corporation, a public company that
files with the Securities and Exchange Commission). At December 31, 1999
and 1998, CSLP owned approximately 57% of the Partnership's limited
partner units.
The consolidated financial statements as of and for the years ended
December 31, 1999 and 1998, include the accounts of the Partnership's
wholly owned subsidiary, Cambridge Nursing Home Limited Liability Company
(Cambridge LLC), which operates the Partnership's Cambridge Nursing Home,
located in Cambridge, Massachusetts. All significant intercompany
accounts and transactions have been eliminated in consolidation.
At December 31, 1999, the Partnership leased six of its remaining seven
properties and at December 31, 1998 and 1997, the Partnership leased
seven of its then eight properties to unaffiliated operators on a triple
net basis.
(2) Summary of Significant Accounting Policies
Property and improvements are stated at cost. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. The
fair value is based on either the expected future cash flows discounted
at a rate which varies based on associated risk or an independent
third-party appraisal. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
using declining-balance and straight-line methods, as follows: buildings
and improvements, 25 to 31 years; furniture, fixtures and equipment, 5 to
10 years.
6 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The consolidated financial statements and federal income tax returns are
prepared on the accrual method of accounting and include only those
assets and liabilities and results of operations which relate to the
business of the Partnership and its wholly owned subsidiaries. No
provision has been made for federal and state income taxes since such
taxes are the responsibility of the individual partners. Although the
Partnership's subsidiaries file federal corporate income tax returns,
none of the subsidiaries had significant net income for financial
reporting or income tax purposes in 1999, 1998 or 1997. Accordingly, no
provision has been made for federal and state income taxes for these
subsidiaries in 1999, 1998 or 1997.
Net income (loss) of the Partnership and taxable income (loss) are
generally allocated 98% to the limited partners and 2% to the general
partner. The net income of the Partnership from the disposition of a
property is allocated (i) to partners with deficit capital accounts on a
pro rata basis, (ii) to limited partners until they have been paid an
amount equal to the amount of their Adjusted Investment, as defined,
(iii) to the limited partners until they have been allocated income equal
to their 12% Liquidation Preference, and (iv) thereafter, 80% to the
limited partners and 20% to the general partner. The net loss of the
Partnership from the disposition of a property is allocated (i) to
partners with positive capital accounts on a pro rata basis and (ii)
thereafter, 98% to the limited partners and 2% to the general partner.
Distributions of available cash flow are generally distributed 98% to the
limited partners and 2% to the general partner, until the limited
partners have received an annual preferential distribution, as defined.
Thereafter, available cash flow is distributed 90% to the limited
partners and 10% to the general partner.
For the year ended December 31, 1999, the gain on sale of the Cedarbrook
main campus facility (see Note 3) was allocated 100 percent to the
limited partners. The remaining 1999 net income was allocated 98 percent
to the limited partners and 2 percent to the general partner. The
Partnership made a $2,763,569 and $325,000 distribution to the limited
partners in 1999 and 1997, respectively, and no distribution in 1998.
Deferred charges primarily represent initial fees and other costs
incurred in negotiating leases and mortgage loans payable. These costs
are being amortized using the straight-line method over the lives of the
related leases or mortgage loans.
Net patient service revenue is reported at the estimated net realizable
amounts due from residents, third-party payors (including the Medicare
and Medicaid programs), and others for service rendered. Revenue under
third-party payor agreements is subject to audit and in certain cases,
retroactive adjustment. Provisions for estimated third-party payor
settlements are provided in the period the related services are rendered.
Differences between the estimated amounts accrued and interim and final
settlements are reported in operations in the year of settlement. Final
settlement has been made by the Medicare fiscal intermediary with respect
to the Cambridge property for all years through December 31, 1997. Laws
and regulations governing the Medicare and Medicaid programs are complex
and subject to interpretation. The Partnership believes that it is in
compliance with all
7 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing.
While no such regulatory inquiries have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
At December 31, 1999, the Partnership recorded a receivable for $700,000
related to receivables due from a former lessee that were previously
written off in connection with the Partnership's Cambridge property. The
$700,000 represents an administrative claim the Partnership made in
connection with the bankruptcy proceedings of the former lessee. On
December 14, 1999, the United States Bankruptcy Court for the Southern
District of Florida approved an interim distribution on the Partnership's
administrative claim for $700,000.
The Partnership records accounts receivable for contingent rentals and
past due rents only when circumstances indicate a substantial probability
of collection. Existing receivables are reserved to the extent collection
is deemed doubtful by the Partnership's management. There were no
deductions to the allowance for doubtful accounts for rental accounts
receivable for 1999, 1998 and 1997.
The Partnership classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information (FAS 131). FAS 131 superseded FAS 14,
Financial Reporting for Segments of a Business Enterprise. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports. FAS 131 also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The adoption of FAS 131 did not affect results
of operations or financial position. The Partnership evaluates the
performance and allocates resources of its properties based on current
operations and market assessments on a property-by-property basis. The
Partnership does not have a concentration of operations geographically or
by product or service as its management functions are integrated at the
property level.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to
prepare these consolidated financial statements. Actual results could
differ from those estimates.
8 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(3) Property and Improvements
Property and improvements consist of:
December 31,
------------------------------------
1999 1998
----------------- -----------------
Land $ 1,677,310 3,145,803
Buildings and improvements 13,159,416 31,426,443
Furniture, fixtures and equipment 1,025,568 1,736,080
----------------- -----------------
15,862,294 36,308,326
Less allowance for reduction in carrying value
of operating property (2,185,381) (2,185,381)
----------------- -----------------
13,676,913 34,122,945
Less accumulated depreciation (6,720,298) (14,524,828)
----------------- -----------------
$ 6,956,615 19,598,117
================= =================
The following information is a summary of Partnership additions to and
deductions from property and improvements and accumulated depreciation
for the years ended December 31, 1999 and 1998. The information presented
includes furniture, fixtures and equipment which are immaterial to the
Partnership.
Property and improvements 1999 1998
--------------------------------------------- ----------------- -----------------
Balance at beginning of period $ 34,122,945 34,042,005
Additions during the period:
Improvements 20,191 80,940
----------------- -----------------
34,143,136 34,122,945
Deductions during period:
Cost of property sold 3,491,753 --
Assets held for sale 16,974,470 --
----------------- -----------------
Balance at close of period $ 13,676,913 34,122,945
================= =================
Accumulated depreciation:
Balance at beginning of period $ 14,524,828 13,218,092
Additions 1,144,939 1,306,736
Deductions during period:
Property sold 1,524,085 --
Assets held for sale 7,425,384 --
----------------- -----------------
Balance at close of period $ 6,720,298 14,524,828
================= =================
9 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following is a summary of information for the individual Partnership
properties and the two remaining Cedarbrook facilities from inception of the
Partnership through December 31, 1999. The information presented includes
furniture, fixtures and equipment which are immaterial to the Partnership.
Costs
capitalized
subsequent to
Initial cost to partnership acquisition Gross amount carried at close of period
--------------------------- ------------- ------------------------------------------------------
Buildings Buildings
and and Valuation
Description Land improvements Improvements Land improvements allowance Total
- ----------------------------- ------------ ------------ ------------ ----------- ------------ ------------ -------------
Crenshaw Creek rehab facility
Lancaster, SC 123,801 3,776,199 102,732 123,801 3,878,931 -- 4,002,732
Cambridge nursing home
Cambridge, MA 497,470 4,602,530 283,138 497,470 4,885,668 (2,185,381) 3,197,757
Trinity Hills nursing home
Ft. Worth, TX 300,000 2,400,000 26,152 300,000 2,426,152 -- 2,726,152
Hearthstone nursing home
Austin, TX 756,039 2,868,961 116,365 756,039 2,985,326 -- 3,741,365
Partnership assets
Dallas, TX -- -- 8,907 -- 8,907 -- 8,907
------------ ------------ ------------- ----------- ------------ ------------ -------------
Total Assets Held
for Use $ 1,677,310 13,647,690 537,294 1,677,310 14,184,984 (2,185,381) 13,676,913
============ ============ ============= =========== ============ ============ =============
Cedarbrook remaining
facilities
Nashville, TN 233,471 1,013,383 -- 233,471 1,013,383 -- 1,246,854
Cane Creek rehab facility
Martin, TN 97,560 3,902,440 225,118 97,560 4,127,558 -- 4,225,118
Sandybrook rehab facility
Orlando, FL 563,072 3,636,928 128,434 563,072 3,765,362 -- 4,328,434
McCurdy nursing home
Evansville, IN -- 7,100,000 74,064 -- 7,174,064 -- 7,174,064
------------ ------------ ------------- ----------- ------------ ------------ -------------
Total Assets Held
for Sale $ 894,103 15,652,751 427,616 894,103 16,080,367 -- 16,974,470
============ ============ ============= =========== ============ ============ =============
10 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Accumulated Date of Date Useful
Description Encumbrances depreciation construction acquired life
- ----------------------------- ------------ ------------ ------------ ----------- ------------
Crenshaw Creek rehab facility
Lancaster, SC -- 1,851,422 1988 1988 25-31 years
Cambridge nursing home
Cambridge, MA -- 2,048,061 1967 1990 25-31 years
Trinity Hills nursing home
Ft. Worth, TX -- 1,365,191 1971 1988 25-31 years
Hearthstone nursing home
Austin, TX 1,222,415 1,448,429 1988 1988 25-31 years
Partnership assets
Dallas, TX -- 6,655 n/a 1991-1993 5-10 years
------------ ------------
Total Assets Held
for Use $ 1,222,415 6,720,298
============ ============
Cedarbrook remaining
facilities
Nashville, TN -- 465,690 1985 1987 25-31 years
Cane Creek rehab facility
Martin, TN 135,824 2,248,680 1985 1987 25-31 years
Sandybrook rehab facility
Orlando, FL -- 1,699,478 1985 1988 25-31 years
McCurdy nursing home
Evansville, IN 3,815,042 3,011,536 1916 1989 25-31 years
------------ ------------
Total Assets Held
for Sale $ 3,950,866 7,425,384
============ ============
11 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
In 1999, the Partnership decided to sell the Cane Creek, McCurdy and
Sandybrook facilities and the remaining Cedarbrook facilities because
they are no longer competitive in current markets and no longer meet the
Partnership's strategic objectives. These assets are classified as assets
held for sale in the accompanying 1999 consolidated balance sheet at the
lower of carrying value or fair value less estimated costs to sell.
Rental revenue and net income associated with these properties were
$2,749,392 and $1,079,406, respectively in 1999.
On September 20, 1999, the Partnership sold the Cedarbrook main campus
facility for $2,825,000, resulting in a $772,286 gain on sale and
$2,308,734 in net cash proceeds after payment of settlement costs and a
mortgage loan payable related to this facility.
The federal income tax basis of the Partnership's property and
improvements at December 31, 1999 and 1998 is $22,223,257 and
$22,018,273, respectively.
(4) Mortgage Loans Payable
Mortgage loans payable consist of the following:
1999 1998
------------ -----------
Cane Creek property - note payable to bank $ 135,824 364,106
Cedarbrook property - note payable to bank -- 568,181
Hearthstone property - note payable to life
insurance company 1,222,415 1,266,559
McCurdy property - note payable to bank 3,815,042 3,929,810
------------ -----------
Total mortgage loans payable $ 5,173,281 6,128,656
============ ===========
Mortgage loans payable bear interest ranging from 6.8% to 10.75% at
December 31, 1999 and 6.2% to 10.75% at December 31, 1998. These notes
are payable in monthly installments of $81,212 at December 31, 1999 and
$99,212 at December 31, 1998, including interest. The notes are secured
by properties with net book values aggregating $8,431,900 and $11,790,898
at December 31, 1999 and 1998, respectively. The notes range in maturity
from 2001 to 2012.
The Partnership leases three of its properties and the two remaining
Cedarbrook facilities under a master lease (see Note 5). The rentals
under the master lease provide additional security for one of the notes
payable used to finance one of the master lease properties. On March 21,
1997, the lender agreed not to exercise its call rights on June 30, 1997.
During the current year, the lender agreed to extend the maturity date of
its note to December 1, 2001, pending completion of final loan documents.
12 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Presented below is a summary of required principal payments on mortgage
loans payable. The note callable on June 30, 1997 is included in amounts
due currently.
Year ending
June 30,
-----------------------
2000 $ 375,263
2001 232,873
2002 258,687
2003 287,362
2004 319,218
2005 and thereafter 3,699,878
-----------------
$ 5,173,281
=================
(5) Leases
The Partnership leases its property and equipment to tenants under
noncancelable operating leases. The lease terms range from 9 to 12 years
with options to renew for additional five-year terms and options to
purchase the leased property at the current fair market value at the end
of the initial lease term. The leases generally provide for contingent
rentals based on the performance of the property. Contingent rentals
aggregated $332,411, $310,275 and $271,340 in 1999, 1998 and 1997,
respectively.
Minimum rentals are $3,761,262 and $2,858,619 for the years 2000 and
2001, subject to change based on changes in interest rates. There are no
minimum rentals thereafter. Property and improvements less accumulated
depreciation attributable to such rentals, amounted to $15,354,291 and
$18,329,061 at December 31, 1999 and 1998, respectively.
Three of the Partnership's properties and the two remaining Cedarbrook
facilities are subject to a master lease with a single operator, Rebound,
Inc., a subsidiary of HealthSouth Corporation (HealthSouth). This master
lease, as amended, contains a nine-year renewal option and provides for
contingent rentals equal to 4% of the revenue differential, as defined,
effective January 30, 1997. As of December 31, 1999, no contingent
rentals have been accrued on the master lease.
HealthSouth closed the Partnership's Sandybrook facility in 1994 and
Cedarbrook facility in 1997. On August 5, 1999, HealthSouth transferred
its rights to the Sandybrook and Cedarbrook properties to the
Partnership, at which time, the Partnership became responsible for
insurance and property tax requirements of those facilities. The lessee
agreed to pay maintenance and utility expenses for six months from the
date of transfer and to continue lease payments for the facilities
through the end of the November 30, 2001 lease term.
13 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following summary consolidated financial data was obtained from the
September 30, 1999 Form 10-Q and the December 31, 1998 Form 10-K of
HealthSouth (in thousands):
September 30, December 31,
1999 1998
------------------- ------------------
(unaudited)
Cash $ 158,229 138,827
Accounts receivable, net 1,081,799 897,901
Property and equipment, net 2,330,082 2,288,262
Intangible assets, net 2,945,958 2,959,910
Other assets 607,128 488,108
------------------- ------------------
Total assets $ 7,123,196 6,773,008
=================== ==================
Long-term debt $ 3,011,329 2,780,932
Other liabilities 705,150 569,072
Stockholders' equity 3,406,717 3,423,004
------------------- ------------------
Total liabilities and
stockholders' equity $ 7,123,196 6,773,008
=================== ==================
Nine months
ended Year ended December 31,
September 30, ------------------------------
1999 1998 1997
------------------ -------------- -------------
(unaudited)
Net revenue $ 3,071,520 4,006,074 3,123,176
================== ============== =============
Net income $ 219,582 46,558 343,059
================== ============== =============
14 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) Related Party Transactions
Personnel working at the property sites and certain home office personnel
who perform services on behalf of HCP are employees of CSL, an affiliate
of the General Partner until June 10, 1998. HCP reimburses CSL for the
salaries, related benefits and overhead reimbursements of such
personnel. In addition, HCP pays fees to the general partner and to CSL.
The approximate costs of these arrangements are reflected below.
1999 1998 1997
------------------ ------------------ ------------------
Salary and benefit reimbursements $ 3,126,000 3,074,000 3,173,000
================== ================== ==================
Asset management fees $ 468,000 543,000 484,000
Property management fees 370,000 315,000 330,000
Administrative and other expenses 170,000 149,000 206,000
General partner management fees 96,000 88,000 90,000
------------------ ------------------ ------------------
$ 1,104,000 1,095,000 1,110,000
================== ================== ==================
In October 1997, HCP paid CRG a refinancing fee of $13,245.
In connection with the sale of the main Cedarbrook property on September
20, 1999, the general partner was paid fees aggregating $84,750.
At December 31, 1999 and 1998, Capital Senior Living Corporation, whose
principal shareholders are James A. Stroud (through a trust), Jeffrey L.
Beck and Lawrence A. Cohen, indirectly owned 57% of the limited
partnership units of HCP. HCP is included in the consolidated financial
statements of Capital Senior Living Corporation, a public company that
files with the Securities and Exchange Commission. In addition, the
general partner of HCP, CRG, was beneficially owned by Messrs. Beck and
Stroud until June 10, 1998 when their general partner interest was sold
to a third-party, Retirement Associates, Inc.
Mr. Beck is chairman of the board of a bank where the Partnership holds
the majority of its operating cash accounts.
(7) Other Income
On November 3, 1997, CSLC sold all of its units of HCP to CSLP in
conjunction with the initial public offering of its parent company,
Capital Senior Living Corporation. In connection with the sale of its
investment in HCP, and in compliance with Section 16b of the Securities
Exchange Act of 1934, CSLC subsequently paid to HCP $440,007 in gains
recognized on purchases of HCP units made within a six month period prior
to the sale of HCP units to CSLP. This gain is included in other income
in the accompanying 1997 consolidated statement of income.
15 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(8) Income Taxes
Reconciliation of financial statement basis partners' equity to federal
income tax basis partners' equity is as follows:
Year ended December 31,
--------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
Total partners' equity - financial
statement basis $ 26,289,422 25,921,593 25,191,959
Current year tax basis net earnings over
financial statement basis 197,634 945,097 321,264
Cumulative tax basis net earnings over
financial statement basis 5,733,655 4,788,558 4,452,249
---------------- ---------------- ----------------
Total partners' equity - federal
income tax basis $ 32,220,711 31,655,248 29,965,472
================ ================ ================
Because many types of transactions are susceptible to varying
interpretations under federal and state income tax laws and regulations,
the amounts reported above may be subject to change at a later date upon
final determination by the taxing authorities.
(9) Business and Credit Concentrations
The Partnership's seven facilities are located in the southeastern United
States, Texas, Indiana and Massachusetts. The facilities operated by
HealthSouth (Note 5) are located in the southeastern United States and
accounted for approximately $2,367,000 (25%), $2,367,000 (27%) and
$2,367,000 (26%) of Partnership revenues in 1999, 1998 and 1997,
respectively. One property leased to an unaffiliated operator accounted
for approximately $955,392 (10%) and $1,004,000 (11%) of Partnership
revenues in 1999 and 1998, respectively.
The Partnership also derives revenue from the Medicaid program funded by
the state of Massachusetts. The Partnership derived 33% of its revenues
in 1999 and 32% of its revenues in 1998 and 1997 from the state program
in Massachusetts. The Partnership also derived 11% of its revenue from
the Medicare program in 1999.
Receivables due from the Massachusetts state Medicaid program aggregated
$712,861 and $617,066 at December 31, 1999 and 1998, respectively.
The Partnership does not require collateral or other security to support
financial instruments subject to credit risk.
16 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(10) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments presented below.
(a) Cash and Cash Equivalents, Receivables and Payables
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Mortgage Loans Payable
The fair value of the Partnership's mortgage loans payable is
calculated by discounting scheduled cash flows through maturity
using discount rates that are currently available to the
Partnership on other borrowings with similar risk and maturities.
Issuance costs and other expenses that would be incurred in an
actual borrowing are not reflected in this amount.
Carrying value Fair value
----------------- ----------------
Mortgage loans payable $ 5,173,281 4,948,857
================= ================
(11) Condensed Operating Results for Subsidiary
Operating results for the Partnership's subsidiary, Cambridge LLC,
follow:
1999 1998 1997
----------------- ----------------- -----------------
Net patient service revenue $ 5,154,045 4,505,972 4,702,017
----------------- ----------------- -----------------
Facility operating expenses 4,700,597 4,447,809 4,577,735
Depreciation 218,029 214,223 205,563
Fees to affiliates 427,293 370,030 390,059
Bad debt expense, net of recoveries of
$700,000 in 1999; and none in 1998
and 1997 (248,484) 385,000 43,061
----------------- ----------------- -----------------
5,097,435 5,417,062 5,216,418
----------------- ----------------- -----------------
Income (loss) from operations $ 56,610 (911,090) (514,401)
================= ================= =================
17 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(12) Selected Quarterly Financial Data (Unaudited)
Fiscal 1999 quarters
-------------------------------------------------------------------
First Second (a) Third Fourth (b)
-------------- ------------- -------------- --------------
Revenues $ 2,308,278 2,472,418 2,327,749 2,391,374
Net income 368,122 610,424 1,148,263 1,004,589
Basic earnings per limited
partnership unit .09 .14 .27 .24
Fiscal 1998 quarters
-------------------------------------------------------------------
First Second Third Fourth (c)
-------------- ------------- -------------- --------------
Revenues $ 2,052,421 2,227,430 2,213,547 2,294,177
Net income 198,272 330,341 301,274 44,538
Basic earnings per limited
partnership unit .05 .08 .07 .01
(a) Due to an error in calculation, the Partnership reported basic
earnings per limited partnership unit of .15 on its Form 10-Q for
the second fiscal quarter of fiscal 1999.
(b) In the fourth quarter of fiscal 1999, the Partnership revised its
estimate of the allowance for doubtful accounts by approximately
$345,000 to address potentially uncollectible accounts at its
Cambridge facility.
(c) In the fourth quarter of fiscal 1998, the Partnership revised its
estimate of the allowance for doubtful accounts by approximately
$300,000 to address potentially uncollectible accounts at its
Cambridge facility.
Quarterly operating results are not necessarily representative of
operations for a full year.
18 (Continued)
HEALTHCARE PROPERTIES, L.P.
AND SUBSIDIARIES
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(13) Subsequent Events
On January 11, 2000, the Partnership sold the Cane Creek facility for
$2,350,000 resulting in a $302,787 gain on the sale and $2,143,400 in net
cash proceeds after payment of settlement costs and mortgage related to
this facility.
On January 18, 2000, the lessee of Hearthstone and on February 2, 2000,
the lessee of Trinity Hills filed for Chapter 11 bankruptcy in the United
States Bankruptcy Court for the District of Delaware. The Partnership has
not determined the effect bankruptcy protection will have on their future
results of operations or liquidity; however, the respective lessees have
remained current on their lease payments to the Partnership. The annual
lease payments for these two facilities aggregated $981,347 in 1999,
including $295,512 in realized contingent rentals.
On March 1, 2000, the Partnership received payment of the $700,000
interim distribution approved by the United States Bankruptcy Court for
the Southern District of Florida (see Note 2).
19