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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, 2001, 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 0-16815
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NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE 52-1453513
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75254
- ---------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
-------------
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Assignee Interests
--------------------------------------
(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 twelve 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 (Section 229.405 of this Chapter) 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 Registrant's outstanding securities consist of assignee interests in 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
----
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
2001 FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Pension Notes and Limited
Partnership Assignee Interests and Related Partnership Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 7A. Qualitative and Quantitative Disclosure About Market Risk 10
Item 8. Financial Statements and Supplementary Data 10
PART III
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 29
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management 31
Item 13. Certain Relationships and Related Transactions 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
PART I
ITEM 1. BUSINESS
NHP Retirement Housing Partners I Limited Partnership (the Partnership), a
Delaware limited partnership, was formed under the Delaware Revised Uniform
Limited Partnership Act as of March 10, 1986. On September 23, 1986, the
Partnership commenced offering 25,000 Assignee Interests and 50,000 Pension
Notes, both at a price of $1,000 per unit (the Offering). The Partnership
subsequently exercised its right to increase the offering to 75,000 Assignee
Interests and 100,000 Pension Notes. The offering was managed by NHP Real Estate
Securities, Inc. and was terminated on September 22, 1987, with subscriptions
for 42,711 Assignee Interests and 42,697 Pension Notes.
The Assignee Interests were sold to taxable individuals or entities and
represent assignments of limited partnership interests in the Partnership issued
to NHP RHP-I Assignor Corporation (Assignor Corporation), a Delaware
corporation, the assignor and sole limited partner. Pension Notes were sold to
qualified profit-sharing, pension and other retirement trusts, bank commingled
trust funds for such trusts, Keogh Plans and IRAs, government pension and
retirement trusts, and other entities intended to be exempt from Federal
taxation. The Pension Notes are obligations of the Partnership issued under a
Trust Indenture between the Partnership and The National Bank of Washington
(NBW), Washington, D.C., as Trustee, and have a preference over the Assignee
Interests with respect to payment. In August 1990, Riggs National Bank,
Washington, D.C., which became the successor trustee, purchased the assets of
NBW. In November 1996, Riggs National Bank transferred its trust operations to
the Bank of New York, New York City, which claims to be the successor trustee.
The original General Partner of the Partnership was NHP/RHGP-I Limited
Partnership (NHP/RHGP-I), a Delaware limited partnership, and NHP/RHGP-I held a
2 percent interest as General Partner in the Partnership. On December 19, 1991,
NHP/RHGP-I executed an amended and restated purchase agreement with Capital
Realty Group Properties, Inc. (CRG), a Texas corporation, for the transfer of
its General Partner interests in the Partnership. CRG assigned its rights under
this purchase agreement to an affiliate, Capital Realty Group Senior Housing,
Inc. (CRGSH), a Texas corporation. Effective January 1, 1992, CRGSH was selected
by NHP/RHGP-I to manage the five properties of the Partnership. Effective June
1, 1993, the Partnership entered into a Partnership Management Agreement with
CRGSH to provide administrative services on behalf of the Partnership. This
Partnership management agreement was terminated effective upon CRGSH becoming
the substitute General Partner.
The substitution of CRGSH as sole General Partner of the Partnership required
the consent of 50 percent or more of the outstanding Assignee Interests, which
had been issued by the Partnership and assigned by Assignor Corporation to the
Assignee Holders. Under the Partnership Agreement, holders of the Pension Notes
were not entitled to vote. Pursuant to a Consent Solicitation dated October 25,
1994, Assignee Holders holding more than 64 percent of the equity interests in
the Partnership approved the election of CRGSH as the replacement General
Partner of the Partnership. Effective January 23, 1995, CRGSH became the new
sole General Partner of the Partnership. CRGSH was a wholly owned subsidiary of
Capital Realty Group Corporation, a Texas corporation (Capital). Capital is
3
owned by James A. Stroud (50 percent through a trust) and Jeffrey L. Beck (50
percent). CRGSH assigned its contract rights to manage the Partnership
properties to Capital Senior Living, Inc. (CSL), a subsidiary of Capital Senior
Living Corporation (CSLC), effective February 1, 1996.
On June 10, 1998, Capital sold all of its shares of CRGSH common stock to
Retirement Associates, Inc. (Associates) for $855,000. The source of the funds
is a Promissory Note for $855,000 with a five-year term and bearing an interest
rate of 8 percent per annum since 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 remaining 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 Realty Group Brokerage,
Inc., an affiliate of Capital. 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 Partnership's business is to operate residential rental properties for
retirement age occupants (the Properties). During 2001, the Partnership owned a
99.99 percent partnership interest in one property, the Amberleigh (Property).
The Property was sold on December 31, 2001. See Item 2, Properties, for a
description of this Property.
The Partnership did not have any employees as of December 31, 2001.
Dissolution of Partnership
On February 12, 2001, due to the pending maturity of the Pension Notes at
December 31, 2001 and to obtain maximum value through an organized disposition
of Partnership assets, the General Partner notified the Pension Note holders and
Assignee Interest holders of its intent to dissolve the Partnership effective
May 21, 2001 and liquidate its remaining asset.
On December 31, 2001, the Partnership sold the Property, to an unaffiliated
entity for $20,000,000. The Partnership received two $1,000,000 promissory
notes, each payable within 12 months from the date of sale, subject to the
purchaser obtaining certain levels of financing proceeds and the property
achieving certain levels of operating income. The balance of the sale proceeds
net of settlement costs and other direct costs associated with the sale was paid
in cash, resulting in net sale proceeds of $16,014,830. The Partnership
recognized a $1,491,679 loss on the sale. On December 31, 2001, the principal on
the Pension Notes and deferred interest of approximately $35,504,000 matured.
4
Relating to the sale of the Amberleigh on December 31, 2001, the Partnership
paid $9,538,066 for a partial redemption of Pension Notes, and paid $7,461,934
for a partial payment of deferred interest, effective February 28, 2002. Cash
funds were not sufficient at February 28, 2002 to fully repay the outstanding
principal balance of $18,927,938 in Pension Notes and deferred interest. Since
available cash after payment of Partnership expenses and potential collection of
the Amberleigh promissory notes will be insufficient to repay the outstanding
Pension Notes and deferred interest, the unpaid debt will be treated as forgiven
and will result in recognition of income to the Assignee Holders.
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 could also affect the
financial results of the Partnership. Any impact from proposed health care
legislation is not known at this time; however, such impact could adversely
affect the Partnership operations.
ITEM 2. PROPERTIES
The following is a schedule of the Property owned by the Partnership at December
31, 2000 and subsequently sold on December 31, 2001. The Amberleigh was owned by
a limited partnership in which the Partnership is a 99.99 percent partner. The
Amberleigh was encumbered by a mortgage for the benefit of the Pension Note
holders.
Units Occupied
Number as a Percentage of
Property of Total Units, as of
Name/Location Units December 31, 2000
The Amberleigh 271 86%
At Woodstream Farms
Williamsville, New York
On December 31, 2001, the Partnership sold, the Amberleigh to an unaffiliated
entity for $20,000,000. The Partnership received two $1,000,000 promissory
notes, each payable within 12 months from the date of sale, subject to the
purchaser obtaining certain levels of financing proceeds and the property
achieving certain levels of operating income. There are no assurances that the
conditions will be satisfied such that either note is payable. The balance of
the sale proceeds, net of settlement costs and other direct costs associated
with the sale, was paid in cash, resulting in net sale proceeds of $16,014,830.
The Partnership recognized a $1,491,679 loss on the sale.
5
ITEM 3. LEGAL PROCEEDINGS
On or about October 23, 1998, Robert Lewis filed a putative class action
complaint on behalf of certain holders of Assignee Interests in the Partnership
in the Delaware Court of Chancery, Civil Action No. 16725 (the "Delaware
Action"), against the Partnership, the General Partner, Capital Senior Living
Corporation and Capital Senior Living Properties 2-NHPCT, Inc. (collectively,
the "Defendants"). Mr. Lewis purchased 90 Assignee Interests in February 1993
for $180. The complaint alleges, among other things, that the Defendants
breached, or aided and abetted a breach of, the express and implied terms of the
NHP Partnership Agreement in connection with the sale of four properties by the
Partnership to Capital Senior Living Properties 2-NHPCT, Inc. in September 1998
(the "1998 Transaction"). The complaint seeks, among other relief, rescission of
the 1998 Transaction and unspecified money damages. On July 9, 1999, the
Defendants filed a motion to dismiss the case. Subsequently, the plaintiff
amended his complaint adding allegations challenging the terms of the sale in
December 2001 of the Amberleigh.
On January 31, 2002, the parties to the Delaware Action entered a Memorandum of
Understanding providing for the settlement of the Delaware Action subject to
certain terms and conditions, including receipt of the approval of the Court of
Chancery. The proposed settlement contemplates the creation of a settlement fund
in the amount of $840,000, of which the Partnership will contribute and has
accrued $250,000, the amount of the deductible of the Partnership's directors &
officers' liability insurance policy at the time the Delaware Action was filed
(the "D&O Policy"). Virtually all of the balance of the settlement fund will be
contributed by various insurance brokers and agents, and their insurers, in
connection with the resolution of certain claims for coverage under the D&O
Policy. If approved by the Court of Chancery, the settlement fund, less any
award of attorney's fees for plaintiff's counsel approved by the Court, will be
distributed to a class of Assignee Holders.
On December 6, 2001, Leonard Kalmenson filed a motion to intervene in the
Delaware Action on behalf of a putative class of holders of Pension Notes in the
event the Court of Chancery determines that the claims asserted in the Delaware
Action are derivative in nature. The Complaint in Intervention filed by Mr.
Kalmenson names as defendants the Defendants in the Delaware Action, as well as
Retirement Associates, Inc., the sole stockholder of the General Partner, and
various current and former directors of the General Partner. The Complaint in
Intervention essentially alleges, among other things, a variety of claims
challenging the 1998 Transaction and a claim for breach of contract relating to
the failure of the Partnership to pay the full amount of principal and interest
owed on the Pension Notes on their maturity date. The Partnership believes that
the allegations asserted by Mr. Kalmenson are without merit and that his motion
to intervene is moot in view of the proposed settlement of the Delaware Action.
The Partnership is unable to estimate any liability related to this claim, if
any.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PENSION NOTES AND LIMITED PARTNERSHIP
ASSIGNEE INTERESTS AND RELATED PARTNERSHIP MATTERS
a. Assignee Interests and Pension Notes were sold through a public
offering managed by NHP Real Estate Securities, Inc. There is not
currently, and it is not anticipated that there will be, any
established public trading market for resale of Assignee Interests or
Pension Notes. Accordingly, an investor may be unable to sell or
otherwise dispose of his interest in the Partnership.
As of March 1, 2002, there were 2,271 registered holders of Assignee
Interests and 3,109 registered holders of Pension Notes.
As of March 1, 2002, Capital Senior Living Properties, Inc., a wholly
owned subsidiary of Capital Senior Living Corporation, owned
approximately 14,131 Pension Notes, or approximately 33 percent of the
Partnership's outstanding Pension Notes.
Each Pension Note bears stated interest in an amount equal to 13
percent per annum, 9 percent of which was subject to deferral through
December 31, 1988 and 6 percent of which is subject to deferral
thereafter. Interest is payable quarterly. Quarterly distributions of
Cash Available for Distribution (as defined in the Partnership
Agreement) are payable to Assignee Interest holders within 60 days
after the end of each three-month period, subject to the General
Partner's right to restrict or suspend such distributions, if the
General Partner, in its absolute discretion, determines that such
restriction or suspension is in the best interests of the Partnership.
For each of the years ended December 31, 2001, 2000 and 1999, interest
paid to the Pension Note holders as a group totaled $4,411,805,
$1,416,337, and $1,421,799 respectively, per year. During 2001,
interest paid included an additional $3,000,000 for deferred interest
not scheduled to become due until December 31, 2001. Relating to the
sale of the Amberleigh on December 31, 2001, the Partnership paid
$9,538,066 for a partial redemption of Pension Notes and paid
$7,461,934 for a partial payment of deferred interest, effective
February 28, 2002.
No cash distributions were paid to the Assignee Interest holders during
2001, 2000 or 1999. As presented in the Statement of Cash Flows (as
stated below), cash and cash equivalents increased (decreased)
$12,625,072, $(60,769), and $(267,943) for the years ended December 31,
2001, 2000 and 1999, respectively. Future cash requirements have caused
the General Partner to determine that it is not financially appropriate
to make distributions to Assignee Interest holders.
b. Not applicable.
7
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Revenue $ 5,406,768 $ 5,274,800 $ 5,322,600 $ 13,746,088 $ 15,548,138
============== ============== ============== ============== ==============
Net (Loss) Income $ (3,988,526) $ (2,473,796) $ (2,474,347) $ 3,409,569 $ (3,522,917)
============== ============== ============== ============== ==============
Net (Loss) Income per Assignee Interest
$ (94) $ (58) $ (57) $ 61 $ (81)
============== ============== ============== ============== ==============
Total assets $ 18,464,086 $ 23,753,479 $ 24,333,572 $ 25,262,800 $ 55,585,840
============== ============== ============== ============== ==============
Long-term obligations,
Pension Notes, and related
interest payable $ 35,504,347 $ 36,938,253 $ 35,036,889 $ 33,300,689 $ 66,402,407
============== ============== ============== ============== ==============
Cash distributions per
Assignee Interest $ 0 $ 0 $ 0 $ 0 $ 0
============== ============== ============== ============== ==============
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Income from rental operations decreased to $1,295,341 from $1,350,158 and
$1,456,968 for the years ended December 31, 2001, 2000, and 1999, respectively.
Rental revenues increased in 2001 to $5,406,768 from $5,274,800 in 2000 due to
increased occupancies at the Property. Rental expenses increased to $4,111,427
in 2001 from $3,924,642 in 2000 due to increased salary and related benefit
costs and costs attributable to inflation. Due to the sale of the Property on
December 31, 2001, the Partnership recognized a loss on sale of $1,491,679.
Interest expense decreased to $2,977,899 in 2001 from $3,317,701 in 2000 due to
a change of interest calculation from the effective interest rate to the stated
interest rate. Other expense increased to $695,280 in 2001 from $387,249 in 2000
primarily due to a $250,000 accrual for a lawsuit settlement provision.
Rental revenue decreased in 2000 to $5,274,800 from $5,322,600 in 1999 due to
lower occupancies at the Property. Rental expenses slightly increased to
$3,924,642 in 2000 from $3,865,632 in 1999 due to increased costs attributable
to inflation.
The Partnership's net loss was $(3,988,526), $(2,473,796), and $(2,474,347) for
the years ended December 31, 2001, 2000 and 1999, respectively.
8
Liquidity and Capital Resources.
Net cash used by operating activities during 2001 was $3,169,181, representing a
decrease over 2000 net cash provided by operating activities of $126,945. This
decrease was primarily due to an additional $3,000,000 payment for deferred
interest not scheduled to become due until December 31, 2001. Rent collections
increased to $5,222,146 in 2001 from $4,985,113 in 2000, primarily due to
increased occupancies at the Property. Operating expenses paid increased to
$4,103,892 in 2001 from $3,721,034 in 2000 and was primarily due to increased
costs paid for salary and related benefits and other costs attributable to
inflation.
Net cash provided by operating activities during 2000 was $126,945, representing
an increase over 1999 net cash used by operating activities of $125,391. Net
cash provided in 2000 operations primarily was due to decreased other operating
expenses paid. Rent collections decreased to $4,985,113 in 2000 from $5,056,293
in 1999, primarily due to lower occupancy at the Property. Operating expenses
paid decreased from $4,012,953 in 1999 to $3,721,034 in 2000 primarily due to
decreased other operating expenses paid. Interest paid was $4,411,805 in 2001,
$1,416,337 in 2000, and $1,421,799 in 1999.
For the year ended 2000, cash generated from rental operations was sufficient to
pay the base interest amount on the outstanding Pension Notes of $1,416,337.
However, cash generated from rental operations during 2001 and 1999 was
insufficient to pay the base interest amount of $1,411,805 and $1,421,799,
respectively. During 2001, an additional $3,000,000 was paid for deferred
interest not scheduled to become due until December 31, 2001. Interest payments
on the Pension Notes are accrued at a 13 percent rate, but were paid based on a
7 percent pay rate in 2001, 2000 and 1999. The remaining 6 percent unpaid
portion for these years, as well as amounts deferred in prior years in
accordance with the terms of the Pension Notes, continues to be accrued and are
due at maturity, December 31, 2001. Accrued and unpaid interest at December 31,
2001 amounted to $15,346,521.
Relating to the sale of the Amberleigh on December 31, 2001, the Partnership
paid $9,538,066 for a partial redemption of Pension Notes and paid $7,461,934
for a partial payment of deferred interest, effective February 28, 2002. Cash
funds were not sufficient at February 28, 2002 to fully repay the outstanding
principal balance of $18,927,938 in Pension Notes and deferred interest. Should
available cash after payment of Partnership expenses and potential collection of
the Amberleigh promissory notes be insufficient to repay the outstanding Pension
Notes and deferred interest, the unpaid debt will be treated as forgiven and
will result in recognition of income to the Assignee Interest holders.
Cash and cash equivalents at December 31, 2001 amounted to $18,117,600 as
compared to $5,492,588 at December 31, 2000.
Dissolution of Partnership
On February 12, 2001, due to the pending maturity of the Pension Notes at
December 31, 2001 and to obtain maximum value through an organized disposition
of Partnership assets, the General Partner notified the Note holders and
Assignee Interest holders of its intent to dissolve the Partnership effective
May 21, 2001 and liquidate its remaining asset.
9
On December 31, 2001, the Partnership sold the Property, to an unaffiliated
entity for $20,000,000. The Partnership received two $1,000,000 promissory
notes, each payable within 12 months from the date of sale, subject to the
purchaser obtaining certain levels of financing proceeds and the property
achieving certain levels of operating income. The balance of the sale proceeds
net of settlement costs and other direct costs associated with the sale, was
paid in cash, resulting in net sale proceeds of $16,014,830. The Partnership
recognized a $1,491,679 loss on the sale. On December 31, 2001, the principal on
the Pension Notes and deferred interest of approximately $35,504,000 matured.
Relating to the sale of the Amberleigh on December 31, 2001, the Partnership
paid $9,538,066 for a partial redemption of Pension Notes and paid $7,461,934
for a partial payment of deferred interest, effective February 28, 2002. Cash
funds were not sufficient at February 28, 2002 to fully repay the outstanding
principal balance of $18,927,938 in Pension Notes and deferred interest. Since
available cash after payment of Partnership expenses and potential collection of
the Amberleigh promissory notes will be insufficient to repay the outstanding
Pension Notes and deferred interest, the unpaid debt will be treated as forgiven
and will result in recognition of income to the Assignee Holders.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Partnership believes any impact of market risk to the Partnership's
operations is immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Partnership are included
on pages 11 through 29 of this report.
10
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Partners
NHP Retirement Housing Partners I Limited Partnership
We have audited the accompanying statement of financial position of NHP
Retirement Housing Partners I Limited Partnership as of December 31, 2000, and
the related statements of operations, partners' deficit, and cash flows for each
of the three years in the period ended December 31, 2001. In addition, we have
audited the statement of net liabilities in liquidation as of December 31, 2001.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. 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.
As described in Note 1 to the financial statements, the general partner of NHP
Retirement Housing Partners I Limited Partnership approved a plan of liquidation
on May 21, 2001, and the Partnership commenced liquidation shortly after the
sale of its remaining property on December 31, 2001. As a result, the
Partnership has changed its basis of accounting on December 31, 2001, and for
periods subsequent thereto from the going-concern basis to a liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NHP Retirement Housing Partners
I Limited Partnership as of December 31, 2000, the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2001
and its net liabilities in liquidation as of December 31, 2001 in conformity
with accounting principles generally accepted in the United States applied on
the bases described in the preceding paragraph.
Ernst & Young LLP
Dallas, Texas
February 8, 2002
except for Note 6, as to which the date is
February 28, 2002
11
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARNERSHIP
STATEMENT OF NET LIABILITIES IN LIQUIDATION
December 31, 2001
(LIQUIDATION BASIS)
ASSETS (Notes 1 and 6)
Cash and cash equivalents (Note 2) $ 18,117,660
Receivables 96,426
Other assets 250,000
-----------------
Total assets 18,464,086
LIABILITIES
Accounts payable 185,374
Interest payable (Notes 1 and 6) 15,346,521
Pension notes (Notes 1 and 6) 20,157,826
Other liabilities 530,088
-----------------
Total liabilities 36,219,809
-----------------
Contingencies (Note 12)
Net liabilities in liquidation $ (17,755,723)
=================
See notes to financial statements
12
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 2000
(GOING-CONCERN BASIS)
ASSETS (Notes 1 and 6)
Cash and cash equivalents (Note 2) $ 5,492,588
Receivables 36,174
Pension Notes issuance costs (Note 1) 119,009
Prepaid expenses 132,989
Rental property (Notes 1 and 10):
Land 2,497,725
Building, net of accumulated depreciation of
$6,936,874 in 2000 15,470,554
Other assets 4,440
-----------------
Total assets $ 23,753,479
=================
Liabilities:
Accounts payable $ 203,373
Interest payable (Notes 1 and 6) 16,780,427
Pension Notes (Notes 1 and 6) 20,157,826
Other liabilities (Note 2) 289,944
-----------------
37,431,570
-----------------
Contingencies (Note 12)
Partners' deficit (Notes 5 and 7):
General Partner (1,006,466)
Assignee Limited Partner - investment units
outstanding, 42,120 in 2000 (12,671,625)
------------------
Total partners' deficit (13,678,091)
-----------------
Total liabilities and partners' deficit $ 23,753,479
=================
See Notes to Financial Statements
13
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
Year Ended December 31,
2001 2000 1999
---- ---- ----
REVENUES
Rental income $ 5,282,398 $ 4,995,597 $ 5,069,532
Interest income 90,783 216,442 181,994
Other income 33,587 62,761 71,074
-------------- -------------- --------------
5,406,768 5,274,800 5,322,600
-------------- -------------- --------------
COSTS AND EXPENSES
Salaries, related benefits and overhead reimbursements (Note 3) 1,173,466 1,080,206 1,074,947
Management fees, dietary fees and other services (Note 3) 483,078 460,444 457,581
Administrative and marketing 242,272 235,967 228,217
Utilities 297,709 286,361 267,087
Maintenance 173,400 181,526 174,640
Resident services, other than salaries 38,860 38,661 45,182
Food services, other than salaries 564,067 533,939 529,369
Depreciation 593,240 582,861 570,238
Taxes and insurance 545,335 524,677 518,371
-------------- -------------- --------------
4,111,427 3,924,642 3,865,632
-------------- -------------- --------------
INCOME FROM RENTAL OPERATIONS 1,295,341 1,350,158 1,456,968
-------------- -------------- --------------
OTHER EXPENSES
Loss on sale (Note 4) 1,491,679 - -
Interest expense - Pension Notes (Note 6) 2,977,899 3,317,701 3,157,999
Amortization of Pension Notes issuance costs 119,009 119,004 119,004
Amortization of Pension Notes organization costs - - 77,615
Other expenses 695,280 387,249 576,697
-------------- -------------- --------------
5,283,867 3,823,954 3,931,315
-------------- -------------- --------------
NET LOSS $ (3,988,526) $ (2,473,796) $ (2,474,347)
=============== =============== ===============
ALLOCATION OF NET LOSS
General Partner $ (64,854) $ (49,476) $ (49,487)
Assignor Limited Partner (3,923,672) (2,424,320) (2,424,860)
--------------- --------------- ---------------
$ (3,988,526) $ (2,473,796) $ (2,474,347)
============== ============== ==============
NET LOSS PER ASSIGNEE INTEREST $ (94) $ (58) $ (57)
============== ============== ==============
See Notes to Financial Statements
14
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Assignee
General Partner Limited
--------------- Partners Total
-------- -----
Partners' deficit at January 1, 1999 $ (849,832) $ (7,821,874) $ (8,671,706)
Distributions (28,796) - (28,796)
Net Loss (49,487) (2,424,860) (2,474,347)
----------------- ------------------ ----------------
Partners' deficit at December 31, 1999 (928,115) (10,246,734) (11,174,849)
Distributions (28,875) - (28,875)
Repurchase of 571 assignee units
subsequently cancelled - (571) (571)
Net Loss (49,476) (2,424,320) (2,473,796)
---------------- ---------------- ---------------
Partner's deficit at December 31, 2000 (1,006,466) (12,671,625) (13,678,091)
Distributions (88,797) - (88,797)
Repurchase of 309 assignee units - (309) (309)
subsequently cancelled
Net Loss (64,854) (3,923,672) (3,988,526)
------------------- ------------------ -------------------
Partner's deficit at December 31, 2001
and net liabilities in liquidation $ (1,160,117) $ (16,595,606) $ (17,755,723)
================ =============== ===============
See Notes to Financial Statements
15
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Rent collections $ 5,222,146 $ 4,985,113 $ 5,056,293
Interest received 90,783 216,442 181,994
Other income 33,587 62,761 71,074
Management fees, dietary fees and other services (480,900) (422,871) (457,390)
Salary, related benefits and overhead reimbursements (1,170,100) (1,080,869) (1,078,502)
Other operating expenses paid (2,452,892) (2,217,294) (2,477,061)
Interest paid (4,411,805) (1,416,337) (1,421,799)
--------------- --------------- ---------------
Net cash (used in) provided by operating activities (3,169,181) 126,945 (125,391)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of properties 16,014,830 - -
Capital expenditures (131,471) (158,268) (113,756)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 15,883,359 (158,268) (113,756)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of assignee units (309) (571) -
Distributions (88,797) (28,875) (28,796)
---------------- ---------------- ----------------
Net cash used in financing activities (89,106) (29,446) (28,796)
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 12,625,072 (60,769) (267,943)
Cash and cash equivalents at beginning of year 5,492,588 5,553,357 5,821,300
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 18,117,660 $ 5,492,588 $ 5,553,357
=============== =============== ===============
See Notes to Financial Statements
16
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---- ---- ----
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $ (3,988,526) $ (2,473,796) $ (2,474,347)
---------------- ---------------- ----------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
Loss sale of properties 1,491,679 - -
Depreciation 593,240 582,861 570,238
Amortization of Pension Notes organization costs - - 77,615
Amortization of Pension Notes issuance costs 119,009 119,004 119,004
Interest (paid) deferred (1,433,906) 1,901,364 1,736,200
CHANGES IN OPERATING ASSETS AND LIABILITIES
Other assets and receivables (305,812) (10,381) (13,309)
Prepaid expenses 132,989 (13,892) 21,493
Accounts payable (17,999) 27,878 (126,178)
Other liabilities 240,145 (6,093) (36,107)
--------------- --------------- ---------------
Net cash (used in) provided by operating activities $ (3,169,181) $ 126,945 $ (125,391)
================ =============== ================
See Notes to Financial Statements
17
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
NHP Retirement Housing Partners I Limited Partnership (the Partnership) is a
limited partnership organized under the laws of the State of Delaware on March
10, 1986. The Partnership was formed for the purpose of raising capital by
issuing both Pension Notes (Notes) to tax-exempt investors and selling
additional Partnership interests in the form of Assignee Interests (Interests)
to taxable individuals. Interests represent assignments of the limited
partnership interests of the Partnership issued to the Assignor Limited Partner,
NHP RHP-I Assignor Corporation. The proceeds from the sale of the Notes and
Interests have been invested in residential rental properties for retirement age
occupants.
On December 31, 2001, the principal of the Notes and deferred interest of
approximately $35,504,000 matured. The Partnership does not have sufficient
funds to fully repay this amount. Due to the pending maturity of the Notes and
to obtain maximum value through an organized disposition of Partnership assets,
the General Partner on February 12, 2001 notified the holders of Notes (Holders)
and holders of Interests (Assignee Holders) of its intent to dissolve the
Partnership effective May 21, 2001. The last remaining property in the
Partnership, The Amberleigh, was sold on December 31, 2001 (see Note 4).
Following is a description of the Amberleigh owned indirectly and operated by
the Partnership during the year 2001.
The Amberleigh
This facility is a 271-unit retirement living center located in Williamsville,
New York. The facility was approximately 86 percent occupied at December 31,
2000 and 91 percent occupied at the date of sale.
18
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
Significant Accounting Policies
As of December 31, 2001, the Partnership changed its basis of accounting from
going-concern basis to liquidation basis. Under this basis of accounting, assets
and liabilities are stated at their net realizable value and estimated costs
through the liquidation date are provided to the extent reasonably determinable.
Organization costs related to the sale of Notes were being amortized using the
straight-line method through February 1999. The remaining balance of
organization costs of $68,599 was written off in 1999 as required under the
American Institute of Certified Public Accountants Statement of Position 98-5,
Reporting Costs of Start-Up Activities. Offering and issuance costs related to
the sale of Notes are being amortized using the straight-line method over the
term of the Notes. Accumulated amortization at December 31, 2000 was $3,438,753.
At December 31, 2001, the offering and issuance costs were fully amortized.
Selling commissions related to the sale of Interests were recorded as a direct
reduction to the capital account of the holders of Interests. Direct costs of
acquisition, including acquisition fees and expenses paid to the General
Partner, have been capitalized as part of buildings and improvements. Other fees
and expenses of the Partnership are recognized as expenses in the period the
related services are performed.
Interest expense on Notes is calculated using the effective interest method
through May 2001. Effective June 2001, the Partnership began recording accrued
interest at the stated interest rate, which represents the amount which will be
paid upon dissolution of the Partnership (see Note 6).
19
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
Buildings and improvements are recorded at the lower of cost or net recoverable
value (Note 10) and depreciated using the straight-line method, assuming a
30-year life and a 30 percent salvage value. Furniture and equipment are
recorded at cost and depreciated using the straight-line method over 5 years.
The cost of rental property and their useful lives are summarized as follows:
Useful Life 2001 2000
----------- ---- ----
Land $ - $ 2,497,725
================= ================
Land improvements 30 years $ $ 50,317
Building and building improvements 30 years - 21,501,103
Furniture and equipment 5 years - 856,008
----------------- -----------------
- 22,407,428
Less-accumulated depreciation - (6,936,874)
----------------- -----------------
$ - $ 15,470,554
================= =================
Rental income is recognized when earned based on residents' signed rental
agreements. Rental payments received in advance are deferred and recognized when
earned.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NOTE 2. CASH AND CASH EQUIVALENTS
As of December 31, 2001 and 2000, cash and cash equivalents consisted of demand
deposits and repurchase agreements. All repurchase agreements have an original
maturity of three months or less and, therefore, are considered to be cash
equivalents.
Cash and cash equivalents also includes $161,500 of tenant security deposits at
December 31, 2000, which are designated for the purpose of providing refunds to
tenants upon move-out.
20
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
NOTE 3. TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES
Through January 22, 1995, the sole General Partner of the Partnership was
NHP/RHGP-I Limited Partnership (NHP/RHGP-I) and the sole limited partner of the
Partnership was NHP RHP-I Assignor Corporation, a Delaware corporation.
Effective January 23, 1995, Capital Realty Group Senior Housing, Inc. (CRGSH)
became the sole General Partner of the Partnership. Effective February 1, 1995,
CRGSH assigned its contract rights to manage the Partnership's properties to
Capital Senior Living, Inc. (CSL), which, in 1997, became a subsidiary of
Capital Senior Living Corporation (CSLC). CSL received $480,900, $422,871, and
$457,390, in 2001, 2000, and 1999, respectively, for management fees, dietary
services fees and other operating expense reimbursements related to services
provided to the Partnership.
Personnel working at the property sites and certain home office personnel who
perform services for the Partnership were employees of CSL, an affiliate of
CRGSH until June 30, 1998. The Partnership reimbursed CSL for the salaries and
related benefits of such personnel as reflected in the accompanying financial
statements. During 2001, 2000, and 1999, such reimbursements for salaries,
related benefits and overhead reimbursements amounted to $1,170,100, $1,080,869,
and $1,078,502 respectively.
At December 31, 2001, Capital Senior Living Properties, Inc., a wholly owned
subsidiary of CSLC, holds 14,131 Pension Notes. CSLC is subject to the periodic
reporting obligations of the Securities and Exchange Commission.
21
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
On June 10, 1998, Capital Realty Group Corporation sold all of its shares of
CRGSH common stock to Retirement Associates, Inc. (Associates) for $855,000. The
source of the funds 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 remaining
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 Realty
Group Corporation 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 Realty Group Brokerage, Inc., an affiliate of
Capital Realty Group Corporation. 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 Capital Senior Living
Corporation, 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.
In connection with the sale of The Amberleigh (see Note 4), $127,500 in
brokerage fees was accrued at December 31, 2001 and subsequently paid to Capital
Realty Group Brokerage, Inc.
NOTE 4. DISPOSITION OF PROPERTY
On December 31, 2001, the Partnership sold its last remaining property, the
Amberleigh, to an unaffiliated entity for $20,000,000. The Partnership received
two $1,000,000 promissory notes, payable within 12 months from the date of sale,
subject to the purchaser obtaining certain levels of financing proceeds and the
property achieving certain levels of operating income. The balance of the sale
proceeds net of settlement costs and other direct costs associated with the sale
was paid in cash, resulting in net sale proceeds of $16,014,830. The Partnership
recognized a $1,491,679 loss on the sale.
22
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
NOTE 5. CASH DISTRIBUTION POLICIES
The Partnership Agreement allows for quarterly payments of substantially all
Cash Available For Distribution (as defined in the Partnership Agreement),
subject to the following: (a) distributions to Assignee Holders may be
restricted or suspended for limited periods when the General Partner determines
in its absolute discretion that it is in the best interests of the Partnership;
and (b) all Assignee Holder distributions are subject to the payment of
Partnership expenses, payments to Note Holders and maintenance of working
capital reserves.
Distributions of cash available for distribution are made in the following order
of priority, to the extent available:
1. To the General Partner in an amount equal to 2 percent of cash
available for distribution before interest payments for each quarterly
cash distribution period;
2. To the Assignee Holders until the Assignee Holders have received an
amount equal to an aggregate annual non-compounded return of 10 percent
on their adjusted capital contributions for each quarterly cash
distribution period;
3. To the General Partner, a Partnership Management Incentive Fee in an
amount equal to 8 percent of Cash Available For Distribution Before
Interest Payments for the fiscal year; and
4. To the Assignee Holders, the balance.
23
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
No distributions were paid to the Assignee Holders during 2001, 2000 or 1999.
Future cash requirements have caused the General Partner to determine it is not
financially appropriate to make distributions to Assignee Holders.
Cash received from sales or re-financings of any Partnership property, after
retirement of applicable mortgage debt and the payment of all expenses related
to the transaction and any payments of debt service on the Notes including
interest at a non-compounded rate of 13 percent per annum less any prior
payments (see Note 6) and establishment of reserves, is to be distributed in the
following order of priority:
1. To the Assignee Holders until their adjusted capital accounts are
reduced to zero;
2. To the Assignee Holders until cumulative cash distributions received
equal a 13 percent non-compounded return on their adjusted capital
accounts, reduced by prior distributions;
3. To the General Partner in the amount of a disposition fee of not more
than 3 percent of sales price; and
4. To the Assignee Holders, 85 percent, and to the General Partner, 15
percent.
Taxable net income or loss from operations is allocated to the Assignee Holders
as a class and to the General Partner in proportion to available cash
distributed during the fiscal year. If no cash is distributed during the year,
net income or loss is allocated 90 percent to the Assignee Holders as a class
and 10 percent to the General Partner. For book purposes in 2001, the loss on
sale of $1,491,679 was allocated 99 percent to the Assignee Holders as a class
and 1 percent to the General Partner. Other provisions exist if there is net
income or loss other than from operations. As discussed in Note 7, 2 percent for
2001, 2000 and 1999 of the Cash Available For Distribution Before Interest
Payments was paid to the General Partner. Accordingly, net loss for each of the
three years in the period ended December 31, 2001, was allocated in the same
manner.
The deficit balance in the Assignee Limited Partner account reflects their
percentage interest in the Partnership's cumulative net losses, although there
are no restoration requirements for the Assignee Limited Partner interest upon
termination of the Partnership.
24
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
NOTE 6. PENSION NOTES
The Notes bear stated simple interest at a rate equal to 13 percent per annum.
Payment of up to 9 percent of stated interest was subject to deferral through
December 31, 1988 and payment of up to 6 percent of stated interest is subject
to deferral thereafter. Deferred interest does not bear interest. Interest not
deferred is payable quarterly. Using the effective interest method, interest on
principal and accrued interest of the Notes has been accrued at the rate of
approximately 9 percent per annum compounded quarterly through May 2001. The
approximate 9 percent effective interest rate was calculated using estimates of
the amounts of interest that will be deferred and the time period in which such
deferred amounts will be paid. As of June 2001, the Partnership began recording
accrued interest on the principal at the stated interest rate which represents
the amount which will be paid upon dissolution of the Partnership. The
Partnership made minimum interest payments of $1,411,805, $1,416,337, and
$1,421,799 in 2001, 2000 and 1999, respectively, to Note Holders. During 2001,
an additional $3,000,000 was paid for deferred interest not scheduled to become
due until December 31, 2001. The Partnership's obligation to repay the principal
amount of the Notes, which matured on December 31, 2001, and stated interest
thereon, is secured by a lien on the Partnership's assets. The liability of the
Partnership under the Notes is limited to the assets of the Partnership. The
Notes are subject to redemption in whole or in part upon not less than 30 or
more than 60 days prior notice, at the election of the Partnership.
Relating to the sale of the Amberleigh on December 31, 2001, the Partnership
paid $9,538,066 for a partial redemption of Notes, and paid $7,461,934 for a
partial payment of deferred interest, effective February 28, 2002.
NOTE 7. DISTRIBUTIONS TO PARTNERS
During 2001, 2000 and 1999, the General Partner received distributions,
representing 2 percent of the Cash Available For Distribution Before Interest
Payments to the Note Holders. The Partnership did not make a distribution to the
Assignee Holders during 2001, 2000 or 1999.
25
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
NOTE 8. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in their
individual capacities upon their distributive share of the Partnership's taxable
income and are allowed the benefits to be derived from possibly offsetting their
distributive share of the tax loss against taxable income from other sources
subject to application of passive loss rules and subject to At Risk basis
limitation. The taxable income or loss differs from amounts included in the
statement of operations primarily because of different methods used in computing
depreciation and interest on the Notes and determining start-up and marketing
expenses for financial reporting and federal income tax purposes.
Cash funds were not sufficient at February 28, 2002 to fully repay the
outstanding principal balance of $18,927,938 in Notes and deferred interest.
Should available cash after payment of Partnership expenses and potential
collection of the Amberleigh promissory notes be insufficient to repay the
outstanding Notes and deferred interest, the unpaid debt will be treated as
forgiven and will result in recognition of income to the Assignee Holders.
For federal income tax purposes, the Partnership computes depreciation of
buildings and improvements using the Modified Accelerated Cost Recovery System
(MACRS) and the Accelerated Cost Recovery System (ACRS), while for financial
statement purposes, depreciation is computed using the straight-line method.
Interest on Pension Notes is computed in accordance with Internal Revenue
Service regulations for original issue discount for federal income tax purposes,
while for financial statement purposes, interest on Pension Notes is computed
using the effective interest method. Start-up and marketing costs incurred prior
to initial occupancy were capitalized and amortized over sixty months for
federal income tax purposes, only those start-up and marketing costs that are
expected to benefit future operations have been capitalized and amortized over
sixty months for financial statement purposes.
26
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
Reconciliation between financial statement net (income) loss and net (income)
loss for tax purposes follows:
Years Ended December 31,
2001 2000 1999
---- ---- ----
Net loss per financial statements $ 3,988,526 $ 2,473,796 $ 2,474,347
Temporary differences in determining (income)
losses for federal income tax
purposes:
Gain on sale of properties (5,812,954) - -
Depreciation 138,774 218,987 217,692
Amortization of start-up and marketing costs 2,136 2,141 (45,064)
Interest expense - Pension Notes 1,405,364 (1,933,772) 2,282,306
Miscellaneous 29,569 5,540 13,354
--------------- --------------- --------------
Net (income) loss per tax return $ (248,585) $ 766,692 $ 4,942,635
=============== =============== ==============
For federal income tax purposes, the basis of building and improvements, net of
accumulated depreciation, was $15,153,644 at December 31, 2000.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments at December 31,
2001 and 2000 are as follows:
2001 2000
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 18,117,660 $ 18,117,660 $ 5,492,588 $ 5,492,588
Pension Notes and accrued interest 35,504,347 17,748,624 36,938,253 25,103,925
Following are methods and assumptions used by the General Partner in estimating
its fair value disclosures for financial instruments.
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and cash equivalents
approximate fair value.
27
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000 CONTINUED
Pension Notes and Accrued Interest
The fair values of Notes are based on discounted cash flows at December 31, 2000
and available cash for note payment at December 31, 2001.
NOTE 10. CONTINGENCIES
On or about October 23, 1998, Robert Lewis filed a putative class action
complaint on behalf of certain holders of Interests in the Partnership in the
Delaware Court of Chancery, Civil Action No. 16725 (the "Delaware Action"),
against the Partnership, the General Partner, Capital Senior Living Corporation
and Capital Senior Living Properties 2-NHPCT, Inc. (collectively, the
"Defendants"). Mr. Lewis purchased 90 Interests in February 1993 for $180. The
complaint alleges, among other things, that the Defendants breached, or aided
and abetted a breach of, the express and implied terms of the NHP Partnership
Agreement in connection with the sale of four properties by the Partnership to
Capital Senior Living Properties 2-NHPCT, Inc. in September 1998 (the "1998
Transaction"). The complaint seeks, among other relief, rescission of the 1998
Transaction and unspecified money damages. On July 9, 1999, the Defendants filed
a motion to dismiss the case. Subsequently, the plaintiff amended his complaint
adding allegations challenging the terms of the sale in December 2001 of the
Amberleigh.
On January 31, 2002, the parties to the Delaware Action entered a Memorandum of
Understanding providing for the settlement of the Delaware Action subject to
certain terms and conditions, including receipt of the approval of the Court of
Chancery. The proposed settlement contemplates the creation of a settlement fund
in the amount of $840,000, of which the Partnership will contribute and has
accrued $250,000, the amount of the deductible of the Partnership's directors &
officers' liability insurance policy at the time the Delaware Action was filed
(the "D&O Policy"). Virtually all of the balance of the settlement fund will be
contributed by various insurance brokers and agents, and their insurers, in
connection with the resolution of certain claims for coverage under the D&O
Policy. If approved by the Court of Chancery, the settlement fund, less any
award of attorney's fees for plaintiff's counsel approved by the Court, will be
distributed to a class of Assignee Holders.
On December 6, 2001, Leonard Kalmenson filed a motion to intervene in the
Delaware Action on behalf of a putative class of holders of Notes in the event
the Court of Chancery determines that the claims asserted in the Delaware Action
are derivative in nature. The Complaint in Intervention filed by Mr. Kalmenson
names as defendants the Defendants in the Delaware Action, as well as Retirement
Associates, Inc., the sole stockholder of the General Partner, and various
current and former directors of the General Partner. The Complaint in
Intervention essentially alleges, among other things, a variety of claims
challenging the 1998 Transaction and a claim for breach of contract relating to
the failure of the Partnership to pay the full amount of principal and interest
28
owed on the Notes on their maturity date. The Partnership believes that the
allegations asserted by Mr. Kalmenson are without merit and that his motion to
intervene is moot in view of the proposed settlement of the Delaware Action. The
Partnership is unable to estimate any liability related to this claim, if any.
NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal 2001 Quarters
-------------------------------------------------------------------------------
First Second Third Fourth (a)
-------------------------------------------------------------------------------
Revenues $ 1,345,513 $ 1,340,943 $ 1,364,792 $ 355,520
Net loss (611,579) (575,692) (427,676) (2,373,579)
Basic loss per assignee interest (14) (13) (10) (57)
Fiscal 2000 Quarters
-------------------------------------------------------------------------------
First Second Third Fourth
-------------------------------------------------------------------------------
Revenues $ 1,299,945 $ 1,288,359 $ 1,346,325 $ 1,340,171
Net Loss (662,226) (587,688) (555,026) (668,856)
Basic loss per assignee interest (15) (14) (13) (16)
(a) During the fourth quarter 2001, the Partnership recorded a loss on sale of
$1,491,679.
Quarterly operating results are not necessarily representative of operations for
a full year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants that are
required to be reported herein.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors, executive officers or significant employees of
its own.
On January 23, 1995, CRGSH became the sole General Partner of the Partnership.
CRGSH is a privately owned corporation initially organized on December 1, 1988.
Its principal business activity has been the ownership and management of real
property for its own account and for the account of various limited partnerships
of which it is the General Partner. Prior to June 10, 1998, CRGSH was
29
/wholly owned subsidiary of Capital Realty Group Corporation, a Texas
corporation (Capital), with its corporate headquarters in Dallas, Texas. Capital
is owned by James A. Stroud (50 percent through a trust) and by Jeffrey L. Beck
(50 percent).
On June 10, 1998, Capital sold all of its shares of CRGSH common stock to
Retirement Associates, Inc. (Associates) for $855,000. The source of the funds
is a Promissory Note for $855,000 with a five-year term and bearing an interest
rate of 8 percent per annum since 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 remaining 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 Realty Group Brokerage,
Inc., an affiliate of Capital. 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 Capital Senior Living
Corporation, 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 Partnership properties during 1994 and through February 1, 1995, were
managed by CRGSH. On February 1, 1995, CRGSH assigned its contract rights to
manage the Partnership's properties to Capital Senior Living, Inc. (CSL), a
subsidiary of Capital Senior Living Corporation.
Following are directors and executive officers of CRGSH, the General Partner of
the Partnership.
Name Position
Robert L. Lankford President, Retirement
Associates, Inc., sole stockholder
of CRGSH, the General Partner
Wayne R. Miller Secretary, Retirement Associates,
Inc.
Robert L. Lankford
Robert L. Lankford, age 47, 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 Capital. 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 Capital Senior Living Corporation, which accounts for less than 20
percent of his compensation.
Wayne R. Miller
Wayne R. Miller, age 52, has served as Secretary of Retirement Associates, Inc.
since June 1997. From 1980 to 1994, Mr. Miller was an officer, director and
shareholder of Miller, Hiersche, Martens and Hayward, Inc. From 1994 to the
present, Mr. Miller has been President, Sole Director and Sole Shareholder of
Wayne R. Miller P.C.
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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 Partnership pursuant to Rule 16a-3(c) of the Securities and
Exchange Commission (SEC) rules, the Partnership is not aware of any failure of
any officer or director of CRGSH or beneficial owner of more than ten percent of
the Assignee Interests to file timely with the SEC any Forms 3, 4 or 5 relating
to the Partnership for 2001.
ITEM 11. EXECUTIVE COMPENSATION
NHP Retirement Housing Partners I Limited Partnership has no officers or
directors. However, various fees and reimbursements are paid to the General
Partner or its affiliates. Such fees paid or accrued during the year ended
December 31, 2001 included cash distributions of $88,797 to the General Partner,
which represents 2 percent of cash available for distribution before interest
payments to the Note Holders, and $127,500 in brokerage fees for the sale of The
Amberleigh property. See Item 8, Financial Statements and Supplementary Data.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person is known by the Partnership to own more than 5 percent of Assignee
Interests.
As of March 1, 2002, a former affiliate of the General Partner, owns
approximately 14,131 Notes, or approximately 33 percent of the Partnership's
outstanding Notes.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as described in Items 8 (Note 3 in the Financial Statements), 10, 11 and
12, the Partnership had no other transactions or business relationships with
CRGSH or its affiliates.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
Following are the financial statements, notes and reports listed included in
this report.
Page
Report of Ernst & Young LLP, Independent Auditors 11
Statement of Net Liabilities in Liquidation
December 31, 2001 12
Statement of Financial Position,
December 31, 2000 13
Statements of Operations for the Years
Ended December 31, 2001, 2000 and 1999 14
Statements of Partners' Deficit
for the Years Ended December 31, 2001, 2000
and 1999 15
Statements of Cash Flows for the
Years Ended December 31, 2001, 2000 and 1999 16
Notes to Financial Statements 18
Financial Statement Schedules
All schedules have been omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
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Exhibits
2.1* Asset Purchase Agreement, dated as of December 28, 2001, by and between
BRE/CSL Amberleigh LLC and NHP Retirement Housing Partners I Limited Partnership
(Exhibit 2.1).
* Incorporated by reference to the Exhibit in parenthesis from the Partnership's
Current Report on Form 8-K, dated December 31, 2001, filed by the Partnership
with the Securities and Exchange Commission.
Reports on Form 8-K
The Partnership filed a Current Report on Form 8-K with the Securities and
Exchange Commission on January 17, 2002 disclosing the sale of the Amberleigh to
BRE/CSL Amberleigh LLC, effective as of December 28, 2201.
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.
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: /s/ Robert L. Lankford
----------------------
ROBERT L. LANKFORD, President
March 28, 2002
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