SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-17695
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HEALTHCARE PROPERTIES, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1317327
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75254
(Address of principal executive office)
(972) 770-5600
(Registrant's telephone number, including area code)
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 at least the past 90 days. YES x NO
---- ----
See notes to financial statements
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED BALANCE SHEETS
June 30, 2002 December 31, 2001
(Unaudited) Audited
ASSETS
Cash and cash equivalents $ 2,641,821 $ 1,694,546
Accounts receivable, less allowance for doubtful
accounts of $648,698 in 2002 and $652,212 in 2001 - 89,185
Assets held for sale, at the lower of carrying value or
fair value less estimated costs to sell 1,863,652 1,863,652
Property and improvements, net 729 3,272,204
---------------- ----------------
Total assets $ 4,506,202 $ 6,919,587
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
Accounts payable and accrued expenses $ 19,500 $ 175,001
Operating facility accounts payable - 3,345
Security deposits - 101,247
Mortgage loans payable - 1,123,389
--------------- ----------------
Total liabilities 19,500 1,402,982
--------------- ----------------
Partnership equity (deficit):
Limited partners (4,148,325 units outstanding in 2002 and 2001)
4,501,794 5,550,910
General partner (15,092) (34,305)
---------------- -----------------
Total partnership equity 4,486,702 5,516,605
--------------- ----------------
Total liabilities and partnership equity $ 4,506,202 $ 6,919,587
=============== ================
See notes to financial statements
1
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
June 30, 2002 June 30, 2001
------------- -------------
Revenues:
Rental $ - $ 1,105,851
Net patient services - 1,395,617
--------------- ---------------
- 2,501,468
--------------- ---------------
Expenses:
Facility operating expenses - 1,329,735
Depreciation 84 134,168
Administrative and other 144,868 266,716
(Recoveries) bad debts (513) 272,836
---------------- ---------------
144,439 2,003,455
--------------- ---------------
(Loss) income from operations (144,439) 498,013
---------------- ---------------
Other income (expenses):
Interest income 9,093 71,391
Interest expense - (118,060)
Amortization - (16,277)
--------------- ----------------
9,093 (62,946)
--------------- ----------------
Net (loss) income $ (135,346) $ 435,067
================ ===============
Allocation of net (loss) income
Limited partner (132,639) 426,365
General partner (2,707) 8,702
---------------- ---------------
(135,346) 435,067
---------------- ---------------
Basic per limited partnership unit calculations:
Net (loss) income $ (.03) $ .10
================ ===============
Distributions $ - $ -
================ ===============
WEIGHTED AVERAGE NUMBER OF UNITS 4,148,325 4,148,325
================ ===============
See notes to financial statements
2
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six months ended
June 30, 2002 June 30, 2001
------------- -------------
Revenues:
Rental $ 37,071 $ 2,136,753
Net patient services - 2,848,856
--------------- ---------------
37,071 4,985,609
--------------- ---------------
Expenses:
Facility operating expenses - 2,639,979
Depreciation 13,527 267,994
Administrative and other 302,891 514,369
(Recoveries) bad debts (3,514) 517,459
---------------- ---------------
312,904 3,939,801
--------------- ---------------
(Loss) income from operations (275,833) 1,045,808
---------------- ---------------
Other income (expenses):
Gain on disposition of property 2,283,193 -
Interest income 22,289 196,923
Other income 63,498 -
Interest expense (11,234) (236,845)
Amortization - (34,093)
--------------- ----------------
2,357,746 (74,015)
--------------- ----------------
Net income $ 2,081,913 $ 971,793
=============== ===============
Allocation of net income
Limited partner $ 2,050,884 $ 952,357
General partner 31,029 19,436
--------------- ---------------
$ 2,081,913 $ 971,793
=============== ===============
Basic per limited partnership unit calculations:
Net income $ .49 $ .23
=============== ===============
Distributions $ .75 $ 1.18
=============== ===============
WEIGHTED AVERAGE NUMBER OF UNITS 4,148,325 4,148,325
=============== ===============
See notes to financial statements
3
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY (DEFICIT)
(Unaudited)
Limited General
Partners Partners Total
EQUITY (DEFICIT) at
January 1, 2002 $ 5,550,910 $ (34,305) $ 5,516,605
Distributions (3,100,000) (11,816) (3,111,816)
Net Income - six months ended
June 30, 2002 2,050,884 31,029 2,081,913
-------------- ------------ --------------
EQUITY (DEFICIT) at
June 30, 2002 $ 4,501,794 $ (15,092) $ 4,486,702
============== ============== ==============
See notes to financial statements
4
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30, 2002 June 30, 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,081,913 $ 971,793
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
(Recoveries) bad debts (3,514) 517,459
Depreciation and amortization 13,527 302,088
Gain on disposition of property, net (2,283,193) -
Changes in assets and liabilities:
Accounts receivable 92,699 (292,041)
Prepaid expenses - 15,200
Deferred charges - (165,000)
Accounts payable &
accrued expenses (158,847) (116,601)
Security deposits (101,247) 66,705
-------------- -------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (358,662) 1,299,603
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 4,417,753 -
Purchases of property and improvement - (20,500)
------------- --------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,417,753 (20,500)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans payable - (56,732)
Distributions (3,111,816) (5,000,000)
-------------- --------------
NET CASH USED IN
FINANCING ACTIVITIES (3,111,816) (5,056,732)
-------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 947,275 (3,777,629)
CASH AND CASH EQUIVALENTS
Beginning of Period 1,694,546 13,514,255
------------- -------------
CASH AND CASH EQUIVALENTS
End of Period $ 2,641,821 $ 9,736,626
============= =============
CASH PAID FOR INTEREST $ 22,304 $ 120,845
============= =============
See notes to financial statements
5
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001
(Unaudited)
A. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all adjustments
considered necessary have been included. Operating results are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. The unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and the footnotes
thereto included in Registrant's annual report on Form 10-K for the year ended
December 31, 2001.
Net income (loss) of Registrant and taxable income (loss) are generally
allocated 98 percent to the limited partners and 2 percent to the general
partner. The net income of Registrant 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 percent Liquidation
Preference, and (iv) thereafter, 80 percent to the limited partners and 20
percent to the general partner. The net loss of Registrant from the disposition
of a property is allocated (i) to partners with positive capital accounts on a
pro rata basis and (ii) thereafter, 98 percent to the limited partners and 2
percent to the general partner. Distributions of available cash flow are
generally distributed 98 percent to the limited partners and 2 percent to the
general partner, until the limited partners have received an annual preferential
distribution, as defined. Thereafter, available cash flow is distributed 90
percent to the limited partners and 10 percent to the general partner.
B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
Personnel working at the Cambridge facility and certain home office personnel
who perform services for the Registrant are employees of Capital Senior Living,
Inc. ("CSL"), the managing agent of Registrant. Registrant reimburses CSL for
the salaries, related benefits, and overhead reimbursements of such personnel as
reflected in the accompanying condensed consolidated financial statements.
Reimbursements and fees paid to Capital Realty Group Senior Housing, Inc.
("CRGSH" or the "General Partner") and CSL are as follows:
Six months ended
June 30, 2002 June 30, 2001
------------- -------------
Salary and benefit reimbursements $ - $ 1,975,014
Administrative reimbursements 56,753 95,419
Property management fees - 199,420
General partner fees 371 44,931
-------------- --------------
$ 57,124 $ 2,314,784
============== ==============
In connection with the sale of the Hearthstone and Trinity Hills facilities in
the first quarter of 2002, the General Partner was paid fees of $174,000 or 3%
of the sales proceeds as allowed in the Partnership Agreement.
Currently, Capital Senior Living Properties, Inc., formerly an affiliate of
CRGSH, holds approximately 57 percent of the outstanding units of Registrant.
Registrant is included in the consolidated financial statements of Capital
Senior Living Properties, Inc. and its parent company, Capital Senior Living
Corporation, a public company that files with the Securities and Exchange
Commission.
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On June 10, 1998, the sole owner of the General Partner, Capital Realty Group
Corporation, sold all of its shares of CRGSH common stock to Retirement
Associates, Inc. ("Associates"). Mr. Robert Lankford is the President of
Associates and has brokered and continues to broker real estate as an
independent contractor with Capital Realty Group Corporation and its affiliates.
C. DISPOSITION OF PROPERTIES
The Hearthstone facility was sold on January 1, 2002 for $4,000,000, resulting
in a gain on sale of $1,777,113 and net cash proceeds of $2,641,003 after
payment of settlement costs. The Trinity Hills facility was sold on February 28,
2002 for $1,800,000, resulting in a gain of $506,079 and net cash proceeds of
$1,747,323 after payment of settlement costs.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Registrant commenced an offering to the public on August 31, 1987, of depository
units representing beneficial assignments of limited partnership interests
("Units"). On October 14, 1987, Registrant commenced operations, having
previously accepted subscriptions for more than the specified minimum of 120,000
Units. As of August 30, 1989, the offering was closed except for Units for sale
to existing investors under the terms of a distribution reinvestment plan. As of
September 30, 1995, Registrant had sold Units aggregating approximately $43.4
million. Due to the suspension of the distribution reinvestment plan, Registrant
does not anticipate any additional inflow of investment.
All of the net proceeds of the offering were originally invested in 12
properties or used for working capital reserves. Registrant partially financed
the acquisition of eight of its original properties with non-recourse debt. Four
properties were initially unleveraged. As of June 30, 2002, eleven of the
original twelve properties had either been sold or deeded back to the lender,
leaving Registrant one unleveraged property, the Crenshaw facility. As of June
30, 2002, the Crenshaw facility is classified as an asset held for sale.
Potential sources of liquidity for Registrant include current holdings of cash
and cash equivalents, collection of outstanding receivables on previously owned
facilities which are fully reserved as of June 30, 2002, collection on defaulted
rent and/or damage settlements related to leases in default, and a potential
sale of Registrant's remaining asset.
As of June 30, 2002, Registrant had cash and cash equivalents aggregating
$2,641,821. The cash and cash equivalents will be used for working capital,
emergency reserves, and future potential cash distributions.
Registrant's general policy is to maintain sufficient cash and cash equivalents
to address disruptions of its lease revenues and to have adequate additional
funds for investment in its existing asset for improvements and sale. Future
cash distributions will be dependent on the sale of its remaining asset. Cash
and sale distributions of $3,111,816 and $5,000,000 were made for the six months
ended June 30, 2002 and 2001 respectively. The Units are not publicly traded and
as a result the liquidity of each Limited Partner's individual investment is
limited.
7
Results of Operations
Discussion of Six Months Ended June 30, 2002
Rental revenues for the six months ended June 30 2002 decreased $2,099,682 from
the comparable six months ended June 30, 2001, due to the sale of the
Hearthstone and Trinity Hills facilities during the six months ended June 30,
2002. Net patient services revenue for the six months ended June 30, 2002
decreased $2,848,856 from the six months ended June 30, 2002 primarily due to
the sale of the Cambridge facility in August 2001. Interest income for the six
months ended June 30, 2002 decreased $174,634 from the six months ended June 30,
2001 primarily due to decreasing cash available for investment. Other income of
$63,498 was received during the first quarter ended March 31, 2002 due to
payment of an administrative claim on the Cambridge facility. A gain of
$2,283,193 was recognized during the first quarter ended March 31, 2002 due to
the sale of the Hearthstone and Trinity Hills facilities.
Facility operating expenses for the six months ended June 30, 2002 decreased by
$2,639,979 from the comparable 2001 period primarily due to the sale of the
Cambridge facility. Depreciation for the six months ended June 30, 2002,
decreased $254,467 from the comparable 2001 period due to the sale of the
Hearthstone and Trinity Hills facilities. Administrative expenses decreased
$211,478 for the six months ended June 30, 2002 in comparison to 2001 due to
decreased management fees. Bad debt expense decreased $520,973 for the six
months ended June 30, 2002 in comparison to the 2001 period due to the
foreclosure of the McCurdy property in 2001. Interest expense for the six months
ended June 30, 2002 decreased by $225,611 from the comparable 2001 period, due
to the sale of the Hearthstone facility and foreclosure of the McCurdy facility,
and retirement of the related mortgages. Amortization expense for the six months
ended June 30, 2002 decreased $34,093 from the comparable 2001 period, due to
fully amortized deferred charges in 2001.
For the three months ended June 30, 2002 as compared with the three months ended
June 30, 2001, Registrant's revenue was impacted by the same shifts of revenue
as discussed above. Similarly, a comparison of second quarter 2002 operating
expenses versus second quarter 2001 reflects the same variances as discussed
above.
Cash and cash equivalents as of June 30, 2002 increased by $947,275 from the
balance at December 31, 2001. Cash flows increased by $4,724,904 for the six
months ended June 30, 2002 in comparison to the six months ending June 30, 2001
primarily due to cash proceeds from the sale of the Hearthstone and Trinity
Hills facilities and decreased cash distributions. Net accounts receivable of $0
at June 30, 2002 reflected a decrease of $89,185 from the balance at December
31, 2001 due to collections of account receivable balances. Accounts payable,
accrued expenses, and operating facility accounts payable balances decreased
$158,847 at June 30, 2002, from the balance at December 31, 2001 primarily due
to paid real estate taxes and interest on the Hearthstone facility.
Following is a brief discussion of the status of Registrant's properties:
Cedarbrook, Cane Creek, Crenshaw Creek and Sandybrook Facilities
Rebound, Inc. a subsidiary of HealthSouth Corporation, formerly leased the
Cedarbrook, Crenshaw Creek, Cane Creek and Sandybrook facilities pursuant to a
master lease with Registrant through the end of the lease term, November 30,
2001. The Cedarbrook, Cane Creek and Sandybrook facilities have been previously
sold.
Due to low occupancy, HealthSouth closed the Crenshaw Creek facility in May
2000. HealthSouth continued to make full lease payments under the terms of the
master lease on a timely basis through the end of the lease term. HealthSouth
transferred the Crenshaw Creek facility to the Registrant by the end of its
lease term and the facility is held for sale as of June 30, 2002.
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. Registrant commenced litigation against NCAC seeking
full payment of future rentals under the lease of NCAC.
8
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
Registrant, thereby releasing the operations of the Cambridge facility from the
jurisdiction of the United States Bankruptcy Court. Registrant's subsidiary
operated this property through August 2001. On August 15, 2001, the Cambridge
facility was sold for $3,600,000 resulting in a gain on sale of $2,443,030 and
net cash proceeds of $3,457,205 after payment of settlement costs. Additionally,
Registrant has engaged an independent third party consultant to explore the
possibility of selling the license of the Cambridge facility to prospective
nursing home purchasers. There can be no assurances such sale will occur.
Registrant had filed an administrative claim with the trustee of the United
States Bankruptcy Court for unpaid lease payments. At December 31, 1999,
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 collected on March 1, 2000. In January 2002, an
additional $63,498 was received related to the administrative claim. It is
unlikely that material future disbursements will be made to Registrant from
NCAC's bankruptcy.
Hearthstone, Trinity Hills and McCurdy Facilities
The Hearthstone lease expired on November 7, 2000. The lessee and Registrant
attempted to negotiate an extension of the lease, but were unsuccessful in doing
so. On January 18, 2000, the parent company of the lessee filed for Chapter 11
bankruptcy in the United States Bankruptcy Court for the District of Delaware.
The Hearthstone lessee did not pay its April 2001 rent to Registrant. Registrant
negotiated with an unaffiliated operator to take over the lease, effective May
1, 2001 for a five-year term through April 30, 2006. The Hearthstone facility
was subsequently sold and the lease terminated on January 1, 2002 for
$4,000,000, resulting in a gain on sale of $1,777,113 and net cash proceeds of
$2,641,003 after payment of settlement costs. Registrant received notice from
the original lessee (who had filed for Chapter 11 bankruptcy) of a potential
claim against Registrant regarding ownership of the furniture, fixtures and
equipment at the Hearthstone facility. The Trinity Hills lease expired on June
30, 2000, however, the lessee continued to lease the facility on a
month-to-month basis. On February 2, 2000, the parent company of the lessee
filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the
District of Delaware. The lessee was current on its rent and lease participation
payments through December 31, 2001. Registrant negotiated with an unaffiliated
operator to take over the lease effective January 1, 2002 for a five-year term
through December 2006, with an option to purchase held by the lessee The Trinity
Hills facility was subsequently sold to the lessee on February 28, 2002 for
$1,800,000, resulting in a gain of $506,079 and net cash proceeds of $1,747,323
after payment of settlement costs. The lessee of the McCurdy facility defaulted
on its minimum lease payments as of January 2001. Registrant attempted to work
with the current lessee to stabilize its census, but was unable to do so.
Registrant discontinued mortgage payments to the lender after the lessee's
default on payment of lease obligations. The facility was foreclosed by the
lender on September 11, 2001, resulting in an extraordinary loss of $434,199,
which was recorded in the quarter ended September 30, 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant has pending claims incurred in the normal course of
business that, in the opinion of management, based on the advice of
legal counsel, will not have a material effect of the financial
statements of the Registrant.
Item 2. Changes in Securities
None
9
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit:
99.1 Certification pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002
(B) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE PROPERTIES, L.P.
By: CAPITAL REALTY GROUP SENIOR HOUSING, INC.
General Partner
By: /s/ Robert Lankford
----------------------------------
Robert Lankford
President
Date: August 8, 2002
10