FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities exchange Act of 1934
For the Quarterly Period Ended June 30, 2002
Commission File Number 0-16815
NHP RETIREMENT HOUSING PARTNERS I
LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
(Exact name of registrant as specified in its charter)
DELAWARE 52-1453513
(State of other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
14160 DALLAS PARKWAY, SUITE 300
DALLAS, TX 75254
(Address of principal executive offices)
(Zip Code)
(972) 770-5600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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
---- ----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statements of Net Assets (Liabilities) in Liquidation
(LIQUIDATION BASIS)
June 30, 2002 December 31, 2001
------------- -----------------
(Unaudited) (Audited)
ASSETS:
Cash and cash equivalents $ 258,163 $ 18,117,660
Receivables 70,465 96,426
Other assets 250,000 250,000
----------------- -----------------
Total assets 578,628 18,464,086
----------------- -----------------
LIABILITIES:
Accounts payable - 185,374
Interest payable - 15,346,521
Pension notes - 20,157,826
Other liabilities 26,700 530,088
----------------- -----------------
Total liabilities 26,700 36,219,809
----------------- -----------------
Net assets (liabilities) in liquidation $ 551,928 $ (17,755,723)
================= =================
See notes to financial statements
2
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statements of Changes in Net Assets (Liabilities) in Liquidation
(LIQUIDATION BASIS)
For the Six Months Ended June 30, 2002
(Unaudited)
Net liabilities in liquidation at January 1, 2002 $ (17,755,723)
Net Income 18,307,651
--------------
Net assets in liquidation at June 30, 2002 $ 551,928
==============
See notes to financial statements
3
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statement of Operations
(Unaudited)
Three months ended June 30,
2002 2001
---- ----
(Liquidated Basis) (Going Concern
Basis)
REVENUE:
Rental income $ - $ 1,307,082
Interest income 521 26,182
Other income - 7,679
----------------- -----------------
521 1,340,943
----------------- -----------------
COSTS AND EXPENSES:
Salaries, related benefits and overhead reimbursements - 283,864
Management fees, dietary fees and other services - 162,149
Administrative and marketing 72,657 24,633
Utilities - 70,941
Maintenance - 41,566
Resident services, other than salaries - 12,908
Food services, other than salaries - 141,046
Depreciation - 148,903
Taxes and insurance 2,300 117,544
----------------- -----------------
74,957 1,003,554
----------------- -----------------
(LOSS) INCOME FROM RENTAL OPERATIONS (74,436) 337,389
------------------ -----------------
OTHER EXPENSES:
Interest expense - pension notes - 810,644
Amortization of pension notes issuance costs - 29,751
Other expense 94,611 72,686
----------------- -----------------
94,611 913,081
----------------- -----------------
NET LOSS $ (169,047) $ (575,692)
================== ==================
NET LOSS PER ASSIGNEE INTEREST: $ (4) $ (13)
================== ==================
WEIGHTED AVERAGE NUMBER OF ASSIGNEE
UNITS $ 41,888 $ 41,888
================= =================
See notes to financial statements
4
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statement of Operations
(Unaudited)
Six months ended June 30,
2002 2001
---- ----
(Liquidated Basis) (Going Concern
Basis)
REVENUE:
Rental income $ 1,198 $ 2,601,504
Interest income 1,653 67,128
Other income (loss) (759) 17,824
------------------ -----------------
2,092 2,686,456
----------------- -----------------
COSTS AND EXPENSES:
Salaries, related benefits and overhead reimbursements - 559,183
Management fees, dietary fees and other services - 322,593
Administrative and marketing 73,741 40,539
Utilities - 167,191
Maintenance - 79,645
Resident services, other than salaries - 20,911
Food services, other than salaries - 275,263
Depreciation - 296,536
Taxes and insurance 2,300 234,804
----------------- -----------------
76,041 1,996,665
----------------- -----------------
(LOSS) INCOME FROM RENTAL OPERATIONS (73,949) 689,791
------------------ -----------------
OTHER EXPENSES:
Interest expense - pension notes 423,590 1,666,883
Amortization of pension notes issuance costs - 59,502
Other expense 185,986 150,677
----------------- -----------------
609,576 1,877,062
----------------- -----------------
NET LOSS BEFORE EXTRAORDINARY INCOME (683,525) (1,187,271)
Extraordinary income - debt forgiveness 18,991,176 -
----------------- -----------------
NET INCOME (LOSS) $ 18,307,651 $ (1,187,271)
================= ==================
NET INCOME (LOSS) PER ASSIGNEE INTEREST:
Net loss before extraordinary income (16) (28)
Extraordinary income 444 -
----------------- -----------------
Net income (loss) $ 428 $ (28)
================= ==================
WEIGHTED AVERAGE NUMBER OF ASSIGNEE
UNITS $ 41,888 $ 41,888
================= =================
See notes to financial statements
5
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statement of Partners' Equity (Deficit)
(Unaudited)
ASSIGNOR
GENERAL LIMITED
PARTNER PARTNERS TOTAL
Partners' deficit
at December 31, 2001 and net
liabilities in liquidation $ (1,160,117) $(16,595,606) $(17,755,723)
Net income - Six months
ended June 30, 2002 366,153 17,941,498 18,307,651
------------------ ------------- -------------
Partners' equity (deficit)
at June 30, 2002 and net (liabilities)
assets in liquidation $ (793,964) $ 1,345,892 $ 551,928
=================== ============= =============
Percentage interest
at June 30, 2002 2% 98% 100%
== === ====
See notes to financial statements
6
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
Six months ended June 30,
2002 2001
---- ----
(Liquidated Basis) (Going Concern
Basis)
Cash flows from operating activities:
Rent collections $ 27,159 $ 2,616,395
Interest received 1,653 67,128
Other income (loss) (759) 17,824
Salary and related benefits (46,900) (556,063)
Management fees, dietary fees and other services (41,650) (322,315)
Other operating expenses paid (799,000) (863,982)
Interest paid (7,461,934) (3,703,591)
----------------- -----------------
Net cash used in operating activities (8,321,431) (2,744,604)
----------------- -----------------
Cash flows from investing activity:
Capital expenditures - (79,720)
---------------- -----------------
Net cash used in investing activity - (79,720)
---------------- -----------------
Cash flows from financing activities:
Pension note payments (9,538,066) -
Repurchase of assignor limited partnership units - (309)
Distributions - (74,359)
---------------- -----------------
Net cash used in financing activities (9,538,066) (74,668)
---------------- -----------------
Net decrease in cash and cash equivalents (17,859,497) (2,898,992)
Cash and cash equivalents at beginning of period 18,117,660 5,492,588
---------------- ----------------
Cash and cash equivalents at end of period $ 258,163 $ 2,593,596
================ ================
See notes to financial statements
7
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
(Continued)
Six months ended June 30,
2002 2001
---- ----
(Liquidation Basis) (Going Concern
Basis)
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH USED IN
OPERATING ACTIVITIES:
Net income (loss) $ 18,307,651 $ (1,187,271)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Extraordinary income - debt forgiveness (18,991,176) -
Depreciation - 296,536
Amortization of pension notes
issuance costs - 59,502
Changes in operating assets and liabilities:
Other assets and receivables 25,961 14,830
Prepaid expenses - 61,872
Accounts payable (122,135) (26,722)
Interest payable (7,038,344) (2,036,708)
Other liabilities (503,388) 73,357
----------------- ----------------
Total adjustments (26,629,082) (1,557,333)
----------------- -----------------
Net cash used in operating activities $ (8,321,431) $ (2,744,604)
================= =================
See notes to financial statements
8
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 2002
A. ACCOUNTING POLICIES
Nature of Business
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 were invested in residential rental properties for retirement age
occupants.
Dissolution of Partnership
On February 12, 2001, due to the pending maturity of the 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 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 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. Payment on one of
the promissory notes is subject to the purchaser obtaining certain levels of
financing proceeds, and payment on the other promissory note is subject to the
property achieving certain levels of operating income. With respect to the
promissory note conditioned on financing proceeds, the Partnership will not
receive any proceeds under that promissory note. With respect to the promissory
note conditioned on operating income levels of the Amberleigh, the determination
as to whether any amounts will be owed under that note will depend on annual
operating income as of December 28, 2002. There can be no assurance that any
amounts will be owed under the second promissory note. 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 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 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 $18,991,176 in Notes and deferred interest. Since available
cash after payment of Partnership expenses and potential collection of the
Amberleigh promissory notes was insufficient to repay the outstanding Notes and
deferred interest, the unpaid debt has been treated as forgiven and resulted in
$18,991,176 of extraordinary income for book purposes for the quarter ended
March 31, 2002.
9
Basis of Presentation
The accompanying balance sheet as of December 31, 2001 has been derived from
audited financial statements of the Partnership for the year ended December 31,
2001 and the accompanying unaudited financial statements, as of June 30, 2002
and 2001, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. 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. Certain information and note disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. For further information, refer to the financial
statements and notes thereto for the year ended December 31, 2001 included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 29, 2002.
In the opinion of management, the accompanying financial statements contain all
adjustments necessary to present fairly the Partnership's net assets
(liabilities) in liquidation as of June 30, 2002 and December 31, 2001,
statement of changes in net assets (liabilities) in liquidation for the six
month period ended June 30, 2002, results of operations, changes in Partner's
equity (deficit) and cash flows for six month periods ended June 30, 2002 and
2001. The results of operations for the six-month period ended June 30, 2002 are
not necessarily indicative of the results for the year ending December 31, 2002.
B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
Effective January 23, 1995, Capital Realty Group Senior Housing, Inc. (CRGSH)
became the sole general partner of the Partnership. 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") for
$855,000. The source of the funds is a Promissory Note for $855,000 with a
five-year term and bears a current interest rate of 8 percent per annum. 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 Realty
Group Corporation is the payee. 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.
Personnel working at the Property sites and certain home office personnel who
perform services for the Partnership are employees of Capital Senior Living,
Inc. (CSL), an affiliate of CRGSH until June 30, 1998. The Partnership
reimburses CSL for the salaries, related benefits, and overhead reimbursements
of such personnel as reflected in the accompanying financial statements. Salary,
related benefits and overhead reimbursements reimbursed and expensed by the
Partnership to CSL for the second fiscal quarter ended June 30, 2002 and 2001,
were $0 and $283,864, respectively. Management fees, dietary fees and other
services reimbursed and expensed by the Partnership to CSL for the second fiscal
quarter ended June 30, 2002 and 2001, were $0 and $162,149, respectively.
Distributions of $0 and $74,359 were made to the General Partner during the six
months ended June 30, 2002 and 2001, respectively.
10
C. 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.
Payment on one of the promissory notes is subject to the purchaser obtaining
certain levels of financing proceeds, and payment on the other promissory note
is subject to the property achieving certain levels of operating income. With
respect to the promissory note conditioned on financing proceeds, the
Partnership will not receive any proceeds under that promissory note. With
respect to the promissory note conditioned on operating income levels of the
Amberleigh, the determination as to whether any amounts will be owed under that
note will depend on annual operating income as of December 28, 2002. There can
be no assurance that any amounts will be owed under the second promissory note.
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 in
December 2001.
D. LEGAL PROCEEDINGS
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 has contributed $250,000,
the amount of the deductible of the Partnership's directors and 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 holders of the Interests. The parties have engaged in
discussions subsequent to entering into the Memorandum of Understanding and the
Partnership expects the parties to enter into additional settlement agreements
in the near future; however, the Partnership cannot make any assurances that the
parties will enter into any further settlement agreements or any assurances
regarding the terms of any other settlement agreement.
11
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
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.
E. 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 was subject
to deferral thereafter. Deferred interest does not bear interest. Interest not
deferred was 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 that was scheduled to be due upon dissolution of the Partnership. 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.
For the six months ended June 30, 2001, an additional $3,000,000 was paid to
Note Holders 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 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 $18,991,176 in Notes and deferred interest.
Since available cash after payment of Partnership expenses and potential
collection of the Amberleigh promissory notes was insufficient to repay the
outstanding Notes and deferred interest, the unpaid debt has been treated as
forgiven and resulted in $18,991,176 of extraordinary income for book purposes
for the quarter ended March 31, 2002.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Rent collections for the six-month period ended June 30 decreased to $27,159 in
2002 from $2,616,395 in 2001. Decreased rent collections were due to the sale of
the Amberleigh in 2001. Salaries, management fees and other operating expenses
paid likewise decreased for this period, from $1,742,360 in 2001 to $887,550 in
2002. Decreased operating expenses paid was due to the sale of the Amberleigh
and partially offset by an increase in other operating expenses paid resulting
from payment of December 31, 2001 accruals paid in the first quarter ended March
31, 2002.
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. Cash funds
were not sufficient at February 28, 2002 to fully repay the outstanding
principal balance of $18,991,176 in Notes and deferred interest. Since available
cash after payment of Partnership expenses and potential collection of the
Amberleigh promissory notes was insufficient to repay the outstanding Notes and
deferred interest, the unpaid debt has been treated as forgiven and resulted in
$18,991,176 of extraordinary income for book purposes for the quarter ended
March 31, 2002. During the six months ended June 30, 2001, an additional
$3,000,000 was paid for deferred interest not scheduled to become due until
December 31, 2001. Net cash used in operations after the payment of interest
expense during the six months ended June 30, 2002 and 2001 was $8,321,431 and
$2,744,604, respectively. Interest on the Notes bears stated simple interest at
13 percent rate per annum, and is paid on a 7 percent rate per annum, however it
was accrued under the effective interest method at a rate of approximately 9
percent per annum compounded quarterly through May 2001. As of June 2001, the
Partnership began recording accrued interest on the principal at the stated
interest rate which represents the amount that was scheduled to be due upon
dissolution of the Partnership. Interest expense totaled $423,590 and $1,666,883
for the six months ended June 30, 2002 and 2001, respectively.
Capital expenditures decreased from $79,720 for the six month period ended June
30, 2001 to $0 for the six month period ended June 30, 2002 due to the sale of
the Amberleigh.
Cash and cash equivalents at June 30, 2002 and December 31, 2001 amounted to
$258,163 and $18,117,660, respectively.
13
Dissolution of Partnership
On February 12, 2001, due to the pending maturity of the 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 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 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. Payment on one of
the promissory notes is subject to the purchaser obtaining certain levels of
financing proceeds, and payment on the other promissory note is subject to the
property achieving certain levels of operating income. With respect to the
promissory note conditioned on financing proceeds, the Partnership will not
receive any proceeds under that promissory note. With respect to the promissory
note conditioned on operating income levels of the Amberleigh, the determination
as to whether any amounts will be owed under that note will depend on annual
operating income as of December 28, 2002. There can be no assurance that any
amounts will be owed under the second promissory note. 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 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 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 $18,991,176 in Notes and deferred interest. Since available
cash after payment of Partnership expenses and potential collection of the
Amberleigh promissory notes was insufficient to repay the outstanding Notes and
deferred interest, the unpaid debt has been treated as forgiven and resulted in
$18,991,176 of extraordinary income for book purposes for the quarter ended
March 31, 2002.
Results of Operations
The Partnership's net income for the six months ended June 30, 2002 includes
rental operations from the Partnership's property. The net income also includes
amortization of Pension Notes issuance costs, and accrued Pension Note interest
expense, which are non-cash in nature.
The Partnership net income (loss) increased from ($1,187,271) to $18,307,651 for
the six-month periods ending June 30, 2001 and 2002, respectively. Net income
(loss) per assignee interest increased from ($28) to $428 for the six-month
periods ending June 30, 2001 and 2002, respectively. The increase in the
Partnership's net income was principally due to $18,991,176 of extraordinary
income recognized from the dissolution of the Partnership and debt forgiveness
of outstanding notes and deferred interest. Total revenues for the six-month
periods ended June 30 decreased from $2,686,456 in 2001 to $2,092 in 2002. The
decrease in total revenues was due to the sale of the Amberleigh. Total
operating costs and expenses decreased from $1,996,665 in 2001 to $76,041 in
2002. The decrease in operating expenses primarily was due to the sale of the
Amberleigh. Note interest expense decreased from $1,666,883 to $423,590 for the
14
six-month periods ending June 30, 2001 and 2002, respectively. The decrease in
Note interest expense is due to the cessation of interest expense on the Note
release date of February 28, 2002. Amortization of Notes issuance costs
decreased from $59,502 to $0 for the six-month periods ending June 30, 2001 and
2002, respectively due to Notes issuance costs being fully amortized at December
31, 2001. Other expenses relating to Partnership administration increased from
$150,677 to $185,986 for the six-month periods ending June 30, 2001 and 2002,
respectively, due to increased printing costs.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnership invests its cash in money market accounts. As a result, the
Partnership believes any impact of market risk to the Partnership's investments
is immaterial.
15
PART II
Item 1. Legal Proceedings
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 has contributed $250,000,
the amount of the deductible of the Partnership's directors and 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 holders of the Interests. The parties have engaged in
discussions subsequent to entering into the Memorandum of Understanding and the
Partnership expects the parties to enter into additional settlement agreements
in the near future; however, the Partnership cannot make any assurances that the
parties will enter into any further settlement agreements or any assurances
regarding the terms of any other settlement agreement.
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
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.
16
Item 2. Changes in Securities
None
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.
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
By: Capital Realty Group Senior Housing, Inc.
General Partner
By: /s/ Robert Lankford
-------------------------------------
Robert Lankford
President
Date: August 8, 2002
17