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 September 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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)
September 30, 2002 December 31, 2001
------------------ -----------------
(Unaudited) (Audited)
ASSETS:
Cash and cash equivalents $ 175,386 $ 18,117,660
Receivables 69,809 96,426
Other assets 250,000 250,000
----------------- -----------------
Total assets 495,195 18,464,086
----------------- -----------------
LIABILITIES:
Accounts payable 135,870 185,374
Interest payable - 15,346,521
Pension notes - 20,157,826
Other liabilities 53,400 530,088
----------------- -----------------
Total liabilities 189,270 36,219,809
----------------- -----------------
Net assets (liabilities) in liquidation $ 305,925 $ (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 Nine Months Ended September 30, 2002
(Unaudited)
Net liabilities in liquidation at January 1, 2002 $ (17,755,723)
Net Income 18,061,648
-----------------
Net assets in liquidation at September 30, 2002 $ 305,925
=================
See notes to financial statements
3
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statement of Operations
(Unaudited)
Three months ended September 30,
2002 2001
---- ----
(Liquidation Basis) (Going Concern
Basis)
REVENUE:
Rental income $ - $ 1,343,474
Interest income 329 13,932
Other income 926 7,386
----------------- -----------------
1,255 1,364,792
----------------- -----------------
COSTS AND EXPENSES:
Salaries, related benefits and overhead reimbursements - 318,640
Management fees, dietary fees and other services - 165,788
Administrative and marketing 69 10,582
Utilities - 60,918
Maintenance - 52,828
Resident services, other than salaries - 9,172
Food services, other than salaries - 141,170
Depreciation - 148,572
Taxes and insurance 136 117,235
----------------- -----------------
205 1,024,905
----------------- -----------------
INCOME FROM RENTAL OPERATIONS 1,050 339,887
----------------- -----------------
OTHER EXPENSES:
Interest expense - pension notes - 652,229
Amortization of pension notes issuance costs - 29,751
Other expense 247,053 85,583
----------------- -----------------
247,053 767,563
----------------- -----------------
NET LOSS $ (246,003) $ (427,676)
================= =================
NET LOSS PER ASSIGNEE INTEREST: $ (6) $ (10)
----------------- -----------------
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)
Nine months ended September 30,
2002 2001
---- ----
(Liquidation Basis) (Going Concern
Basis)
REVENUE:
Rental income $ 1,198 $ 3,944,978
Interest income 1,982 81,060
Other income 167 25,210
----------------- -----------------
3,347 4,051,248
----------------- -----------------
COSTS AND EXPENSES:
Salaries, related benefits and overhead reimbursements - 877,823
Management fees, dietary fees and other services - 488,381
Administrative and marketing 73,810 51,121
Utilities - 228,109
Maintenance - 132,473
Resident services, other than salaries - 30,083
Food services, other than salaries - 416,433
Depreciation - 445,108
Taxes and insurance 2,436 352,039
----------------- -----------------
76,246 3,021,570
----------------- -----------------
(LOSS) INCOME FROM RENTAL OPERATIONS (72,899) 1,029,678
----------------- -----------------
OTHER EXPENSES:
Interest expense - pension notes 423,590 2,319,112
Amortization of pension notes issuance costs - 89,253
Other expense 433,039 236,260
----------------- -----------------
856,629 2,644,625
----------------- -----------------
NET LOSS BEFORE EXTRAORDINARY INCOME (929,528) (1,614,947)
Extraordinary income - debt forgiveness 18,991,176 -
----------------- -----------------
NET INCOME (LOSS) $ 18,061,648 $ (1,614,947)
================= =================
NET INCOME (LOSS) PER ASSIGNEE INTEREST:
Net loss before extraordinary income (21) (38)
Extraordinary income 444 -
----------------- -----------------
Net income (loss) $ 423 $ (38)
================= =================
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 - Nine months
ended September 30, 2002 361,233 17,700,415 18,061,648
------------------ -------------- ---------------
Partners' equity (deficit)
at September 30, 2002 and net
(liabilities) assets in liquidation $ (798,884) $ 1,104,809 $ 305,925
================== ============== ===============
Percentage interest
at September 30, 2002 2% 98% 100%
== === ====
See notes to financial statements
6
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
2002 2001
---- ----
(Liquidation Basis) (Going Concern
Basis)
Cash flows from operating activities:
Rent collections $ 27,815 $ 3,943,183
Interest received 1,982 81,060
Other income 167 25,210
Salary and related benefits (46,900) (872,929)
Management fees, dietary fees and other services (41,650) (487,781)
Other operating expenses paid (883,688) (1,304,340)
Interest paid (7,461,934) (4,055,386)
----------------- -----------------
Net cash used in operating activities (8,404,208) (2,670,983)
----------------- -----------------
Cash flows from investing activity:
Capital expenditures - (118,950)
----------------- -----------------
Net cash used in investing activity - (118,950)
----------------- -----------------
Cash flows from financing activities:
Pension note payments (9,538,066) -
Repurchase of assignor limited partnership units - (309)
Distributions - (81,538)
----------------- -----------------
Net cash used in financing activities (9,538,066) (81,847)
----------------- -----------------
Net decrease in cash and cash equivalents (17,942,274) (2,871,780)
Cash and cash equivalents at beginning of period 18,117,660 5,492,588
----------------- -----------------
Cash and cash equivalents at end of period $ 175,386 $ 2,620,808
================= =================
See notes to financial statements
7
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
(Continued)
Nine months ended September 30,
2002 2001
---- ----
(Liquidation Basis) (Going Concern
Basis)
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH USED IN
OPERATING ACTIVITIES:
Net income (loss) $ 18,061,648 $ (1,614,947)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Extraordinary income - debt forgiveness (18,991,176) -
Depreciation - 445,108
Amortization of pension notes
issuance costs - 89,253
Changes in operating assets and liabilities:
Other assets and receivables 26,617 (882)
Prepaid expenses - 122,938
Accounts payable 13,735 (62,478)
Interest payable (7,038,344) (1,736,274)
Other liabilities (476,688) 86,299
----------------- -----------------
Total adjustments (26,465,856) (1,056,036)
----------------- -----------------
Net cash used in operating activities $ (8,404,208) $ (2,670,983)
================= =================
See notes to financial statements
8
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
Notes to Financial Statements
September 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 property, the Amberleigh.
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, one Note subject to
the purchaser obtaining certain levels of financing proceeds and the other note
subject to property achieving certain levels of operating income. With respect
to the promissory note conditioned on financing proceeds, the Partnership did
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. Upon final liquidation of the Partnership's cash reserves, to
the extent any funds are in excess of liabilities, those funds will be
distributed to the Note Holders.
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 September 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 September 30, 2002 and December 31, 2001,
statement of changes in net assets (liabilities) in liquidation for the nine
month period ended September 30, 2002, results of operations, changes in
Partner's equity (deficit) and cash flows for nine month periods ended September
30, 2002 and 2001. The results of operations for the nine-month period ended
September 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 third fiscal quarter ended September 30, 2002 and
2001, were $0 and $310,640, respectively. Management fees, dietary fees and
other services reimbursed and expensed by the Partnership to CSL for the third
fiscal quarter ended September 30, 2002 and 2001, were $0 and $165,788,
respectively.
In connection with the sale of the Amberleigh, the General Partner became
entitled to a fee of $255,000. In January 2002, the Partnership paid the General
Partner one-half of this amount, or $127,500, which had been accrued at December
31, 2002. The General Partner remains entitled to receive the balance of this
fee in the amount of $127,500, which has been accrued for payment at September
30, 2002.
Distributions of $0 and $81,538 were made to the General Partner during the nine
months ended September 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,
one note subject to the purchaser obtaining certain levels of financing proceeds
and the other note 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.
In connection with the sale of the Amberleigh, the General Partner became
entitled to a fee of $255,000. In January 2002, the Partnership paid the General
Partner one-half of this amount, or $127,500, which had been accrued at December
31, 2002. The General Partner remains entitled to receive the balance of this
fee in the amount of $127,500, which has been accrued for payment at September
30, 2002.
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"). 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 sought, among other relief, rescission
of the 1998 Transaction and unspecified damages. Subsequently, the plaintiff
amended his complaint adding allegations challenging the terms of the sale in
December 2001 of the Amberleigh retirement facility to BRE/CSL. 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 of the Partnership in the event
the Court of Chancery determines that the claims asserted in the Delaware Action
are derivative in nature.
On October 18, 2002, the Delaware Court of Chancery entered a Final Order and
Judgment (i) certifying a class consisting of all record and beneficial holders
of Interests of the Partnership as of September 30, 1998 or any time thereafter,
(ii) approving as fair, reasonable and adequate a settlement of the Delaware
Action calling for the creation of a settlement fund in the amount of
approximately $840,000, (iii) dismissing the Delaware Action with prejudice and
releasing, among other things, all the claims asserted therein, and (iv)
awarding attorneys' fees and expenses in the amount of $250,000 to be paid from
the settlement fund to counsel for the class. The Partnership previously
contributed $250,000 to the creation of the settlement fund, which is the amount
of the deductible of the Partnership's directors and officers' liability
11
insurance policy at the time the Delaware Action was filed (the "D&O Policy").
Virtually all of the balance of the settlement fund was 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. In accordance
with the settlement, approximately $590,000 (the amount of the settlement fund
minus the award for attorneys' fees and expenses) will be distributed to the
class of holders of Interests on a pro rata basis after the settlement becomes
final.
On September 17, 2002, William Bren filed a putative class action complaint on
behalf of certain holders of Notes of the Partnership in the Delaware Court of
Chancery, C.A. No. 19902 (the "Noteholder Action"), against the Partnership and
the General Partner. The complaint in the Noteholder Action contains three
claims for relief alleging (i) that the General Partner breached its fiduciary
duty by failing to initiate a lawsuit against, among others, the former General
Partner and its principals in connection with the 1998 Transaction, (ii) that
the General Partner failed to disclose material information to the Noteholder's
when it solicited certain consents and waivers from them in 2001 and 2002, and
(iii) that the Partnership failed to pay the full amount of principal and
interest owed on the Notes on December 31, 2001, the maturity date of the Notes.
On October 15, 2002, the plaintiff moved for partial summary judgment on his
second and third claims and for class certification. On October 17, 2002, the
Partnership and the General Partner moved to dismiss, or in the alternative, for
summary judgment on all the claims in the complaint. Briefing on these motions
is proceeding. The Partnership believes the allegations asserted in the
Noteholder Action are without merit and intends to defend against these claims.
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, was 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
For the nine months ended September 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. Upon final liquidation of the
Partnership's cash reserves, to the extent any funds are in excess of
liabilities, those funds will be distributed to Note Holders.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Rent collections for the nine-month period ended September 30 decreased to
$27,815 in 2002 from $3,943,183 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 $2,665,050 in
2001 to $972,238 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 nine months ended September 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 nine months ended September 30, 2002 and 2001 was $8,404,208
and $2,670,983, 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 $2,319,112
for the nine months ended September 30, 2002 and 2001, respectively.
Capital expenditures decreased from $118,950 for the nine month period ended
September 30, 2001 to $0 for the nine month period ended September 30, 2002 due
to the sale of the Amberleigh.
Cash and cash equivalents at September 30, 2002 and December 31, 2001 amounted
to $175,386 and $18,117,660, respectively.
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 property, the Amberleigh.
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, one Note subject to
the purchaser obtaining certain levels of financing proceeds and other Note
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
13
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.
In connection with the sale of the Amberleigh, the General Partner became
entitled to a fee of $255,000. In January 2002, the Partnership paid the General
Partner one-half of this amount, or $127,500, which had been accrued at December
31, 2002. The General Partner remains entitled to receive the balance of this
fee in the amount of $127,500, which has been accrued for payment at September
30, 2002.
Results of Operations
The Partnership's net income for the nine months ended September 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 (loss) income increased from ($1,614,947) to $18,061,648 for
the nine-month periods ending September 30, 2001 and 2002, respectively. Net
(loss) income per assignee interest increased from ($38) to $423 for the
nine-month periods ending September 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
nine-month periods ended September 30 decreased from $4,051,248 in 2001 to
$3,347 in 2002. The decrease in total revenues was due to the sale of the
Amberleigh. Total operating costs and expenses decreased from $3,021,570 in 2001
to $76,246 in 2002. The decrease in operating expenses primarily was due to the
sale of the Amberleigh. Note interest expense decreased from $2,319,112 to
$423,590 for the nine-month periods ending September 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 $89,253 to $0 for the nine-month periods
ending September 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 $236,260 to $433,039 for the
nine-month periods ending September 30, 2001 and 2002, respectively, due to
increased printing costs, professional fees and an accrual of a $127,500 fee due
the General Partner.
14
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.
ITEM 4. CONTROLS AND PROCEDURES
The Partnership's General Partner including its Chief Executive Officer and
Chief Financial Officer, after evaluating the effectiveness of the Partnership's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15-d-14(c)
under the Securities Exchange Act of 1934) as of a date (the "Evaluation Date"),
which was within 90 days of this quarterly report on Form 10-Q, have concluded
in their judgment that, as of the Evaluation Date, the Partnership's disclosure
controls and procedures were adequate and designed to ensure that material
information relating to the Partnership and its subsidiaries would be made known
to them.
There were no significant changes in the Partnership's internal controls or, to
the General Partner's knowledge, in other factors that could significantly
affect the Partnership is disclosure controls and procedures subsequent to the
Evaluation Date.
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"). 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 sought, among other relief, rescission
of the 1998 Transaction and unspecified damages. Subsequently, the plaintiff
amended his complaint adding allegations challenging the terms of the sale in
December 2001 of the Amberleigh retirement facility to BRE/CSL. 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 of the Partnership in the event
the Court of Chancery determines that the claims asserted in the Delaware Action
are derivative in nature.
On October 18, 2002, the Delaware Court of Chancery entered a Final Order and
Judgment (i) certifying a class consisting of all record and beneficial holders
of Interests of the Partnership as of September 30, 1998 or any time thereafter,
(ii) approving as fair, reasonable and adequate a settlement of the Delaware
Action calling for the creation of a settlement fund in the amount of
approximately $840,000, (iii) dismissing the Delaware Action with prejudice and
releasing, among other things, all the claims asserted therein, and (iv)
awarding attorneys' fees and expenses in the amount of $250,000 to be paid from
the settlement fund to counsel for the class. The Partnership previously
contributed $250,000 to the creation of the settlement fund, which is 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 was 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. In accordance
with the settlement, approximately $590,000 (the amount of the settlement fund
minus the award for attorneys' fees and expenses) will be distributed to the
class of holders of Interests on a pro rata basis after the settlement becomes
final.
On September 17, 2002, William Bren filed a putative class action complaint on
behalf of certain holders of Notes of the Partnership in the Delaware Court of
Chancery, C.A. No. 19902 (the "Noteholder Action"), against the Partnership and
the General Partner. The complaint in the Noteholder Action contains three
claims for relief alleging (i) that the General Partner breached its fiduciary
duty by failing to initiate a lawsuit against, among others, the former General
Partner and its principals connection with the 1998 Transaction, (ii) that the
General Partner failed to disclose material information to the Noteholder's when
it solicited certain consents and waivers from them in 2001 and 2002, and (iii)
that the Partnership failed to pay the full amount of principal and interest
owed on the Notes on December 31, 2001, the maturity date of the Notes. On
October 15, 2002, the plaintiff moved for partial summary judgment on his second
and third claims and for class certification. On October 17, 2002, the
Partnership and the General Partner moved to dismiss, or in the alternative, for
summary judgment on all the claims in the complaint. Briefing on these motions
is proceeding. The Partnership believes the allegations asserted in the
Noteholder Action are without merit and intends to defend against these claims.
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 (duly authorized officer and principal financial officer)
Date: November 14, 2002
17
CERTIFICATION
I, Robert Lankford, Chief Executive Officer and Chief Financial Officer of the
General Partner of NHP Retirement Housing Partners I Limited Partnership,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of NHP Retirement Housing
Partners I Limited Partnership ("Partnership");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
Partnership as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Partnership and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Partnership, is made known to me by others
within the Partnership, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Partnership's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date.
5. I have disclosed, based on my most recent evaluation, to the Partnership's
auditors and the General Partner's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership 's ability to record,
process, summarize and report financial data and have identified for the
Partnership's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Partnership's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Robert Lankford
------------------------------
Robert Lankford
Chief executive officer and Chief
financial officer of the
General Partner
November 14, 2002