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 March 31, 2003
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14160 Dallas Parkway, Suite 300, Dallas, Texas 75254
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(Address of principal executive office)
(972) 770-5600
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(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
---- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Registrant)
CONSOLIDATED BALANCE SHEETS
March 31, 2003 December 31, 2002
(Unaudited) (Note A)
ASSETS
Cash and cash equivalents $ 554,203 $ 643,493
Accounts receivable, less allowance for doubtful
accounts of $648,697 in 2003 and 2002 - -
Prepaid expenses 5,750 14,375
Asset held for sale, at the lower of carrying value or
fair value less estimated costs to sell 1,000,000 1,000,000
Property and improvements, net 514 563
----------------- -----------------
Total assets $ 1,560,467 $ 1,658,431
================= =================
LIABILITIES AND REGISTRANT EQUITY
Accounts payable and accrued expenses $ 95,340 $ 66,114
----------------- -----------------
95,340 66,114
----------------- -----------------
Registrant equity (deficit):
Limited partners (4,148,325 units outstanding in 2003
and 2002) 1,506,785 1,631,431
General partner (41,658) (39,114)
----------------- -----------------
1,465,127 1,592,317
----------------- -----------------
Total liabilities and Registrant equity $ 1,560,467 $ 1,658,431
================= =================
See notes to financial statements.
1
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Registrant)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31, 2003 March 31, 2002
Revenues:
Rental $ - $ 37,071
Net patient services - -
---------------- ----------------
- 37,071
---------------- ----------------
Expenses:
Depreciation 49 13,443
Administrative and other 128,188 158,023
Recoveries of bad debts - (3,001)
---------------- ----------------
128,237 (168,465)
---------------- ----------------
Loss from operations (128,237) (131,394)
---------------- ----------------
Other income (expenses):
Gain on disposition of properties - 2,283,193
Interest income 1,047 13,196
Other income - 63,498
Interest expense - (11,234)
---------------- ----------------
1,047 2,348,653
---------------- ----------------
Net (loss) income $ (127,190) $ 2,217,259
================ ================
Allocation of net (loss) income
Limited partner $ (124,646) $ 2,183,523
General partner $ (2,544) 33,736
---------------- ----------------
$ (127,190) $ 2,217,259
================ ================
Basic per limited Registrant unit calculations:
Net (loss) income $ (.03) $ .53
================ ================
Distributions $ 0 $ .75
================ ================
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 Registrant)
CONSOLIDATED STATEMENTS OF REGISTRANT EQUITY (DEFICIT)
(Unaudited)
Limited General
Partners Partners Total
EQUITY (DEFICIT) at
January 1, 2003 $ 1,631,431 $ (39,114) $ 1,592,317
Net Loss (124,646) (2,544) (127,190)
--------------- ------------ ---------------
EQUITY (DEFICIT) at
March 31, 2003 $ 1,506,785 $ (41,658) $ 1,465,127
=============== ============ ===============
See notes to financial statements.
3
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Registrant)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31, 2003 March 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (127,190) $ 2,217,259
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Recoveries of bad debts - (3,001)
Depreciation and amortization 49 13,443
Gain on disposition of properties, net - (2,283,193)
Changes in assets and liabilities:
Accounts receivable - 92,186
Prepaid expenses 8,625 -
Accounts payable and accrued expenses 29,226 (143,523)
Security deposits - (101,247)
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NET CASH USED IN
OPERATING ACTIVITIES (89,290) (208,076)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of properties - 4,417,753
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NET CASH PROVIDED BY
INVESTING ACTIVITIES - 4,417,753
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners - (3,111,816)
-------------- ---------------
NET CASH USED IN
FINANCING ACTIVITIES - (3,111,816)
-------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (89,290) 1,097,861
CASH AND CASH EQUIVALENTS
Beginning of Period 643,493 1,694,546
-------------- ---------------
CASH AND CASH EQUIVALENTS
End of Period $ 554,203 $ 2,792,407
============== ===============
CASH PAID FOR INTEREST $ - $ 22,304
============== ===============
See notes to financial statements
4
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Registrant)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003 and 2002
(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
notes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, the
accompanying financial statements contain all adjustments, all of which were
normal recurring accruals, necessary to present fairly the Registrant's
consolidated balance sheets as of March 31, 2003 and December 31, 2002, results
of operations, changes in Registrant's equity (deficit) and cash flows for three
month periods ended March 31, 2003 and 2002. The results of operations for the
three-month period ended March 31, 2003 are not necessarily indicative of the
results for the year ending December 31, 2003. The December 31, 2002
consolidated balance sheet has been derived from the audited consolidated
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in Registrant's annual report on Form 10-K for the year
ended December 31, 2002.
Net income (loss) of the 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 the 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 the 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.
As of March 31, 2003, the Registrant has one non-operational property held for
sale. It is the current intention of the General Partner to wind-up the affairs
of the Registrant and cause its existence to be terminated. The winding-up
process will entail disposing of the Registrant's remaining asset (or
transferring it to a liquidating trust), paying the Registrant's debts and
liabilities and, as required by the Partnership Agreement and applicable law,
setting up any reserves which the General Partner may deem reasonably necessary
for any contingent, conditional or unforeseen liabilities or obligations of the
Registrant. To the extent that the Registrant has funds in excess of amounts
necessary to satisfy its obligations and establish such reserves, such funds
will be distributed to the partners. To the extent that reserves are not
exhausted by future claims, the funds remaining in such reserves will be
distributed to the partners after a period of time necessary to assure that all
currently contingent, conditional or unforeseen liabilities or obligations of
the Registrant have matured and been paid. Management believes there are no
adjustments to the March 31, 2003, balances that would be needed if a
liquidation basis of accounting had been adopted as of March 31, 2003.
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B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER
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") and CSL are as follows:
Three months ended
March 31, 2003 March 31, 2002
Administrative reimbursements $ 22,279 $ 27,006
General partner fees - 551
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$ 22,279 $ 27,557
============== ==============
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 Registrant Agreement.
Currently, Capital Senior Living Properties, Inc., formerly an affiliate of
CRGSH, holds approximately 57 percent of the outstanding units of the
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.
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. VALUATION OF RENTAL PROPERTY
Generally accepted accounting principles require that Registrant evaluate
whether an event or circumstance has occurred that would indicate that the
estimated undiscounted future cash flows of its properties, taken individually,
will be less than the respective net book value of the properties. If such a
shortfall exists, then a write-down to fair value is recorded. Registrant
performs such evaluations on an on-going basis. During the three months ended
March 31, 2003, based on Registrant's evaluation of its sole remaining property,
Registrant did not record any impairment.
D. 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 $506,080 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 Registrant 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
6
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 March 31, 2003, 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 March
31, 2003, 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 March 31, 2003, collection on
defaulted rent and/or damage settlements related to leases in default, and a
potential sale of the Registrant's remaining asset.
As of March 31, 2003, Registrant had cash and cash equivalents aggregating
$554,203. 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 continuing maintenance expenditures on its remaining asset. Future
cash distributions will be dependent on the sale of its remaining asset. Cash
and sale distributions of $0 and $3,111,816 were made for the first quarters
ending March 31, 2003 and 2002 respectively. The Units are not publicly traded
and as a result the liquidity of each Limited Partner's individual investment is
limited.
Results of Operations
Discussion of Three Months Ending March 31, 2003
Rental revenues for the three months ended March 31, 2003 decreased $37,071 from
the comparable three months ended March 31, 2002, due to the sale of the
Hearthstone and Trinity Hills facilities during the three months ended March 31,
2002. Interest income for the three months ended March 31, 2003 decreased
$12,149 from the three months ended March 31, 2002 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 for the three months
ended March 31, 2002 due to the sale of the Hearthstone and Trinity Hills
facilities.
Depreciation for the three months ended March 31, 2003, decreased $13,394 from
the comparable 2002 period due to the sale of the Hearthstone and Trinity Hills
facilities. Administrative expenses decreased $29,835 for the three months ended
March 31, 2003 in comparison to 2002 primarily due to decreased professional
fees. Bad debt recoveries of $3,001 for the three months ended March 31, 2002 is
related to account receivable collections from the Cambridge property. Interest
expense for the three months ended March 31, 2003 decreased to $0 from the
comparable 2002 period, due to the sale of the Hearthstone facility and
retirement of its related mortgage.
Cash and cash equivalents as of March 31, 2003 decreased by $89,290 from the
balance at December 31, 2002. Cash flows decreased by $1,187,151 for the three
months ending March 31, 2003 in comparison to the three months ending March 31,
2002 primarily due to cash proceeds from the sale of the Hearthstone and Trinity
Hills facilities and cash distributions incurred during the three months ended
March 31, 2002. Accounts payable and accrued expenses increased $29,226 at March
31, 2003, from the balance at December 31, 2002 primarily due to increased
accrued taxes and overhead charges.
Following is a brief discussion of the status of Registrant's properties:
7
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 March 31, 2003.
Hearthstone and Trinity Hills Facilities
The Hearthstone lease expired on November 7, 2000. The lessee and the 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 the 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 Registrant has been
release from this claim. 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 $506,080 and net cash proceeds of $1,747,323 after
payment of settlement costs.
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.
Item 4. Controls and Procedures
The Registrant's General Partner, including its Chief Executive Officer and
Chief Financial Officer, after evaluating the effectiveness of the Registrant's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-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 Registrant's disclosure
controls and procedures were adequate and designed to ensure that material
information relating to the Registrant and its subsidiaries would be made known
to them.
There were no significant changes in the Registrant's internal controls or, to
the General Partner's knowledge, in other factors that could significantly
affect the Registrant's disclosure controls and procedures subsequent to the
Evaluation Date.
8
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
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 (duly authorized officer and principal financial officer)
Date: May 14, 2003
9
CERTIFICATION
I, Robert Lankford, Chief Executive Officer and Chief Financial Officer of the
General Partner of Healthcare Properties L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Healthcare Properties
L.P. ("Registrant");
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 Registrant 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
Registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, is made known to me
by others within the Registrant, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant'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 Registrant'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 Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant'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 Registrant'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
May 14, 2003
10