SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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.
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(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 Partnership)
CONSOLIDATED BALANCE SHEETS
June 30, 2003 December 31, 2002
(Unaudited) (Note A)
----------- --------
ASSETS
Cash and cash equivalents $ 93,500 $ 643,493
Accounts receivable, less allowance for doubtful
accounts of $648,697 in 2003 and 2002 - -
Prepaid expenses 24,500 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 466 563
---------------- ----------------
Total assets $ 1,118,466 $ 1,658,431
================ ================
LIABILITIES AND PARTNERSHIP EQUITY
Accounts payable and accrued expenses $ 86,965 $ 66,114
--------------- ---------------
86,965 66,114
--------------- ----------------
Partnership equity (deficit):
Limited partners (4,148,325 units outstanding in 2003
and 2002) 1,081,832 1,631,431
General partner (50,331) (39,114)
--------------- ----------------
1,031,501 1,592,317
--------------- ----------------
Total liabilities and Partnership equity $ 1,118,466 $ 1,658,431
=============== ================
See notes to financial statements
1
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
June 30, 2003 June 30, 2002
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Revenues:
Rental $ - $ -
Net patient services - -
--------------- ---------------
- -
--------------- ---------------
Expenses:
Depreciation 47 84
Administrative and other 128,311 144,868
Recoveries of bad debts - (513)
--------------- ---------------
128,358 144,439
--------------- ---------------
Loss from operations (128,358) (144,439)
--------------- ---------------
Other income (expenses):
Interest income 780 9,093
Other income 75 -
--------------- ---------------
855 9,093
--------------- ---------------
Net loss $ (127,503) $ (135,346)
=============== ===============
Allocation of net loss
Limited partner $ (124,953) $ (132,639)
General partner (2,550) (2,707)
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$ (127,503) $ (135,346)
============= =============
Basic per limited Partnership unit calculations:
Net loss $ (.03) $ (.03)
=============== =============
Distributions $ .07 $ -
=============== =============
WEIGHTED AVERAGE NUMBER OF UNITS 4,148,325 4,148,325
=============== =============
See notes to financial statements
2
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended
June 30, 2003 June 30, 2002
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Revenues:
Rental $ - $ 37,071
Net patient services - -
--------------- ---------------
- 37,071
--------------- ---------------
Expenses:
Depreciation 96 13,527
Administrative and other 256,499 302,891
Recoveries of bad debts - (3,514)
--------------- ---------------
256,595 312,904
--------------- ---------------
Loss from operations (256,595) (275,833)
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Other income (expenses):
Gain on disposition of property - 2,283,193
Interest income 1,827 22,289
Other income 75 63,498
Interest expense - (11,234)
--------------- ---------------
1,902 2,357,746
--------------- ---------------
Net (loss) income $ (254,693) $ 2,081,913
=============== ===============
Allocation of net (loss) income
Limited partner $ (249,599) $ 2,050,884
General partner (5,094) 31,029
--------------- ---------------
$ (254,693) $ 2,081,913
=============== ===============
Basic per limited Partnership unit calculations:
Net (loss) income $ (.06) $ .49
=============== ===============
Distributions $ .07 $ .75
=============== ===============
WEIGHTED AVERAGE NUMBER OF UNITS 4,148,325 4,148,325
=============== ===============
See notes to financial statements
3
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY (DEFICIT)
(Unaudited)
Limited General
Partners Partner Total
-------- ------- -----
EQUITY (DEFICIT) at
January 1, 2003 $ 1,631,431 $ (39,114) $ 1,592,317
Distributions (300,000) (6,123) (306,123)
Net Loss (249,599) (5,094) (254,693)
-------------- ------------ --------------
EQUITY (DEFICIT) at
June 30, 2003 $ 1,081,832 $ (50,331) $ 1,031,501
============== ============ ==============
See notes to financial statements
4
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30, 2003 June 30, 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (254,693) $ 2,081,913
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
(Recoveries) bad debts - (3,514)
Depreciation and amortization 96 13,527
Gain on disposition of property, net - (2,283,193)
Changes in assets and liabilities:
Accounts receivable - 92,699
Prepaid expenses (10,125) -
Accounts payable and accrued expenses 20,852 (158,847)
Security deposits - (101,247)
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NET CASH USED IN
OPERATING ACTIVITIES (243,870) (358,662)
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CASH FLOWS FROM INVESTING ACTIVITY:
Proceeds from sale of property - 4,417,753
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NET CASH PROVIDED BY
INVESTING ACTIVITY - 4,417,753
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CASH FLOWS FROM FINANCING ACTIVITY:
Distributions to partners (306,123) (3,111,816)
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NET CASH USED IN
FINANCING ACTIVITY (306,123) (3,111,816)
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (549,993) 947,275
CASH AND CASH EQUIVALENTS
Beginning of Period 643,493 1,694,546
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CASH AND CASH EQUIVALENTS
End of Period $ 93,500 $ 2,641,821
============= =============
CASH PAID FOR INTEREST $ - $ 22,304
============= =============
See notes to financial statements
5
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 2003 and December 31, 2002, and
results of operations, changes in Registrant's equity (deficit) and cash flows
for six-month periods ended June 30, 2003 and 2002. The results of operations
for the three and six-month period ended June 30, 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 June 30, 2003, the Registrant has one non-operational property held for
sale. The Registrant entered into an Agreement to Sell and Purchase Real Estate
("Agreement") relating to the sale of its Crenshaw Creek facility for $1.1
million. The Registrant expects this transaction to close during the third
quarter of fiscal 2003. 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, 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 June 30, 2003, balances that
would be needed if a liquidation basis of accounting had been adopted as of June
30, 2003.
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
6
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:
Six months ended
June 30, 2003 June 30, 2002
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Administrative reimbursements $ 44,974 $ 56,753
General partner fees - 371
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$ 44,974 $ 57,124
============== ==============
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 six months ended June
30, 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
September 30, 1995, Registrant had sold Units aggregating approximately $43.4
million. Due to the suspension of the distribution reinvestment plan, Registrant
does not anticipate any additional inflow of investment.
All of the net proceeds of the offering were originally invested in 12
properties or used for working capital reserves. Registrant partially financed
the acquisition of eight of its original properties with non-recourse debt. Four
properties were initially unleveraged. As of June 30, 2003, eleven of the
7
original twelve properties had either been sold or deeded back to the lender,
leaving Registrant one unleveraged property, the Crenshaw facility. As of June
30, 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 June 30, 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 June 30, 2003, Registrant had cash and cash equivalents aggregating
$93,500. 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 $306,123 and $3,111,816 were made for the six months
ended June 30, 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 and Six Months Ended June 30, 2003
Rental revenues for the six months ended June 30, 2003 decreased $37,071 from
the comparable six months ended June 30, 2002, due to the sale of the
Hearthstone and Trinity Hills facilities during the six months ended June 30,
2002. Interest income for the six months ended June 30, 2003 decreased $20,462
from the six months ended June 30, 2002 primarily due to decreasing cash
available for investment. Other income of $63,498 was received during the six
months ended June 30, 2002 due to payment of an administrative claim on the
Cambridge facility. A gain of $2,283,193 was recognized for the six months ended
June 30, 2002 due to the sale of the Hearthstone and Trinity Hills facilities.
Depreciation for the six months ended June 30, 2003, decreased $13,431 from the
comparable 2002 period due to the sale of the Hearthstone and Trinity Hills
facilities. Administrative expenses decreased $46,392 for the six months ended
June 30, 2003 in comparison to 2002 primarily due to decreased taxes. Bad debt
recoveries of $3,514 for the six months ended June 30, 2002 is related to
account receivable collections from the Cambridge property. Interest expense for
the six months ended June 30, 2003 decreased to $0 from the comparable 2002
period, due to the sale of the Hearthstone facility and retirement of its
related mortgage.
For the three months ended June 30, 2003 as compared with the three months ended
June 30, 2002, Registrant's revenue was impacted by the same shifts of revenue
as discussed above. Similarly, a comparison of second quarter 2003 operating
expenses versus second quarter 2002 reflects the same variances as discussed
above.
Cash and cash equivalents as of June 30, 2003 decreased by $549,993 from the
balance at December 31, 2002. Cash flows decreased by $1,497,268 for the six
months ended June 30, 2003 in comparison to the six months ended June 30, 2002
primarily due to cash proceeds from the sale of the Hearthstone and Trinity
Hills facilities and cash distributions incurred during the six months ended
June 30, 2002. Accounts payable and accrued expenses increased $20,851 at June
30, 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:
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.
8
Due to low occupancy, HealthSouth closed the Crenshaw Creek facility in May
2000. HealthSouth continued to make full lease payments under the terms of the
master lease on a timely basis through the end of the lease term. HealthSouth
transferred the Crenshaw Creek facility to the Registrant by the end of its
lease term and the facility is held for sale as of June 30, 2003. The Registrant
entered into an Agreement to sell the Crenshaw Creek facility for $1.1 million.
The Registrant expects this transaction to close during the third quarter of
fiscal 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
released 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-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) have concluded in their judgment
that, as of the end of the period covered by this quarterly report on Form 10-Q,
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 its disclosure controls and procedures subsequent to the date of
evaluation.
9
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:
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 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: August 14, 2003