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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission file number 0-16815
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE 52-1453513
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 DALLAS PARKWAY, SUITE 300, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
--------------
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
42,711 Limited Partnership Assignee Interests
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 twelve 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this Chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The Registrant's outstanding securities consist of assignee interests
in limited partnership interests which have no readily ascertainable market
value since there is no public trading market for these securities on which to
base a calculation of aggregate market value.
Documents incorporated by reference. NONE
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for the Registrant's Pension Notes and Limited
Partnership Assignee Interests and Related Partnership Matters 3
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 4
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
PART I
Item 1. Business
NHP Retirement Housing Partners I Limited Partnership (the
Partnership), a Delaware limited partnership was formed under the Delaware
Revised Uniform Limited Partnership Act as of March 10, 1986. On September 23,
1986, the Partnership commenced offering 25,000 Assignee Interests and 50,000
Pension Notes, both at a price of $1,000 per unit (the Offering) . The
Partnership subsequently exercised its right to increase the offering to 75,000
Assignee Interests and 100,000 Pension Notes. The offering was managed by NHP
Real Estate Securities, Inc. and was terminated on September 22, 1987, with
subscriptions for 42,711 Assignee Interests and 42,697 Pension Notes.
The Assignee Interests were sold to taxable individuals or entities and
represent assignments of limited partnership interests in the Partnership issued
to NHP RHP-I Assignor Corporation (Assignor Corporation), a Delaware
corporation, the assignor and sole limited partner. Pension Notes were sold to
qualified profit-sharing, pension and other retirement trusts, bank commingled
trust funds for such trusts, Keogh Plans and IRAs, government pension and
retirement trusts, and other entities intended to be exempt from Federal
taxation. The Pension Notes are nonrecourse obligations of the Partnership
issued under a Trust Indenture between the Partnership and The National Bank of
Washington, (NBW) Washington, D.C., as Trustee, and have a preference over the
Assignee Interests with respect to payment. In August 1990, the assets of NBW
were purchased by Riggs National Bank, Washington, D.C. which became the
successor trustee. In November 1996, Riggs National Bank transferred its trust
operations to the Bank of New York, New York City, which claims to be the
successor trustee.
The original General Partner of the Partnership was NHP/RHGP-I Limited
Partnership (NHP/RHGP-I), a Delaware limited partnership, and NHP/RHGP-I held a
2% interest as general partner in the Partnership. On December 19, 1991,
NHP/RHGP-I executed an amended and restated purchase agreement with Capital
Realty Group Properties, Inc. (CRG), a Texas corporation, for the transfer of
its general partner interests in the Partnership. CRG assigned its rights under
this purchase agreement to an affiliate, Capital Realty Group Senior Housing,
Inc. (CRGSH), a Texas corporation. The substitution of CRGSH as sole general
partner of the Partnership required the consent of 50% or more of the
outstanding Assignee Interests which had been issued by the Partnership and
assigned by Assignor Corporation to the Assignee Holders. Under the Partnership
Agreement, holders of the nonrecourse Pension Notes are not entitled to vote.
Pursuant to a Consent Solicitation dated October 25, 1994, Assignee Holders
holding more than 64% of the equity interests in the Partnership approved the
election of CRGSH, as the replacement general partner of the Partnership.
Effective January 23, 1995, CRGSH became the new sole general partner of the
Partnership. CRGSH is a wholly owned subsidiary of Capital Realty Group
Corporation, a Texas corporation (Capital). Capital is owned 50% by James A.
Stroud (through a trust) and 50% by Jeffrey L. Beck. The address of the
principal executive offices of CRGSH is the same as the Partnership: 14160
Dallas Parkway, Suite 300, Dallas, Texas 75240, and their telephone number at
such address is the same as the Partnership (972)770-5600.
The Partnership's business is to acquire existing and to develop new
residential rental properties for retirement age occupants (the Properties) to
the extent possible on an all cash basis (without third party mortgage
indebtedness) and to operate such Properties. The Partnership presently owns
four properties and has a 99.99% interest in a fifth property. See Item 2.
Properties for a description of these Properties and the business plan for these
Properties.
Effective January 1, 1992, CRGSH was selected by NHP/RHGP-I to manage
the five Properties of the Partnership. Effective June 1, 1993, the Partnership
entered into a Partnership Management Agreement with CRGSH to provide
administrative services on behalf of the Partnership. This Partnership
management agreement was terminated effective upon CRGSH becoming the substitute
general partner. CRGSH assigned its contract rights to manage the Partnership
properties to Capital Senior Living, Inc. ("CSL") effective February 1, 1996.
The Partnership did not have any employees as of December 31, 1996.
1
Regulatory Matters
Federal, state and local government regulations govern fitness and
adequacy, equipment, personnel and standards of medical care at a health care
facility, as well as health and fire codes. Changes in the applicable
regulations could adversely affect the operations of a property, which could
also affect the financial results of the Partnership. Any impact from proposed
health care legislation is not known at this time; however, such impact could
adversely affect the Partnership operations.
Item 2. Properties
The following is a schedule of the Properties owned by the Partnership.
All of the Properties are owned in fee directly by the Partnership except The
Amberleigh, which is owned by a limited partnership in which the Partnership is
a 99.99% partner. The Properties are encumbered by mortgages in favor of the
trustee for the benefit of the Pension Note holders.
Units Occupied Units Occupied
Number as a Percentage of as a Percentage of
Property of Total Units, as of Total Units, as of
Name/Location Units December 31, 1996 December 31, 1995
------------- ----- ----------------- -----------------
Veranda Club 189 98% 93%
Boca Raton, Florida
The Amberleigh 271 98% 95%
At Woodstream Farms
Williamsville, New York
The Atrium at Carmichael 153 98% 93%
Sacramento, California
Crosswood Oaks 122 86% 83%
Sacramento, California
The Heatherwood 160 81% 88%
Southfield, Michigan
2
The cornerstones of the General Partner's business plan for continuing
to improve the Properties' performance are expanding the services offered to
residents to include special services and home health care programs, continued
effective use of creative marketing techniques such as outreach to local
hospitals and physicians, and sound, cost effective site operations. The
introduction of special services and home health care is intended to end the
premature loss of tenants which some of the Partnership's properties have
experienced in the past. Special services and home health care also tends to
attract the well elderly to a community because they see the possibility of
receiving assistance in their day-to-day living (e.g., bathing, dressing, eating
and taking medication) without having to move to another facility at a difficult
time. Thus, offering special services and home health care tends to attract more
people who know they can stay for a longer period, with obvious benefits to the
community's occupancy and resident turnover. The General Partner believes this
philosophy provides an opportunity for improved operations at the Properties.
Due to aging of the Properties and the Partnership's goal to remain
competitive in its real estate markets, the General Partner developed a capital
improvement program that was implemented in 1994 and scheduled to be completed
in 1997. The program varies by property, but generally includes painting of the
building, replacement of carpet and curtains, purchase of new furniture and
furniture refurbishment, and purchase of new equipment. In 1994, 1995 and 1996,
$430,197, $712,919 and $525,567, respectively, was spent for capital
expenditures. Budgeted capital expenditures for 1997 are approximately $504,240.
Item 3. Legal Proceedings
The Partnership is not involved in any material legal proceedings as of
March 20, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
None.
3
PART II
Item 5. Market for the Registrant's Pension Notes and Limited Partnership
Assignee Interests and Related Partnership Matters
(a) Assignee Interests and Pension Notes were sold through a
public offering managed by NHP Real Estate Securities, Inc.
There is not currently, and it is not anticipated that there
will be, any established public trading market for resale of
Assignee Interests or Pension Notes. Accordingly, an investor
may be unable to sell or otherwise dispose of his interest in
the Partnership.
(b) As of March 19, 1997, there were 2,443 registered holders of
Assignee Interests and 3,373 registered holders of Pension
Notes.
As of March 27, 1997, an affiliate of the general partner of
the Partnership had purchased approximately 10,818 Pension
Notes, or approximately 25.3% of the Partnership's outstanding
Pension Notes.
(c) Each Pension Note bears stated interest in an amount equal
to 13 percent per annum, 9 percent of which was subject to
deferral through December 31, 1988 and 6 percent of which is
subject to deferral thereafter. Interest is payable
quarterly. Quarterly distributions of Cash Available for
Distribution (as defined in the Partnership Agreement) are
payable to Assignee Interest Holders within 60 days after
the end of each three-month period, subject to the General
Partner's right to restrict or suspend such distributions
for limited periods, if the General Partner, in its absolute
discretion, determines that such restriction or suspension
is in the best interests of the Partnership.
3
For each of the years ended December 31, 1996, 1995 and 1994,
interest paid to the Pension Note Holders as a group totaled
$2,995,574, $2,987,040 and $2,987,040, respectively, per year.
With respect to the fourth quarter of 1996, interest payments
paid to Pension Note Holders on February 28, 1997 amounted to
$752,734.
No cash distributions were paid to the Assignee Interest
Holders during 1996, 1995, or 1994. As presented in the
Statement of Cash Flows (below), cash and cash equivalents
increased $538,577 for the year ended December 31, 1996 and
decreased $114,543 and $155,963 for the years ended December
31, 1995 and 1994, respectively. Future cash requirements have
caused the General Partner to determine that it is not
financially appropriate to make distributions to Assignee
Interest Holders. The General Partner anticipates that
distributions will be suspended until operating results
significantly improve. See Item 7 below.
Item 6. Selected Financial Data
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenue $ 14,488,099 $ 14,020,626 $ 13,445,022 $ 12,247,313 $ 10,947,444
============== ============= ============== ============= ==============
Loss due to reduction
in carrying value of
rental property $ 0 $ 0 $ 0 $ 3,300,000 $ 0
============== ============= ============== ============= ==============
Net loss $ 3,574,668 $ 3,690,549 $ 3,773,975 $ 7,580,517 $ 4,670,855
============== ============= ============== ============= ==============
Net Loss per Assignee Interest $ 82 $ 85 $ 87 $ 174 $ 107
============== ============= ============== ============= ==============
Total assets $ 56,071,884 $ 57,749,496 $ 58,967,958 $ 60,399,012 $ 65,821,271
============== ============= ============== ============= ==============
Long-term obligations -
Pension Notes, and related
interest payable $ 63,353,172 $ 60,573,461 $ 58,039,450 $ 55,729,421 $ 53,604,651
============== ============= ============== ============= ==============
Cash distributions per
Assignee Interest $ 0 $ 0 $ 0 $ 0 $ 0
============== ============= ============== ============= ==============
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Income from rental operations increased to $2,706,587 from $2,377,625 and
$2,177,663 for the years ended December 31, 1996, 1995, and 1994, respectively.
Rental revenue increased in 1996 to $14,241,055 from $13,754,959 in 1995, or an
increase of 3.5%, primarily as a result of rental rate increases. Rental
expenses also increased to $11,781,512 in 1996 from $11,643,001 in 1995, or an
increase of 1.2%, reflecting increased costs primarily in management fees,
administration, depreciation, taxes and insurance costs, utilities, maintenance
and resident services. The Partnership's net loss is $3,574,668, $3,690,549 and
$3,773,975 for the years ended December 31, 1996, 1995 and 1994, respectively.
Rental revenue increased in 1995 to $13,754,959 from $13,187,354 in 1994, or
an increase of 4.3%, primarily as a result of increased rental rates. Rental
expenses also increased to $11,643,001 in 1995 from $11,267,359 in 1994, or an
increase of 3.3%, reflecting increased costs in salaries, administration,
depreciation, taxes and insurance, and food services. Liquidity and Capital
Resources
4
Liquidity and Capital Resources
Net cash provided by operating activities during 1996 was $1,125,278,
representing a significant improvement over 1995 and 1994 net cash provided by
operating activities of $659,336 and $334,887, respectively. Rent collections
increased in 1996 to $14,244,537 from $13,747,228 in 1995, an increase of 3.6%,
primarily from rental rate increases. Rental collections likewise increased from
$13,180,197 in 1994 to $13,747,228 in 1995, or an increase of 4.3%, primarily
from rental rate increases. Operating expenses paid slightly increased from
$10,366,496 in 1995 to $10,370,794 in 1996. Operating expenses paid increased
from $10,116,279 in 1994 to $10,366,496 in 1995, or an increase of 2.5%,
reflecting increased costs in salaries, food, administration, depreciation,
taxes and insurance costs. Interest paid was $2,995,574 in 1996 and $2,987,040
in 1995 and 1994.
For the years ended 1996, 1995 and 1994, cash generated from rental operations
was sufficient to pay the base interest amount on the $42,672,000 of outstanding
Pension Notes of $2,995,574, $2,987,040 and $2,987,040, respectively. Interest
payments on the Pension Notes are accrued at a 13% rate, but were paid based on
a 7% pay rate in 1996, 1995, and 1994. The remaining 6% unpaid portion for these
years as well as amounts deferred in prior years in accordance with the terms of
the Pension Notes continues to be accrued and are due at maturity, December 31,
2001. Accrued and unpaid interest at December 31, 1996, amounted to $20,681,172.
At the time of the maturity of the Pension Notes, total principal and accrued
interest due will approximate $81 million.
Cash and cash equivalents at December 31, 1996, amounted to $4,017,181 as
compared to $3,478,604 at December 31, 1995. Cash required by operations,
including interest on Pension Notes, has been funded by maturing short-term
investments or available cash on hand. Though operations improved in the current
year, if operations do not improve significantly in the long-term, future funds
may not be available to meet operating requirements or for payment of the
Pension Notes and accrued interest as described herein. This cash need has
caused the General Partner to determine that it is not financially appropriate
to make distributions to Assignee Interest Holders. The General Partner
anticipates that distributions to the Assignee Interest Holders will be
suspended until operating results significantly improve.
The Trust Indenture Agreement (the Indenture) governing the terms of the
Pension Notes provides for certain events of default. The Partnership would be
in default under the Notes for any of the following reasons: ( i) the failure of
the Partnership to pay interest on a quarterly basis for any quarter at the
stated pay rate of 7%; (ii) the default in payment of principal of the Pension
Notes at maturity or upon call or redemption of the Notes; (iii) default by the
Partnership in the performance or breach of any covenant; and (iv) institution
or decree of bankruptcy of the Partnership. All covenants included in the
Indenture are non-financial in nature. Additionally, the Indenture provides for
call or redemption of the Notes either at the election of the Partnership or
upon sale or refinancing of the underlying properties of the Partnership.
The Partnership Agreement limited the number of Pension Notes to 50,000, or
$50 million during the Offering. Of the available 50,000, 42,697 Pension Notes
were subscribed. The Partnership Agreement does not specifically prohibit the
Partnership from incurring additional mortgage indebtedness related to the
Properties by borrowing from banks and other institutional lenders in order to
finance the acquisition and development of Properties. Although it is the
present intent of the Partnership to hold the Properties free and clear of third
party mortgage indebtedness (other than the mortgages in favor of the Pension
Notes), to the extent that financing is available at favorable rates and would
be in the best interest of investors, the Partnership may obtain future
financings for Properties, subject to applicable limitations.
Although cash flow from operations improved in 1996, cash generated from
operations prior to 1994 had not been adequate to meet the Partnership's minimum
interest payment requirements. The annual shortfall was approximately $59,000
during 1993, and averaged approximately $1.5 million annually in the five-year
period prior to 1993. The shortfall had been funded by Partnership's cash
reserves, which principally resulted from funds remaining from the initial
offering of Partnership Assignee Interest and Pension Notes, after the
acquisition of the Partnership's Properties. Given the level of the
Partnership's cash reserves at December 31, 1996, if the Partnership is unable
to significantly increase cash generated from operations over time, cash
reserves may not be sufficient to fund its deferred Pension Note interest.
5
If interest payments continue to be deferred at the current rate (see Note 6),
the total accrual for unpaid interest and principal will approximate $81 million
at December 31, 2001, the maturity date of the Pension Notes which is far in
excess of projected cash reserves. Accordingly, there will need to be very
significant improvements in cash flows from operations and/or increases in the
disposition and refinancing values of the Properties to fund both the accrued
interest and the face value of the Pension Notes upon their maturity.
The carrying value of the properties owned by the Partnership may still exceed
current market values as of December 31, 1996. Should the Partnership be forced
to dispose of one or more of its Properties, it could incur a loss. The
Partnership, however, does not intend to sell any Properties in the near future,
but rather intends to continue to hold and operate them as rental Properties. As
a result, the Partnership has not obtained appraisals of the current market
value of its Properties.
Management's plans are to continue to manage the Properties prudently to
achieve positive cash flows from operations after interest payments.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the Partnership are
included on pages 9 through 22 of this report.
6
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
NHP Retirement Housing Partners I Limited Partnership
We have audited the accompanying statements of financial position of NHP
Retirement Housing Partners I Limited Partnership as of December 31, 1996 and
1995, and the related statements of operations, partners' equity (deficit), and
cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NHP Retirement Housing Partners
I Limited Partnership at December 31, 1996 and 1995 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
February 21, 1997
7
Report of Independent Public Accountants
To The Partners
NHP Retirement Housing Partners I
Limited Partnership
We have audited the accompanying statements of operations, partners' equity
(deficit) and cash flows of NHP Retirement Housing Partners I Limited
Partnership (the Partnership) for the year ended December 31, 1994. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of its operations and its cash flows of NHP Retirement
Housing Partners I Limited Partnership for the year ended December 31, 1994, in
conformity with generally accepted accounting principles presents fairly, in all
material respects, when read in conjunction with the related financial
statements, the information therein set forth.
As discussed in Note 9 to the financial statements, the Partnership generated
cash losses from operations over the past several years prior to 1995. This
shortfall from operations was funded by the Partnership's existing cash and
maturing short-term investments remaining from its initial public offering.
Should the cash generated from operations not continue to improve over the next
several years, the Partnership's cash reserves may not be adequate to fund
interest payments or other Partnership obligations. Management's plans regarding
these matters are described in Note 9.
As discussed in Note 10 to the financial statements, the carrying values of the
Partnership's rental properties may exceed the current market values of the
properties at December 31, 1994. Should the Partnership be forced to dispose of
one or more of its Properties, it could incur a loss. Management's plans in
regard to operations and the carrying value of the Partnership's properties are
described in Notes 9 and 10. During 1993, a $3,300,000 write-down was taken on
the Partnership's rental properties; there can be no assurance that further
write-downs will not be needed in the future.
As discussed in Notes 6 and 9, the Partnership defers a significant portion of
the interest on its Pension Notes. Accordingly, there would need to be very
significant improvements in the cash flows from operations and/or increases in
the values of the Properties to fund both the accrued interest and the face
value of the Pension Notes upon their maturity.
Deloitte & Touche
Washington, D.C.
February 17, 1995
8
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
1996 1995
---- ----
ASSETS (Note 6)
Cash and cash equivalents (Note 2) $ 4,017,181 $ 3,478,604
Interest receivable 1,200 1,265
Other receivables (Note 4) 28,363 858,722
Pension notes issuance costs 1,264,634 1,519,426
Pension notes organization costs 265,102 314,878
Prepaid expenses 285,111 279,152
Rental property (Notes 1 and 10):
Land 6,318,028 6,318,028
Buildings and improvements, net of
accumulated depreciation of $13,752,920
in 1996 and $12,137,832 in 1995 43,853,213 44,942,735
Other assets 39,052 36,686
-------------- -------------
Total assets $ 56,071,884 $ 57,749,496
============== =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable $ 336,446 $ 591,228
Interest payable (Note 6) 20,681,172 17,901,461
Pension notes (Note 6) 42,672,000 42,672,000
Purchase installments (Note 4) 0 552,000
Other liabilities (Notes 2 and 4) 818,377 833,116
------------- --------------
64,507,995 62,549,805
------------- --------------
Partners' deficit (Notes 5 and 7):
General Partner (1,465,252) (1,332,625)
Assignee Limited Partner - 42,691
investment units outstanding (6,970,859) (3,467,684)
------------- ---------------
Total partners' deficit (8,436,111) (4,800,309)
------------- --------------
Total liabilities and partners' deficit $ 56,071,884 $ 57,749,496
============= ==============
9
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
REVENUES:
Rental income $ 14,241,055 $ 13,754,959 $ 13,187,354
Interest income 79,811 83,348 71,462
Other income 167,233 182,319 186,206
------------- ------------ -------------
14,488,099 14,020,626 13,445,022
------------- ------------ -------------
COSTS AND EXPENSES:
Salaries, related benefits and overhead reimbursements(Note 3) 3,825,002 3,919,906 3,857,590
Management fees, dietary fees and other services (Note 3) 1,350,502 1,326,272 1,312,079
Insurance advisory fees and reinsurance premiums (Note 3) 0 0 91,922
Administrative and marketing 754,504 700,594 608,230
Utilities 874,156 852,805 889,124
Maintenance 451,412 444,394 421,579
Resident services, other than salaries 297,794 292,097 263,484
Food services, other than salaries 1,511,771 1,513,898 1,432,153
Depreciation 1,615,089 1,525,513 1,439,377
Taxes and insurance 1,101,282 1,067,522 951,821
------------- ------------ -------------
11,781,512 11,643,001 11,267,359
------------- ------------ -------------
INCOME FROM RENTAL OPERATIONS 2,706,587 2,377,625 2,177,663
------------- ------------ -------------
COSTS AND EXPENSES:
Interest expense - pension notes (Note 6) 5,775,285 5,521,051 5,297,069
Amortization of pension
notes issuance costs 254,792 254,792 254,792
Amortization of pension notes
organization costs 49,776 49,776 49,776
Other expenses 201,402 242,555 350,001
------------- ------------ -------------
6,281,255 6,068,174 5,951,638
------------- ------------ -------------
NET LOSS $ (3,574,668) $ (3,690,549) $ (3,773,975)
============= ============ =============
ALLOCATION OF NET LOSS:
General Partner $ (71,493) $ (73,811) $ (75,480)
Assignor Limited Partner (3,503,175) (3,616,738) (3,698,495)
------------- ------------ -------------
$ (3,574,668) $ (3,690,549) $ (3,773,975)
============= ============ =============
NET LOSS PER ASSIGNEE INTEREST $ (82) $ (85) $ (87)
============= ============ =============
10
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
General
Partner-
Capital Realty Assignee
Group Senior Limited
Housing, Inc. Partners Total
------------- ------------- -------------
Partners' equity (deficit) at January 1, 1994 $ (1,061,721) $ 3,847,549 $ 2,785,828
Distributions (60,653) - (60,653)
Net Loss (75,480) (3,698,495) (3,773,975)
------------- ------------- -------------
Partners' equity (deficit) at December 31, 1994 (1,197,854) 149,054 (1,048,800)
Distributions (60,960) 0 (60,960)
Net Loss (73,811) (3,616,738) (3,690,549)
------------- ------------- -------------
Partners' deficit at December 31, 1995 (1,332,625) (3,467,684) (4,800,309)
Distributions (61,134) 0 (61,134)
Net Loss (71,493) (3,503,175) (3,574,668)
------------- ------------- -------------
Partners' deficit at December 31, 1996 $ (1,465,252) $ (6,970,859) $ (8,436,111)
============= ============= =============
11
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Rent collections $ 14,244,537 $ 13,747,228 $ 13,180,197
Interest received 79,876 83,325 71,803
Other income 167,233 182,319 186,206
Management fees, dietary fees and other services (1,351,527) (1,326,188) (1,312,855)
Salary, related benefits and overhead reimbursements (3,816,530) (3,925,369) (3,858,879)
Insurance advisory services and reinsurance premiums 0 0 (91,922)
Other operating expenses paid (5,202,737) (5,114,939) (4,852,623)
Interest paid (2,995,574) (2,987,040) (2,987,040)
-------------- ------------- -------------
Net cash provided by operating activities 1,125,278 659,336 334,887
Cash flows from investing activity:
Capital expenditures (525,567) (712,919) (430,197)
-------------- ------------- -------------
Net cash used in investing activity (525,567) (712,919) (430,197)
Cash flows from financing activity:
Distributions (61,134) (60,960) (60,653)
-------------- ------------- -------------
Net cash used in financing activity (61,134) (60,960) (60,653)
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 538,577 (114,543) (155,963)
Cash and cash equivalents at beginning of year 3,478,604 3,593,147 3,749,110
-------------- ------------- -------------
Cash and cash equivalents at end of year $ 4,017,181 $ 3,478,604 $ 3,593,147
============== ============= =============
12
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (3,574,668) $ (3,690,549) $ (3,773,975)
-------------- ------------- -------------
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation 1,615,089 1,525,513 1,439,377
Amortization of pension notes organization costs 49,776 49,776 49,776
Amortization of pension notes issuance costs 254,792 254,792 254,792
Changes in operating assets and liabilities:
Interest receivable 65 (23) 341
Other assets and receivables 827,993 (7,461) (5,569)
Prepaid expenses (5,959) (5,759) (33,429)
Accounts payable (254,782) 88,374 (51,631)
Interest payable 2,779,711 2,534,011 2,310,029
Purchase installments (552,000) 0 0
Other liabilities (14,739) (89,338) 145,176
-------------- ------------ -------------
Net cash provided by operating activities $ 1,125,278 $ 659,336 $ 334,887
============== ============ =============
13
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
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 have been invested in residential rental properties for
retirement age occupants.
A description of the Projects now owned directly or indirectly
and operated by the Partnership is as follows:
The Amberleigh. This project is a 271 unit retirement living
center located in Williamsville, New York. The facility was
approximately 98% and 95% occupied at December 31, 1996 and
1995, respectively.
The Atrium of Carmichael. This project is a 153 unit
retirement living center located in Sacramento, California.
This facility was approximately 98% and 93% occupied at
December 31, 1996 and 1995, respectively.
Crosswood Oaks. This project is an 122 unit retirement living
center located in Sacramento, California. This facility was
approximately 86% and 83% occupied at December 31, 1996 and
1995, respectively.
The Heatherwood. This project is an 160 unit retirement living
center located in Southfield, Michigan. This facility was
approximately 81% and 88% occupied at December 31, 1996 and
1995, respectively.
Veranda Club. This project is an 189 unit retirement living
center located in Boca Raton, Florida. This facility was
approximately 98% and 93% occupied at December 31, 1996 and
1995, respectively.
Significant Accounting Policies
Offering costs, issuance costs and organization costs related
to the sale of Notes are being amortized using the straight line method
over the term of the Notes. Accumulated amortization at December 31,
1996 and 1995 was $2,293,128 and $2,038,336, respectively. Selling
commissions related to the sale of Interests were recorded as a direct
reduction to the capital account of the holders of Interests.
Accumulated amortization at December 31, 1996 and 1995 was $447,984 and
$398,208, respectively. Direct costs of acquisition, including
acquisition fees and expenses paid to the
14
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
General Partner, have been capitalized as a part of buildings and
improvements. Other fees and expenses of the Partnership are recognized
as expenses in the period the related services are performed.
Interest expense on Notes is calculated using the effective
interest method (see Note 6). Operating deficit and cash flow guarantee
payments received from the sellers of The Heatherwood, The Atrium and
Crosswood Oaks are recognized as a reduction of the basis of the
respective properties.
Buildings and improvements are recorded at the lower of cost
or net recoverable value (Note 10) and depreciated using the
straight-line method, assuming a 30-year life and a 30% salvage value.
Furniture and equipment are recorded at cost and depreciated using the
straight line method over 5 years.
The cost of rental property and their useful lives are
summarized as follows:
Useful Life 1996 1995
----------- ------------- -------------
Land $ 6,318,028 $ 6,318,028
============= =============
Land improvements 30 years 75,809 52,043
Building and building improvements 30 years 55,179,219 55,067,422
Furniture and equipment 5 years 2,351,105 1,961,102
------------- -------------
57,606,133 57,080,567
Less-accumulated depreciation (13,752,920) (12,137,832)
------------- -------------
$ 43,853,213 $ 44,942,735
============= =============
Rental income is recognized when earned based on residents'
signed rental agreements. Rental payments received in advance are
deferred and recognized when earned.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
2. CASH AND CASH EQUIVALENTS
As of December 31, 1996 and 1995, cash and cash equivalents
consisted of demand deposits and repurchase agreements. All repurchase
agreements have an original maturity of three months or less and,
therefore, are considered to be cash equivalents.
Cash and cash equivalents also includes $504,879 and $493,425
of tenant security deposits at December 31, 1996 and 1995,
respectively, which are designated for the purpose of providing refunds
to tenants upon move-out.
3. TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES
Through January 22, 1995, the sole general partner of the
Partnership was NHP/RHGP-I Limited Partnership (NHP/RHGP-I). The sole
limited partner of the Partnership is NHP RHP-I Assignor Corporation, a Delaware
corporation which is an affiliate of NHP/RHGP-I.
15
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
On December 19, 1991, the General Partner executed an amended
and restated purchase agreement with Capital Realty Group Properties,
Inc. (CRG) for the transfer of the General Partner's interest in the
Partnership, subject to the approval of Assignee Holders. CRG's rights
and obligations under the purchase agreement were subsequently assigned
to an affiliate, Capital Realty Group Senior Housing, Inc. (CRGSH).
CRGSH is the management agent under a five year contract with an option
to renew for an additional five years under certain conditions.
Pursuant to a Consent Solicitation dated October 25, 1994, Assignee
Holders holding more than 64% of the equity interests in the
Partnership approved the election of CRGSH, as the replacement general
partner of the Partnership. Effective January 23, 1995, CRGSH became
the sole general partner of the Partnership. Effective February 1,
1995, CRGSH assigned its contract rights to manage the Partnership's
properties to Capital Senior Living, Inc. ("CSL"). CRGSH and CSL
received $1,351,527, $1,326,188, and $1,312,855 in 1996, 1995 and 1994,
respectively, for management fees, dietary services fees and other
operating expense reimbursements related to services provided to the
Properties and the Partnership.
Personnel working at the Property sites and certain home
office personnel who perform services for the Partnership are employees
as of February 1, 1995 of CSL, an affiliate of CRGSH, and prior to
February 1, 1995 were employees of CRGSH. The Partnership reimburses
CRGSH or CSL for the salaries and related benefits of such personnel as
reflected in the accompanying financial statements. During 1996, 1995
and 1994, such reimbursements for salaries, related benefits and
overhead reimbursements amounted to $3,816,530, $3,925,369 and
$3,858,879, respectively.
In addition, the Partnership paid $91,922 to an affiliate of
NHP/RHGP-I for insurance advisory services and reinsurance premiums
during 1994.
During 1996 and 1995, an affiliate of the General Partner
purchased approximately 422 and 1,389, respectively, Pension Notes, or
approximately 4.24% of the Partnership's outstanding Pension Notes at
December 31, 1996 at an average price of $434 per Note.
A 50% partner in RLC is chairman of the board of a bank where
the Partnership holds the majority of its operating cash accounts
4. ACQUISITION OF RENTAL PROPERTY
In connection with the purchase of the Heatherwood in 1988,
the Partnership has recorded receivables of $826,877 from the seller
and purchase installments and other liabilities due to the seller
totalling $816,583. Amounts due to the Seller at December 31, 1995
include $264,583 in property management fees and the remaining $525,000
plus accrued interest of $27,000 purchase installment payment due to
the seller. During 1996, the General Partner attempted to contact the
Seller, but was unable to do so. The General Partner determined to
write off the amounts due to and from the Seller and recorded a $10,294
profit during 1996.
5. CASH DISTRIBUTION POLICIES
The Partnership Agreement allows for quarterly payments of
substantially all Cash Available For
16
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Distribution Before Interest Payments (as defined in the Partnership
Agreement), subject to the following: (i) distributions to Assignee
Holders may be restricted or suspended for limited periods when the
General Partner determines in its absolute discretion that it is in the
best interests of the Partnership; and (ii) all Assignee Holder
distributions are subject to the payment of Partnership expenses and
maintenance of working capital reserves.
Cash Available For Distribution Before Interest Payments
generally consists of cash received from the ordinary operations of the
Partnership less operating expenses, without reduction for interest
payments to Pension Note Holders, and working capital reserves.
Distributions of Cash Available For Distribution Before Interest
Payments are made in the following order of priority, to the extent
available:
First, to the General Partner in an amount equal to 2 percent
of Cash Available For Distribution Before Interest Payments
for each quarterly cash distribution period (payable only if
the Note Holders receive the distribution as described below).
Second, to the Pension Note Holders in an amount equal to an
annual return of 7 percent on the adjusted principal amount of
their Pension Notes for each quarterly cash distribution
period.
Third, to the Assignee Holders in an amount equal to an annual
return of 7 percent on their adjusted capital contributions
for each quarterly cash distribution period.
Fourth, to the Pension Note Holders and Assignee Holders pro
rata based on the relationship between the adjusted principal
amount of the Pension Notes to the adjusted capital
contributions of the Assignee Holders until the Note Holders
have received an amount equal to an aggregate annual return of
10 percent on the adjusted principal amount of their Pension
Notes for each quarterly cash distribution period and the
Assignee Holders have received an amount equal to an aggregate
annual return of 10 percent on their adjusted capital
contributions for each quarterly cash distribution period.
Fifth, to the General Partner as a Partnership Incentive Fee
in an amount equal to 8 percent of Cash Available For
Distribution Before Interest Payments for the fiscal year. If
the amount of Cash Available for Distribution Before Interest
Payments for any fiscal year is insufficient to pay the
General Partner its Partnership Incentive Fee, the fee shall
not accrue and shall not be paid from Cash Available For
Distribution Before Interest Payments payable in subsequent
fiscal years.
Sixth, the balance to the Note Holders and Assignee Holders
pro rata based on the relationship between the adjusted
principal amount of the Pension Notes to the adjusted capital
contributions of the Assignee Holders. However, the amount of
interest payable to the Note Holders shall not exceed a
cumulative noncompounded return of 13 percent per annum on the
adjusted principal amount of their Pension Notes. No payments
of Cash Available For Distribution Before Interest Payments
shall reduce the principal balance of the Pension Notes.
No distributions were paid to the Assignee Interest Holders
during 1996, 1995 or 1994. The General Partner anticipates that
distributions to Assignee Interest Holders will be suspended until
operating results significantly improve.
17
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Cash received from sales or refinancings of any Partnership
Property, after retirement of applicable mortgage debt and the payment
of all expenses related to the transaction and any payments of debt
service on the Pension Notes including interest at a noncompounded rate
of 13% per annum less any prior payments (see Note 6), is to be
distributed in the following manner:
First, to the Assignee Interest Holders until their adjusted
capital accounts are reduced to zero;
Second, to the Assignee Interest Holders until cumulative cash
distributions received equal a 13% non-compounded return on
their adjusted capital accounts, reduced by prior
distributions;
Third, to the General Partner in the form of a disposition
fee; and
Fourth, 85% to the Assignee Interest Holders and 15% to the
General Partner.
Net income or loss from operations is allocated to the
Interest Holders as a class and to the General Partner in proportion to
available cash distributed during the fiscal year. If no cash is
distributed during the year, net income or loss is allocated 90% to the
Assignee Holders as a class and 10% to the General Partner. Other
provisions exist if there is net income or loss other than from
operations. As discussed in Note 7, 2% for 1996, 1995 and 1994 of the
Cash Available For Distribution Before Interest Payments was paid to
the General Partner. During 1994, the General Partner assigned $60,653
of such distributions to CRGSH. Accordingly, net loss for each of the
three years in the period ended December 31, 1996 was allocated in the
same manner.
6. PENSION NOTES
The Notes bear stated simple interest at a rate equal to 13%
per annum. Payment of up to 9% of stated interest was subject to
deferral through December 31, 1988 and payment of up to 6% of stated
interest is subject to deferral thereafter. Deferred interest does not
bear interest. Interest not deferred is payable quarterly. Using the
effective interest method, interest on principal and accrued interest
of the Pension Notes has been accrued at the rate of approximately 9%
per annum compounded quarterly. The approximate 9% 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 and will provide a liability for the full amount of
deferred interest upon the maturity of the Pension Notes. If interest
had been provided based on 13% versus the effective rate of
approximately 9%, an additional liability of approximately $4,601,988
would be recorded at December 31, 1996 and future interest expense
would be reduced by this amount. The Partnership made payments of
$2,995,574 in 1996 and $2,987,040 per year in 1995 and 1994 to Pension
Note Holders. The Partnership's obligation to repay the principal
amount of the Notes, which mature on December 31, 2001, and stated
interest thereon, is secured by a lien on the Partnership's assets (see
Note 9). The liability of the Partnership under the Pension Notes is
limited to the assets of the Partnership. The Pension Notes are subject
to redemption in whole or in part upon not less than 30 nor more than
60 days prior notice, at the election of the Partnership.
18
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. DISTRIBUTIONS TO PARTNERS
During 1996, 1995 and 1994, the General Partner received
distributions, representing 2% of the Cash Available For Distribution
Before Interest Payments to the Pension Note Holders. During 1994, the
General Partner assigned such distributions to CRGSH as part of the
management arrangement. The Partnership did not make a distribution to
the holders of Assignee Interests during 1996, 1995 or 1994.
8. INCOME TAXES
The Partnership is not taxed on its income. The partners are
taxed in their individual capacities upon their distributive share of
the Partnership's taxable income and are allowed the benefits to be
derived from possibly off-setting their distributive share of the tax
loss against taxable income from other sources subject to application
of passive loss rules and subject to "At Risk" basis limitation. The
taxable income or loss differs from amounts included in the statement
of operations primarily because of different methods used in computing
depreciation and interest on the Notes and determining start-up and
marketing expenses for financial reporting and Federal income tax
purposes.
For Federal income tax purposes, the Partnership computes
depreciation of buildings and improvements using the Modified
Accelerated Cost Recovery System (MACRS) and the Accelerated Cost
Recovery System (ACRS), while for financial statement purposes,
depreciation is computed using the straight-line method. Interest on
Pension Notes is computed in accordance with Internal Revenue Service
regulations for original issue discount for Federal income tax
purposes, while for financial statement purposes, interest on Pension
Notes is computed using the effective interest method. Start-up and
marketing costs incurred prior to initial occupancy were capitalized
and amortized over sixty months for Federal income tax purposes, while
for financial statement purposes, only those start-up and marketing
costs that are expected to benefit future operations have been
capitalized and amortized over sixty months.
19
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
A reconciliation between financial statement net loss and net loss for
tax purposes follows:
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Net loss per financial statements $ 3,574,668 $ 3,690,549 $ 3,773,975
Temporary differences in determining
losses for Federal income tax purposes
Depreciation 667,874 671,332 923,302
Amortization of start-up and
marketing costs (48,116) (48,116) (19,366)
Interest expense - pension notes (2,903,363) (2,673,201) (2,471,909)
Miscellaneous 37,148 (18,001) (11,175)
-------------- ------------- ------------
Loss per tax return $ 1,328,211 $ 1,622,563 $ 2,194,827
============= ============= ============
The basis of building and improvements, net of accumulated
depreciation, for Federal income tax purposes was $36,967,094 and
$38,724,490 at December 31, 1996 and 1995, respectively.
9. FUTURE OPERATIONS AND CASH FLOWS
Although cash flow from operations improved in 1996, cash
generated from operations over the past several years prior to 1994 was
not adequate to meet the Partnership's minimum interest payment
requirements. The shortfall was funded by Partnership's cash reserves,
which principally resulted from funds remaining from the initial
offering of Partnership Assignee Interests and Pension Notes, after the
acquisition of the Partnership's Properties. Given the level of the
Partnership's cash reserves at December 31, 1996, if the Partnership is
unable to increase cash generated from operations over time, cash
reserves may be exhausted and the Partnership may be unable to meet its
obligations.
If interest payments continue to be deferred at the current
rate (see Note 6), the total accrual for unpaid interest and principal
will approximate $81 million at December 31, 2001, the maturity date of
the Pension Notes which is far in excess of projected cash reserves.
Accordingly, there will need to be very significant improvements in
cash flows from operations and/or increases in the disposition and
refinancing values of the Properties to fund both the accrued interest
and the face value of the Pension Notes upon their maturity.
Management plans to continue to manage the Properties
prudently to achieve positive cash flows from operations after interest
payments.
20
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. VALUATION OF RENTAL PROPERTY
In accordance with FASB Statement No 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", the Partnership records impairment losses on long-lived
assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amounts of
those assets. If such a shortfall exists, a write-down would be
warranted based on the estimated shortfall of discounted cash flows.
The Partnership performs such evaluations on an ongoing basis by
comparing each property's net book value to the total estimated future
operating cash flow for years through 2001 (the year the Pension Notes
mature) plus cash projected to be received upon an assumed sale of the
properties on December 31, 2001. Sales proceeds, net of an estimated 3%
cost of disposal, are estimated using a 10% capitalization rate of the
net operating income projected for each property for the year 2001. As
a result of operating budget revisions during 1993 which reduced
projected undiscounted cash flows, evaluations prepared at September
30, 1993 indicated that write-downs at that date were necessary.
Therefore, as of September 30, 1993, write-downs in the amounts of
$2,000,000 and $800,000 were recorded on the Crosswood Oaks and Atrium
properties, respectively. As of December 31, 1993, an evaluation of
projected future undiscounted cash flows disclosed that, as of December
31, 1993, additional write-downs of $400,000 and $100,000 were required
on the Crosswood Oaks and Atrium properties, respectively. After
recording these additional amounts, the total write-down recorded for
1993 was $3,300,000. The Partnership will continue to evaluate the
operations of all of its Properties, and should actual cash flows fall
short of projected cash flows on any of its properties, further
reductions in carrying value may be necessary. Based on the
Partnership's evaluation of each respective property as of December 31,
1996, 1995 and 1994, no additional write-downs were taken.
Even after the write-downs discussed above, the carrying value
of Crosswood Oaks and The Atrium as well as the other Properties owned
by the Partnership may still exceed current market values as of
December 31, 1996. Should the Partnership be forced to dispose of one
or more of its Properties, it could incur a loss. The Partnership,
however, does not intend to sell any Properties in the near future, but
rather intends to continue to hold and operate them as rental
properties. As a result, the Partnership has not obtained appraisals of
the current market value of its Properties.
21
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of financial instruments
at December 31, 1996 and 1995 are as follows:
1996 1995
---------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Cash and cash equivalents $ 4,017,181 $ 4,017,181 $ 3,478,604 $ 3,478,604
Pension Notes 42,672,000 27,753,050 42,672,000 17,932,740
The following methods and assumptions were used by the General Partner
in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in
the balance sheet for cash and cash equivalents approximate
fair value.
Pension Notes: The fair values of Pension Notes are based on
quoted market price.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Partnership's former independent accountant, Deloitte &
Touche LLP, was dismissed by the Partnership on July 17, 1995. Deloitte
& Touche's report on the financial statements for either of the past
two years did not contain an adverse opinion or disclaimer of opinion,
or was modified as to uncertainty, audit scope, or accounting
principles. The Partnership engaged Ernst & Young LLP as its
independent accountant on July 17, 1995.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a). The Partnership has no directors, executive officers or
significant employees of its own.
(b). On January 23, 1995, CRGSH became the sole general
partner of the Partnership.
CRGSH is a privately owned corporation initially organized on
December 1, 1988. Its principal business activity has been the
ownership and management of real property for its own account and for
the account of various limited partnerships of which it is the general
partner. CRGSH is a wholly owned subsidiary of Capital Realty Group
Corporation, a Texas corporation ("Capital"), with its corporate
headquarters in Dallas, Texas. Capital is owned 50% by James A. Stroud
(through a trust) and 50% by Jeffrey L. Beck.
The Partnership properties during 1994 and through February 1,
1995, were managed by CRGSH. On February 1, 1995, CRGSH assigned its
contract rights to manage the Partnership's properties to Capital
Senior Living. CSL is owned in the same manner as Capital.
22
The following are the directors and executive officers of CSL,
and previously CRGSH:
Name Position
James A. Stroud Chief Operating Officer, Secretary and Director
Jeffrey L. Beck Chief Executive Officer and Director
Keith N. Johannessen President
David Beathard Vice President
Rob L. Goodpaster National Director of Marketing
David Brickman Vice President
Robert F. Hollister Controller
JAMES A. STROUD, age 46. Mr. Stroud has served as an officer and a
director of CRGSH since December 1988, most recently serving as Chief
Operating Officer and Secretary since May 1991. He owns 50% (through a
trust) of Capital Realty Group Corporation. From 1984 until 1985, he
was Executive Vice-President of Equity Management Corporation, Dallas,
Texas, a full service real estate company. From 1980 to 1983, he was
director in charge of the Tax Department of the law firm of Baker,
Glast & Middleton, Dallas, Texas. From 1978 until 1980, he was an
associate with Brice & Mankoff (formerly Durant and Mankoff), a law
firm in Dallas, Texas. Mr. Stroud is a Certified Public Accountant and
a licensed attorney. He received his B.B.A. from Texas Tech University
with highest honors, his J.D. from the University of Texas with
honors, and his L.L.M. in taxation from New York University with
honors. While at New York University, he was a graduate editor of the
New York University Tax Law Review and a Wallace Scholar. Mr. Stroud
is a founder and director of the Assisted Living Facilities
Association of America, a member of the Health Industry Council,
President-elect of National Association for Senior Living Industries
("NASLI"), and has delivered speeches on health care topics to the
NASLI, National Investment Conference and the Urban Land Institute.
JEFFREY L. BECK, age 52. Mr. Beck has served as an officer and a
director of CRGSH since December 1988, most recently serving as Chief
Executive Officer since November 1990. He owns 50% of Capital Realty
Group Corporation. From 1975 to 1985, he was President of Beck
Properties, Inc., which was the predecessor of Capital. From 1973 to
1974, he was Regional Controller with Trammell Crow & Company, a real
estate company based in Dallas, Texas. Mr. Beck is Chairman of the
Board of Directors of Park Central Bank of Dallas. Mr. Beck serves as
Chairman of the American Senior Housing Association.
KEITH N. JOHANNESSEN, age 40. Mr. Johannessen became Executive Vice
President of CRGSH in May 1993 with responsibility for supervising the
day-to-day operations of CRGSH's retirement communities. In March
1994, Mr. Johannessen became President of CRGSH. From September 1992
through May 1993, Mr. Johannessen was a Senior Manager in the North
Central Region for the health care practice of Ernst & Young LLP,
responsible for assisting in the development and direction of the
firm's long term care center consulting projects in the region as well
as on a national basis. From August 1987 through September 1992, Mr.
Johannessen was Executive Vice President with Oxford Retirement
Services, Inc. responsible for the sales, marketing and operations of
retirement communities and nursing homes. From August 1978 to August
1987, Mr. Johannessen was employed by Life Care Services Corporation
in a variety of operations management positions, from single
retirement projects to multi-facility responsibilities. He is a
licensed nursing home administrator and holds a Bachelor of Arts
Degree from Nyack College, New York. Mr Johannessen is active in the
American Senior Housing Association, National Association for Senior
Living Industries and the American Association of Homes for the Aging.
23
DAVID W. BEATHARD, age 49. Mr. Beathard is Vice President of Capital
Senior Living with responsibility for supervising the daily operations
of Capital Nursing Homes and Senior Communities. Prior to joining
Capital, Mr. Beathard was a management consultant for the retirement
housing industry in Ohio. From 1978 to 1991, Mr. Beathard served as
Executive Director, Regional Administrator, Regional Vice President,
and Vice President and Director of Operations Management for Life Care
Services Corp. Mr. Beathard has been in the senior housing and
services business for 20 years.
ROB L. GOODPASTER, age 44. Mr. Goodpaster became National Director of
Marketing of CRGSH in December 1992, with overall responsibility for
marketing and lease-up functions of CRGSH's managed properties. With
20 years of experience in the industry, Mr. Goodpaster has an
extensive background in retirement housing marketing. His experience
includes analyzing demographics, developing and implementing marketing
plans, creating outreach and advertising programs, hiring and training
sales personnel and implementing lead management and tracking systems.
Prior to joining Capital, Mr. Goodpaster was National Director of
Marketing for Autumn America from January 1990 to November 1992. From
1985 until December 1989, he was President of Retirement Living
Concepts, Inc. where he marketed retirement properties throughout the
United States. Mr. Goodpaster was formerly Vice President, Marketing
for U.S. Retirement Corp. from 1984 to 1985 and Vice President,
Development for American Retirement Corp. from 1980 to 1984. Mr.
Goodpaster is a graduate of Ball State University with a B.S. in
Business Management and Marketing. Mr. Goodpaster is a member of the
National Association for Senior Living Industry and the Texas
Association of Retirement Communities.
DAVID BRICKMAN, age 38. Mr. Brickman has served as Vice President and
Counsel of CRGSH since 1992. Mr. Brickman received his bachelor of
Arts degree from Brandeis University. He holds a J.D. from the
University of South Carolina Law School, an M.B.A. from the University
of South Carolina School of Business Administration and a Masters of
Health Administration from Duke University. Prior to joining Capital
in 1992, he served as in-house counsel from 1986 through 1987 with
Cigna Health Plan Inc., from 1987 through 1989 with American General
Group Insurance Company and from 1989 until joining Capital, with
LifeCo Travel Management Company located in Houston, Texas. Mr.
Brickman is also responsible for asset management activities,
operational activities and investor relations for Capital's portfolio.
ROBERT F. HOLLISTER, age 41. Mr. Hollister has served as Controller of
CRGSH since 1992. Mr. Hollister received his Bachelor of Science in
Accounting from the University of Maryland. His experience includes
public accounting experience as well as private experience in fields
such as securities, construction, and nursing homes. Prior to joining
Capital in 1992, Mr. Hollister was the chief financial officer and
controller for Kavanaugh Securities, Inc. from December 1985 until
1992. Mr. Hollister is the property controller and supervises the
day-to-day accounting and financial aspects of Capital. Mr. Hollister
is a Certified Financial Planner and a member of both local and
national professional accounting organizations.
The executive officers of CSL are required to spend only such time on
the Partnership's affairs as is deemed necessary in the sole judgment
of CSL. A significant amount of these officers' time is expected to be
spent on matters unrelated to the Partnership.
(c). Section 16(a) Beneficial Ownership Reporting
Compliance. Based solely upon a review of Forms 3, 4 and 5 and any
amendments thereto furnished to the Partnership pursuant to Rule
16a-3(c) of the Securities and Exchange Commission (SEC) rules, the
Partnership is not aware of any failure of any officer or director of
CRGSH or beneficial owner of more than ten percent of the Assignee
Interests to file timely with the SEC any Forms 3, 4 or 5 relating to
the Partnership for 1995.
24
Item 11. Executive Compensation
NHP Retirement Housing Partners I Limited Partnership has no
officers or directors. However, various fees and reimbursements
are paid to the General Partner or its affiliates. The following
is a summary of such fees paid or accrued during the year ended
December 31, 1996:
Paid or payable from operating cash flow:
Cash distributions of $61,134 to the General Partner, which
represents 2% of Cash Available for Distribution Before Interest
Payments to the Note Holders.
Management fees, dietary service fees, and other operating
expense reimbursements of $1,351,527 and salaries, related
benefits and overhead reimbursements of $3,816,530, were paid to
the General Partner and CSL, an affiliate of the General Partner
See Item 8. Financial Statements and Supplementary Data.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person is known by the Partnership to own more than 5% of
Assignee Interests.
As of March 27, 1997, an affiliate of the General Partner,
purchased approximately 10,818 Pension Notes, or approximately
25.3% of the Partnership's outstanding Pension Notes.
Item 13. Certain Relationships and Related Transactions.
The Partnership had no transactions or business relationships
with NHP, CRGSH, or its affiliates except as described in Items 8
(Note 3 in the Financial Statements), 10, and 11.
25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The financial statements, notes and reports listed below are
included herein:
Page
----
Report of Ernst & Young LLP, Independent Auditors 7
Report of Deloitte & Touche LLP Independent Public Accountants 8
Statements of Financial Position,
December 31, 1996 and 1995 9
Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 10
Statements of Partners' Equity (Deficit)
for the Years Ended December 31, 1996, 1995 and 1994 11
Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 12
Notes to Financial Statements 14
2. Financial Statement Schedules
All schedules have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
3. Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
fiscal 1996.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/James A. Stroud
------------------
James A. Stroud
Chief Operating Officer and Director
(Chief financial, and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in capacities and on the dates indicated.
By:/s/James A. Stroud
------------------
James A. Stroud
Chief Operating Officer and Director
(Chief financial, and accounting officer)
By:/s/Jeffrey L. Beck
------------------
Jeffrey L. Beck
Chief Executive Officer and Director
Date:March 27, 1997
27