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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, 1998, 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
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NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
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(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
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Page 1 of 25
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Exhibit Index: Page 24
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
1998 Form 10-K Annual Report
TABLE OF CONTENTS
PART I
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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
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Item 5. Market for the Registrant's Pension Notes and Limited
Partnership Assignee Interests and Related Partnership Matters 4
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 24
PART I
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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 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. 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.
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 Pension Notes
were 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 was 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. CRGSH
assigned its contract rights to manage the Partnership properties to Capital
Senior Living, Inc. ("CSL"), a subsidiary of Capital Senior Living Corporation
("CSLC"), effective February 1, 1996.
On June 10, 1998, Capital sold all of its shares of CRGSH common stock
to Retirement Associates, Inc. ("Associates") for $855,000. The source of the
funds is a Promissory Note for $855,000 with a five-year term and bearing an
interest rate of 10% per annum. The interest will accrue on the Promissory Note
and be payable at the maturity of the Promissory Note. Associates is the maker
of the Note and Capital is the payee. Mr. Robert Lankford is the President of
Associates and has had prior business relationships with Messrs. Beck and
Stroud, the former principals of CRGSH. From 1988 to 1997, Mr. Lankford was an
independent broker with Capital Brokerage, an affiliate of CSLC. From 1997 to
the present, however, Mr. Lankford has been a principal with Kamco Property
Company Commercial Real Estate Brokerage ("Kamco"). In this capacity, Mr.
-1-
Lankford provides independent commercial real estate brokerage services for
various clients including CSLC, which accounts for less than 20% of his
compensation. The address of the principal executive offices of CRGSH is 3516
Merrell Road, Dallas, Texas 75229. Phone number: (972) 404-7099.
The Partnership's business is to operate residential rental properties
for retirement age occupants (the Properties). The Partnership presently owns a
99.99% interest in one property. See Item 2. Properties for a description of
this Property and the business plan for the Property.
The Partnership did not have any employees as of December 31, 1998.
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
- - ------ ----------
On September 30, 1998, the Partnership sold four properties to Capital
Senior Living Properties 2 - NHPCT, Inc., a wholly owned subsidiary of CSLC, for
$40,650,000. The four properties sold are the Atrium at Carmichael, Crosswood
Oaks, The Heatherwood and the Veranda Club. After the sale, The Amberleigh is
the only remaining property in which the Partnership has any interest. After
payment of closing costs, the Partnership netted $322,652 in cash proceeds from
the sale after $22,514,174 was allocated for partial redemption of Pension
Notes, $15,703,636 allocated for partial payment of deferred interest on
redeemed Pension Notes, and $413,188 for payment of current interest due on
redeemed Pension Notes. The Partnership recognized a $9,249,174 gain on sale of
those properties at September 30, 1998. In October, 1998, the Partnership
recognized approximately $1,856,485 of additional interest expense paid on
redeemed Pension Notes resulting from the difference between the stated interest
rate of 13% on the Pension Notes and the accrued interest rate of approximately
9% recorded by the Partnership under the effective interest rate method. Due to
the partial redemption of Pension Notes, the Partnership recognized $525,891 of
losses on early extinguishment of debt relating to the write off of issuance and
organization costs on Pension Notes that were redeemed. The partial redemption
of Pension Notes will reduce the amount of deferred interest which will accrue
on the Pension Notes
The following is a schedule of the Property owned by the Partnership at
December 31, 1998. The Amberleigh is owned by a limited partnership in which the
Partnership is a 99.99% partner. The Amberleigh is encumbered by a mortgage 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, 1998 December 31, 1997
------------- ----- ----------------- -----------------
The Amberleigh 271 95% 97%
At Woodstream Farms
Williamsville, New York
On November 5, 1997, the Partnership purchased approximately 3.10 acres
of land adjacent to The Amberleigh for expansion (the "Expansion") for $500,000
plus closing costs. Pending licensure and financing requirements, the land will
be used in development of an 85 unit assisted living retirement facility.
-2-
The cornerstones of the General Partner's business plan for continuing
to improve the Partnership's remaining property, The Amberleigh, is to expand
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 continuing cost effective site
operations and the development the Expansion. The introduction of special
services and home health care is intended to accommodate the needs of residents
as they age in place. 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 remaining
property. Additionally, the General Partner is considering the Expansion as an
additional means to add to the residual value of the Partnership. There can be
no assurance however, that licensure will be granted by the regulatory
authorities in New York to allow this Expansion or that a lender will finance
this development and at favorable rates.
Due to the Partnership's goal to remain competitive in its real estate
markets, the General Partner developed an ongoing capital improvement program
that was implemented in 1994. The program generally includes painting of the
building, replacement of carpet and curtains, purchase of new furniture and
furniture refurbishment, and purchase of new equipment. Budgeted operational
capital expenditures for 1999 are approximately $111,200. There is currently no
firm commitment for the expansion.
Item 3. Legal Proceedings
- - ------ -----------------
On or about October 23, 1998, an Interest holder filed a putative
complaint on behalf of certain holders of Assignee Interests in NHP in the
Delaware Court of Chancery against the Partnership, CSLC, Capital Senior Living
Properties 2 - NHPCT, Inc. and CRGSH (collectively "the Defendants"). This
Interest holder purchased 90 Interests in the Partnership in February 1993 for
$180. The complaint alleges, among other things, that the Defendants breached,
or aided and abetted a breach of, the express and implied terms of the
Partnership Agreement in connection with the sale of four properties by the
Partnership to Capital Senior Living Properties 2 - NHPCT, Inc. Capital Senior
Living Properties 2 - NHPCT, Inc. is an affiliate of Capital Senior Living,
Inc., the current manager of The Amberleigh. The complaint seeks, among other
relief, rescission of the sale of these properties and unspecified damages. The
General Partner of the Partnership believes the complaint is without merit and
intends vigorously to defend itself in this action.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------ ---------------------------------------------------
None.
PART II
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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 1, 1999, there were 2,348 registered holders of
Assignee Interests and 3,159 registered holders of Pension Notes.
As of March 1, 1999, Capital Senior Living Properties, Inc. had
purchased approximately 14,131 Pension Notes, or approximately
33% 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, if the General Partner, in its absolute
discretion, determines that such restriction or suspension is in
the best interests of the Partnership.
For each of the years ended December 31, 1998, 1997 and 1996,
interest paid to the Pension Note Holders as a group totaled
$2,589,891, $2,987,040, and $2,995,574, respectively, per year.
With respect to the fourth quarter of 1998, interest payments
paid to Pension Note Holders on March 1, 1999 amounted to
$355,661.
No cash distributions were paid to the Assignee Interest Holders
during 1998, 1997, or 1996. As presented in the Statement of Cash
Flows (as excerpt below), cash and cash equivalents increased
$1,325,567, $478,552 and $538,577 for the years ended December
31, 1998, 1997 and 1996 respectively. Future cash requirements
have caused the General Partner to determine that it is not
financially appropriate to make distributions to Assignee
Interest Holders.
Item 6. Selected Financial Data
- - ------ -----------------------
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Revenue $ 13,746,088 $ 15,548,138 $ 14,488,099 $ 14,020,626 $ 13,445,022
============= ============= ============= ============= =============
Net Income (Loss) $ 3,409,569 $ (3,522,917) $ (3,574,668) $ (3,690,549) $ (3,773,975)
============= ============= ============= ============= =============
Net Income (Loss) per Assignee
Interest $ 61 $ (81) $ (82) $ (85) $ (87)
============= ============= ============= ============= =============
Total assets $ 25,262,800 $ 55,585,840 $ 56,071,884 $ 57,749,496 $ 58,967,958
============= ============= ============= ============= =============
Long-term obligations -
Pension Notes, and related
interest payable $ 33,300,689 $ 66,402,407 $ 63,353,172 $ 60,573,461 $ 58,039,450
============= ============= ============= ============= =============
Cash distributions per
Assignee Interest $ 0 $ 0 $ 0 $ 0 $ 0
============= ============= ============= ============= =============
-5-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- - ------ -----------------------------------------------------------------------
of Operations
-------------
Income from rental operations increased to $3,402,021 from $3,166,234 and
$2,706,587 for the years ended December 31, 1998, 1997, and 1996, respectively.
Rental revenue decreased in 1998 to $13,746,088 from $15,548,138 in 1997 due to
the sale of four properties on September 30, 1998. Rental expenses also
decreased to $10,344,067 in 1998 from $12,381,904 in 1997 due to the sale of
four properties on September 30, 1998. The Partnership's net income (loss) is
$3,409,569, $(3,522,917), and $(3,574,668) for the years ended December 31,
1998, 1997 and 1996, respectively. Due to the sale of four properties on
September 30, 1998, the Partnership recognized in 1998 a gain on sale of
$9,249,174, a loss on early extinguishment of debt of $525,891, and additional
interest expense on Pension Notes of $1,856,485 on the redeemed Notes.
Rental revenue increased in 1997 to $15,548,138 from $14,488,099 in 1996,
or an increase of 7.0%, primarily as a result of increased rental rates. Rental
expenses also increased to $12,381,904 in 1997 from $11,781,512 in 1996, or an
increase of 5.1%, reflecting increased costs in salaries, management fees,
administration, depreciation, taxes and insurance, utilities, maintenance and
food services.
Liquidity and Capital Resources
- - -------------------------------
Net cash provided by operating activities during 1998 was $1,727,196,
representing a significant improvement over 1997 and 1996 net cash provided by
operating activities of $1,561,977 and $1,125,278, respectively. Rent
collections decreased in 1998 to $13,401,008 from $15,239,499 in 1997 primarily
due to the sale of four properties on September 30, 1998. Rental collections
likewise increased from $14,244,537 in 1996 to $15,239,499 in 1997, or an
increase of 7.0%, primarily from rental rate increases. Operating expenses paid
decreased from $10,996,792 in 1997 to $9,448,442 in 1998 primarily due to the
sale of four properties on September 30, 1998. Operating expenses paid slightly
increased from $10,370,794 in 1996 to $10,996,792 in 1997, or an increase of
6.0%, reflecting increased costs in salaries, management fees, administration,
depreciation, taxes and insurance, utilities, maintenance and food services.
Interest paid was $2,589,891 in 1998, $2,987,040 in 1997 and $2,995,574 in 1996.
For the years ended 1998, 1997 and 1996, cash generated from rental
operations was sufficient to pay the base interest amount on the outstanding
Pension Notes of $2,589,891, $2,987,040, and $2,995,574, respectively. Interest
payments on the Pension Notes are accrued at a 13% rate, but are paid based on a
7% pay rate in 1998, 1997, and 1996. 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, 1998, amounted to $13,142,863.
At the time of the maturity of the Pension Notes, if the Partnership continues
to accrue the remaining 6%, total principal and accrued interest due will
approximate $38 million.
Cash and cash equivalents at December 31, 1998, amounted to $5,821,300 as
compared to $4,495,733 at December 31, 1997. Cash required by operations,
including interest on Pension Notes, has been funded by maturing short-term
investments or available cash on hand. If operations do not improve
significantly in the long-term, future funds may not be available to meet
operating requirements and for full payment of the Pension Notes and accrued
interest. This cash need has caused the General Partner to determine that it is
not financially appropriate to make distributions to Assignee Interest Holders.
The Partnership Agreement does not specifically prohibit the Partnership
from incurring additional mortgage indebtedness related to any Property by
borrowing from banks and other institutional lenders in order to finance the
acquisition and development of Properties. 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 the Expansion
If interest payments on the Pension Notes continue to be deferred at the
current rate (see Note 6 to the financial statements), the total accrual for
-5-
unpaid interest and principal will approximate $38 million at December 31, 2001,
the maturity date of the Pension Notes. This is in excess of projected cash
reserves. Accordingly, there will need to be improvements in cash flows from
operations and/or increases in the disposition and refinancing values of the
Property to fund both the accrued interest and the unpaid principal of the
Pension Notes upon their maturity.
Management's plans are to continue to manage the Property prudently to
achieve positive cash flows from operations after interest payments.
Year 2000 Issue
- - ---------------
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs or hardware that have date-sensitive software or
embedded chips may recognize the year 2000 as a date other than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on ongoing assessments, the Partnership has developed a program to modify
or replace significant portions of its software and certain hardware, which are
generally PC-based systems, so that those systems will properly utilize dates
beyond December 31, 1999. The Partnership has substantially completed software
reprogramming and software and hardware replacement by mid 1999, with 100%
completion targeted for September 30, 1999. The Partnership presently believes
that these modifications and replacements of existing software and certain
hardware will mitigate the Year 2000 Issue. However, if such modifications and
replacements are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Partnership.
The Partnership has assessed its exposure to operating equipment, and
such exposure is not significant due to the nature of the Partnership's
business.
The Partnership is not aware of any external agent with a Year 2000 Issue
that would materially impact the Partnership's results of operations, liquidity,
or capital resources. However, the Partnership has no means of determining
whether or ensuring that external agents will be Year 2000 ready. The inability
of external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Partnership.
Management of the Partnership believes it has an effective program in
place to resolve the Year 2000 Issue in a timely manner. As noted above, the
Partnership has completed most but not all necessary phases of its Year 2000
program. In the event that the Partnership does not complete the current program
or any additional phases, the Partnership could incur disruptions to its
operations. In addition, disruptions in the economy generally resulting from
Year 2000 Issues could also materially adversely affect the Partnership. The
Partnership could be subject to litigation for computer systems failure. The
amount of potential liability and lost revenue cannot be reasonably estimated at
this time.
The Partnership currently has no contingency plans in place in the event
it does not complete all phases of its Year 2000 program. The Partnership plans
to evaluate the status of completion in mid 1999 and determine whether such a
plan is necessary.
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
- - ------- ---------------------------------------------------------
The Partnership believes any impact of market risk to the operations of the
Partnership are immaterial.
-6-
Item 8. Financial Statements and Supplementary Data
- - ------ -------------------------------------------
The financial statements and supplementary data of the Partnership are included
on pages 8 through 21 of this report.
-7-
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, 1998 and
1997, and the related statements of operations, partners' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1998.
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, 1998 and 1997 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
February 5, 1999
-8-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
See notes to financial statements.
December 31,
1998 1997
---- ----
ASSETS (Note 6)
------
Cash and cash equivalents (Note 2) $ 5,821,300 $ 4,495,733
Receivables 12,451 31,892
Pension notes issuance costs (Note 1 and 4) 357,017 1,009,842
Pension notes organization costs (Note 1 and 4) 77,615 215,326
Prepaid expenses 140,590 300,654
Rental property (Notes 1, 4 and 10):
Land 2,391,705 6,820,468
Buildings and improvements, net of
accumulated depreciation of $5,783,775
in 1998 and $15,456,154 in 1997 16,457,649 42,670,005
Other assets 4,473 41,920
----------------- -----------------
Total assets $ 25,262,800 $ 55,585,840
================= =================
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Liabilities:
Accounts payable $ 301,673 $ 320,796
Interest payable (Note 6) 13,142,863 23,730,407
Pension Notes (Note 6) 20,157,826 42,672,000
Other liabilities (Note 2) 332,144 882,625
----------------- -----------------
33,934,506 67,605,828
----------------- -----------------
Contingencies (Note 12)
Partners' deficit (Notes 5 and 7):
General Partner (849,832) (1,596,670)
Assignee Limited Partner - 42,691
investment units outstanding (7,821,874) (10,423,318)
------------------ -----------------
Total partners' deficit (8,671,706) (12,019,988)
----------------- -----------------
Total liabilities and partners' deficit $ 25,262,800 $ 55,585,840
================= =================
-9-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
See notes to financial statements.
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
REVENUES:
Rental income $ 13,381,567 $ 15,243,028 $ 14,241,055
Interest income 149,883 89,872 79,811
Other income 214,638 215,238 167,233
-------------- -------------- --------------
13,746,088 15,548,138 14,488,099
-------------- -------------- --------------
COSTS AND EXPENSES:
Salaries, related benefits and overhead reimbursements 3,318,570 3,984,975 3,825,002
(Note 3)
Management fees, dietary fees and other services (Note 3) 1,235,020 1,432,813 1,350,502
Administrative and marketing 552,944 778,400 754,504
Utilities 729,706 890,070 874,156
Maintenance 421,542 521,464 451,412
Resident services, other than salaries 230,693 296,468 297,794
Food services, other than salaries 1,350,723 1,591,266 1,511,771
Depreciation 1,462,362 1,703,233 1,615,089
Taxes and insurance 1,042,507 1,183,215 1,101,282
-------------- -------------- --------------
10,344,067 12,381,904 11,781,512
-------------- -------------- --------------
INCOME FROM RENTAL OPERATIONS 3,402,021 3,166,234 2,706,587
-------------- -------------- --------------
OTHER (INCOME) EXPENSES:
Gain on sale (Note 4) (9,249,174) 0 0
Loss on early extinguishment of debt (Note 4) 525,891 0 0
Interest expense - pension notes (Note 6) 8,119,171 6,036,275 5,775,285
Amortization of pension notes issuance costs 220,845 254,792 254,792
Amortization of pension notes organization costs 43,800 49,776 49,776
Other expenses 331,919 348,308 201,402
-------------- -------------- --------------
(7,548) 6,689,151 6,281,255
-------------- -------------- --------------
NET INCOME (LOSS) $ 3,409,569 $ (3,522,917) $ (3,574,668)
============== ============== ==============
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 808,125 $ (70,458) $ (71,493)
Assignor Limited Partner 2,601,444 (3,452,459) (3,503,175)
-------------- -------------- --------------
$ 3,409,569 $ (3,522,917) $ (3,574,668)
============= ============== ==============
NET INCOME (LOSS) PER ASSIGNEE INTEREST $ 61 $ (81) $ (82)
============= ============== ==============
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NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
STATEMENTS OF PARTERS' EQUITY (DEFICIT)
---------------------------------------
See notes to financial statements.
Assignee
Limited
General Partner Partners Total
--------------- -------- -----
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)
Distributions (60,960) 0 (60,960)
Net Loss (70,458) (3,452,459) (3,522,917)
---------------- --------------- ---------------
Partners' deficit at December 31, 1997 (1,596,670) (10,423,318) (12,019,988)
Distributions (61,287) 0 (61,287)
Net Income 808,125 2,601,444 3,409,569
---------------- ------------------ ---------------
Partners' deficit at December 31, 1998 $ (849,832) $ (7,821,874) $ (8,671,706)
================= ================ ===============
-11-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Rent collections $ 13,401,008 $ 15,239,499 $ 14,244,537
Interest received 149,883 91,072 79,876
Other income 214,638 215,238 167,233
Management fees, dietary fees and other services (1,239,970) (1,429,906) (1,351,527)
Salary, related benefits and overhead reimbursements (3,440,465) (3,971,789) (3,816,530)
Other operating expenses paid (4,768,007) (5,595,097) (5,202,737)
Interest paid (2,589,891) (2,987,040) (2,995,574)
--------------- --------------- --------------
Net cash provided by operating activities 1,727,196 1,561,977 1,125,278
Cash flows from investing activities:
Proceeds from sale of properties 38,540,462 0 0
Capital expenditures (662,994) (1,022,465) (525,567)
--------------- --------------- --------------
Net cash used in investing activities 37,877,468 (1,022,465) (525,567)
Cash flows from financing activities:
Payments on Pension Notes and deferred interest
payable (38,217,810) 0 0
Distributions (61,287) (60,960) (61,134)
---------------- --------------- --------------
Net cash used in financing activities (38,279,097) (60,960) (61,134)
---------------- --------------- --------------
Net increase in cash and cash equivalents 1,325,567 478,552 538,577
Cash and cash equivalents at beginning of year 4,495,733 4,017,181 3,478,604
--------------- --------------- --------------
Cash and cash equivalents at end of year $ 5,821,300 $ 4,495,733 $ 4,017,181
=============== =============== ==============
See notes to financial statements.
-12-
Year Ended December 31,
1998 1997 1996
---- ---- ----
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income (loss) $ 3,409,569 $ (3,522,917) $ (3,574,668)
--------------- --------------- --------------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Gain on sale of properties (9,249,174) 0 0
Loss on early extinguishment of debt 525,891 0 0
Depreciation 1,462,362 1,703,233 1,615,089
Amortization of pension notes organization costs 43,800 49,776 49,776
Amortization of pension notes issuance costs 220,845 254,792 254,792
Interest payable 5,529,280 3,049,235 2,779,711
Changes in operating assets and liabilities:
Interest receivable 0 1,200 65
Other assets and receivables 56,888 (6,397) 827,993
Prepaid expenses 138,755 (15,543) (5,959)
Accounts payable (19,123) (15,650) (254,782)
Purchase installments 0 0 (552,000)
Other liabilities (391,897) 64,248 (14,739)
--------------- --------------- --------------
Net cash provided by operating activities $ 1,727,196 $ 1,561,977 $ 1,125,278
=============== =============== ==============
See notes to financial statements.
-13-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 1998 and 1997
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 Project owned indirectly and operated by
the Partnership at December 31, 1998 is as follows:
The Amberleigh. This project is a 271 unit retirement living
center located in Williamsville, New York. The facility was
approximately 95% and 97% occupied at December 31, 1998 and
1997, respectively. On November 5, 1997, the Partnership
purchased approximately 3.10 acres of land adjacent to The
Amberleigh for the Expansion for $500,000 plus closing costs.
Pending licensure and financing requirements, the land will be
used in development of an 85 unit assisted living retirement
facility.
A description of the Projects owned directly and operated by
the Partnership at December 31, 1997 and subsequently sold on September
30, 1998 (see Note 4) is as follows:
The Atrium of Carmichael. This project is a 153 unit
retirement living center located in Sacramento, California.
This facility was approximately 96% and 99% occupied at
September 30, 1998 and December 31, 1997, respectively.
Crosswood Oaks. This project is a 122 unit retirement living
center located in Sacramento, California. This facility was
approximately 93% and 91% occupied at September 30, 1998 and
December 31, 1997, respectively.
The Heatherwood. This project is a 160 unit retirement living
center located in Southfield, Michigan. This facility was
approximately 93% and 98% occupied at September 30, 1998 and
December 31, 1997, respectively.
Veranda Club. This project is a 189 unit retirement living
center located in Boca Raton, Florida. This facility was
approximately 90% and 96% occupied at September 30, 1998 and
December 31, 1997, respectively.
Significant Accounting Policies
-------------------------------
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, 1998 and 1997 was $635,471 and
-14-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
$497,760, respectively. Offering and issuance 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, 1998 and
1997 was $3,200,745 and $2,547,920, respectively. Selling commissions
related to the sale of Interests were recorded as a direct reduction to
the capital account of the holders of Interests. Direct costs of
acquisition, including acquisition fees and expenses paid to the
General Partner, have been capitalized as 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).
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 1998 1997
----------- ---- ----
Land $ 2,391,705 $ 6,820,468
============= ==============
Land improvements 30 years 36,010 91,318
Building and building improvements
30 years 21,407,807 55,239,208
Furniture and equipment 5 years 691,587 2,795,633
Construction in process - 106,020 0
------------- -------------
22,241,424 58,126,159
Less-accumulated depreciation (5,783,775) (15,456,154)
------------- -------------
$ 16,457,649 $ 42,670,005
============= =============
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.
New Accounting Pronouncements
-----------------------------
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, Reporting Costs of
Start-up Activities, which provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5
is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company will be adopting SOP 98-5 for the fiscal
year ending December 31, 1999. The unamortized balance of pension notes
organization costs as of December 31, 1998 of $77,615 will be written
off as a cumulative effect of a change in accounting principle as of
January 1, 1999. The Company estimates the impact of adopting this SOP
will result in a reduction of 1999 earnings of approximately $77,615.
2. CASH AND CASH EQUIVALENTS
-------------------------
As of December 31, 1998 and 1997, cash and cash equivalents
consisted of demand deposits and repurchase agreements. All repurchase
15
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
agreements have an original maturity of three months or less and,
therefore, are considered to be cash equivalents.
Cash and cash equivalents also includes $133,566 and $531,056
of tenant security deposits at December 31, 1998 and 1997,
respectively, which are designated for the purpose of providing refunds
to tenants upon move-out.
3. TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES
--------------------------------------------------------
The sole limited partner of the Partnership was NHP RHP-I
Assignor Corporation, a Delaware corporation.
Effective January 23, 1995, Capital Realty Group Senior
Housing, Inc. (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"), which, in 1997, became a subsidiary of Capital Senior
Living Corporation. CSL received $1,239,970, $1,429,906, and $1,351,527
in 1998, 1997 and 1996, respectively, for management fees, dietary
services fees and other operating expense reimbursements related to
services provided to the Partnership.
Through January 22, 1995, the sole general partner of the
Partnership was NHP/RHGP-I Limited Partnership (NHP/RHGP-I).
Personnel working at the property sites and certain home
office personnel who perform services for the Partnership were
employees of CSL, an affiliate of CRGSH until June 30, 1998. The
Partnership reimburses CSL for the salaries and related benefits of
such personnel as reflected in the accompanying financial statements.
During 1998, 1997 and 1996, such reimbursements for salaries, related
benefits and overhead reimbursements amounted to $3,440,465,
$3,971,789, and $3,816,530, respectively.
During 1997, a former affiliate of the General Partner,
Capital Senior Living Communities, L.P., purchased approximately 11,318
of Pension Notes, or approximately 30.74% of the Partnership's
outstanding Pension Notes at an average price of $822 per Note. On
November 3, 1997, Capital Senior Living Communities, L.P. sold its
Pension Notes to Capital Senior Living Properties, Inc., at that time,
an affiliate of the General Partner and a subsidiary of Capital Senior
Living Corporation, at a price of $1,422 per Note. At December 31,
1998, Capital Senior Living Properties, Inc. holds 14,131 Pension
Notes. Capital Senior Living Corporation is subject to the periodic
reporting obligations of the Securities and Exchange Commission.
On June 10, 1998, the sole owner of the stock of the General
Partner, Capital Realty Group Corporation, sold all of its shares of
CRGSH common stock to Retirement Associates, Inc. ("Associates") for
$855,000. The source of the funds is a Promissory Note for $855,000
with a five-year term and bearing an interest rate of 10% per annum.
The interest will accrue on the Promissory Note and be payable at the
maturity of the Promissory Note. Associates is the maker of the Note
and Capital Realty Group Corporation is the payee. Mr. Robert Lankford
is the President of Associates and has had prior business relationships
with Messrs. Beck and Stroud, the former principals of CRGSH. From 1988
to 1997, Mr. Lankford was an independent broker with Capital Brokerage,
an affiliate of CSLC. From 1997 to the present, however, Mr. Lankford
has been a principal with Kamco Property Company Commercial Real Estate
Brokerage ("Kamco"). In this capacity, Mr. Lankford provides
independent commercial real estate brokerage services for various
clients including CSLC, which accounts for less than 20% of his
compensation.
In connection with the sale of four properties in 1998 (see
Note 4), Capital Realty Group Brokerage, Inc. received $1,219,500 in
brokerage fees.
-16-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. ACQUISITION AND DISPOSITION OF PROPERTY AND REDEMPTION OF PENSION NOTES
-----------------------------------------------------------------------
On September 30, 1998, the Partnership sold four properties to
Capital Senior Living Properties 2 - NHPCT, Inc., a wholly owned
subsidiary of Capital Senior Living Corporation, for $40,650,000. The
four properties sold are the Atrium at Carmichael, Crosswood Oaks, The
Heatherwood and the Veranda Club. After the sale, The Amberleigh is the
only remaining property in which the Partnership has any interest.
After payment of closing costs, the Partnership netted $322,652 in cash
proceeds from the sale after $22,514,174 was allocated for partial
redemption of Pension Notes, $15,703,636 allocated for partial payment
of deferred interest, and $413,188 for payment of current interest due
on redeemed Pension Notes. The Partnership recognized a $9,249,174 gain
on sale of those properties at September 30, 1998.
In October, 1998, the Partnership recognized approximately
$1,856,485 of additional interest expense paid on redeemed Pension
Notes resulting from the difference between the stated interest rate of
13% on the Pension Notes and the accrued interest rate of approximately
9% recorded by the Partnership under the effective interest rate
method. Due to the partial redemption of Pension Notes, the Partnership
recognized $525,891 of losses on early extinguishment of debt relating
to the write off of issuance and organization costs on Pension Notes
that were redeemed.
On November 5, 1997, the Partnership purchased approximately
3.10 acres of land adjacent to The Amberleigh property for $500,000
plus closing costs. The land will be used in development of a 85 unit
assisted living retirement facility. Pre-development costs of $106,020
have been incurred as of December 31, 1998.
5. CASH DISTRIBUTION POLICIES
--------------------------
The Partnership Agreement allows for quarterly payments of
substantially all Cash Available For Distribution (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, payments to Note Holders and maintenance of working capital
reserves.
Distributions of Cash Available For Distribution 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.
Second, to the Interest Holders until the Interest Holders
have received an amount equal to an aggregate annual
non-compounded return of 10 percent on their adjusted capital
contributions for each quarterly cash distribution period.
Third, to the General Partner, a Partnership Management
Incentive Fee in an amount equal to 8 percent of Cash
Available For Distribution Before Interest Payments for the
fiscal year.
Fourth, the balance to the Interest Holders.
-17-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
No distributions were paid to the Assignee Interest Holders
during 1998, 1997 or 1996. Future cash requirements have caused the
General Partner to determine it is not financially appropriate to make
distributions to Assignee Interest holders.
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 Interes 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 amount of a disposition
fee of not more than 3 percent of sales price; and
Fourth, 85% to the Assignee Interest Holders and 15% to the
General Partner.
Taxable 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. For book
purposes in 1998, the gain on sale of $9,249,174 was 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 1998, 1997 and 1996 of the
Cash Available For Distribution Before Interest Payments was paid to
the General Partner. Accordingly, net income or loss for each of the
three years in the period ended December 31, 1998 was allocated in the
same manner.
The deficit balance in the Assignee Limited Partner account
reflects their percentage interest in the Partnership's cumulative net
losses, although there are no restoration requirements for the Assignee
Limited Partner interest upon termination of the Partnership
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. If interest had been provided based on 13% versus the
effective rate of approximately 9%, an additional liability of
approximately $1,572,350 would be recorded at December 31, 1998 and
future interest expense would be reduced by this amount. The
Partnership made minimum interest payments of $2,589,891, $2,987,040
and $2,995,574 in 1998, 1997 and 1996, respectively, to Pension Note
Holders. Relating to the sale of properties on September 30, 1998, the
Partnership paid $22,514,174 for a partial redemption of Pension Notes,
and paid $15,703,636 for a partial redemption of deferred interest. The
-18-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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.
On September 30, 1998, NHP deposited investment securities
into an irrevocable trust to complete a partial redemption of NHP's 13%
Pension Notes.
7. DISTRIBUTIONS TO PARTNERS
-------------------------
During 1998, 1997 and 1996, the General Partner received
distributions, representing 2% of the Cash Available For Distribution
Before Interest Payments to the Pension Note Holders. The Partnership
did not make a distribution to the holders of Assignee Interests during
1998, 1997 or 1996.
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.
In the event funds are not sufficient to pay outstanding
pension notes and deferred interest at maturity, income may be
recognized to the Assignee Holders for any forgiven debt.
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
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
A reconciliation between financial statement net income (loss) and net
income (loss) for tax purposes follows:
Years Ended December 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
Net (income) loss per financial statements $ (3,409,569) $ 3,522,917 $ 3,574,668
Temporary differences in determining (income)
losses for Federal income tax purposes:
Gain on sale of properties (4,168,952) - -
Depreciation 289,778 617,872 667,874
Amortization of start-up and marketing costs (65,660) (48,116) (48,116)
Interest expense - pension notes 2,932,081 (3,136,298) (2,903,363)
Miscellaneous 76,426 5,966 37,148
------------ ------------ ------------
Net (income) loss per tax return $ (4,345,896) $ 962,341 $ 1,328,211
============ ============ ============
The basis of building and improvements, net of accumulated
depreciation, for Federal income tax purposes was $16,026,811 and
$35,166,014 at December 31, 1998 and 1997, respectively.
9. FUTURE OPERATIONS AND CASH FLOWS
--------------------------------
Given the level of the Partnership's cash reserves at December
31, 1998, if the Partnership is unable to increase cash generated from
operations over time, cash reserves may not be sufficient to satisfy
future obligations of the Partnership.
If interest payments on the Pension Notes continue to be
deferred at the current rate (see Note 6), the total accrual for unpaid
interest and principal will approximate $38 million at December 31,
2001, the maturity date of the Pension Notes, which is in excess of
projected cash reserves. Accordingly, there will need to be
improvements in cash flows from operations and/or increases in the
disposition and refinancing value of the Property to fund both the
accrued interest and the face value of the Pension Notes upon their
maturity.
Management plans to continue to manage the Property prudently
to achieve positive cash flows from operations after interest payments.
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. The
-20-
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Partnership, however, does not intend to sell the Amberleigh in the
near future, but rather intends to continue to hold and operate it as
rental property. The Partnership does not believe there are any
indicators that would require an adjustment to the carrying value of
its property or the remaining useful lives as of December 31, 1998.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
-----------------------------------
The carrying amounts and fair values of financial instruments
at December 31, 1998 and 1997 are as follows:
1998 1997
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 5,821,300 $ 5,821,300 $ 4,495,733 $ 4,495,733
Pension Notes and accrued interest 20,157,826 25,528,411 42,672,000 60,714,122
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 and accrued interest: The fair values of Pension
Notes are based on discounted cash flows at December 31, 1998
and 1997.
12: CONTINGENCIES
-------------
On or about October 23, 1998, an Interest holder filed a
putative complaint on behalf of certain holders of Assignee Interests
in NHP in the Delaware Court of Chancery against the Partnership, CSLC,
Capital Senior Living Properties 2 - NHPCT, Inc. and CRGSH
(collectively "the Defendants"). This Interest holder purchased 90
Interests in the Partnership in February 1993 for $180. The complaint
alleges, among other things, that the Defendants breached, or aided and
abetted a breach of, the express and implied terms of the Partnership
Agreement in connection with the sale of four properties by the
Partnership to Capital Senior Living Properties 2 - NHPCT, Inc. Capital
Senior Living Properties 2 - NHPCT, Inc. is an affiliate of Capital
Senior Living, Inc., the current manager of The Amberleigh. The
complaint seeks, among other relief, rescission of the sale of the sale
of these properties and unspecified damages. The Partnership believes
the complaint is without merit and intends vigorously to defend itself
in this action.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- - ------ -----------------------------------------------------------------------
Financial Disclosure
--------------------
There have been no changes in or disagreements with
accountants that are required to be reported herein.
-21-
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. Prior to June 10, 1998, CRGSH was 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. On June
10, 1998, Capital Realty Group Corporation sold all of its shares of
CRGSH common stock to Retirement Associates, Inc. ("Associates") for
$855,000. The source of the funds is a Promissory Note for $855,000
with a five-year term and bearing an interest rate of 10% per annum.
The interest will accrue on the Promissory Note and be payable at the
maturity of the Promissory Note. Associates is the maker of the Note
and Capital Realty Group Corporation is the payee. Mr. Robert Lankford
is the President of Associates and has had prior business relationships
with Messrs. Beck and Stroud, the former principals of CRGSH.
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"), a subsidiary of Capital Senior Living
Corporation.
The following are the directors and executive officers of
CRGSH, the General Partner of the Partnership.
Name Position
---- --------
Robert L. Lankford President, Retirement Associates, Inc.,
sole stockholder of CRGSH, the General
Partner
Wayne R. Miller Secretary, Retirement Associates, Inc.
Robert L. Lankford, age 44. Mr. Lankford has served as President
of Retirement Associates, Inc. since June 1997. From 1988 to 1997, Mr.
Lankford was an independent broker with Capital Brokerage, an
affiliate of CSLC. From 1997 to the present, however, Mr. Lankford has
been a principal with Kamco Property Company Commercial Real Estate
Brokerage ("Kamco"). In this capacity, Mr. Lankford provides
independent commercial real estate brokerage services for various
clients including CSLC, which accounts for less than 20% of his
compensation.
Wayne R. Miller, age 49. Mr. Miller has served as Secretary of
Retirement Associates, Inc. since June 1997. From 1980 to 1994, Mr.
Miller was an officer, director and shareholder of Miller, Hiersche,
Martens and Hayward, Inc. From 1994 to the present, Mr. Miller has
been President, Sole Director and Sole Shareholder of Wayne R. Miller
P.C.
(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 1998.
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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, 1998:
Paid or payable from operating cash flow:
Cash distributions of $61,287 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 $1,239,970 and salaries, related
benefits and overhead reimbursements of $3,440,465, were paid to
the General Partner and CSL, an affiliate of the General Partner
until June 10, 1998.
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 1, 1999, a former affiliate of the General Partner,
has purchased approximately 14,131 Pension Notes, or approximately
33% of the Partnership's outstanding Pension Notes.
Item 13. Certain Relationships and Related Transactions.
- - ------- ----------------------------------------------
Except as described in Items 8 (Note 3 in the Financial
Statements), 10, and 11 the Partnership had no other transactions
or business relationships with NHP, CRGSH, or its affiliates.
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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 8
Statements of Financial Position,
December 31, 1998 and 1997 9
Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996 10
Statements of Partners' Equity (Deficit)
for the Years Ended December 31, 1998, 1997
and 1996 11
Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 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
-------------------
On October 15, 1998, Form 8-K was filed regarding the sale
of Partnership properties on September 30, 1998
-24-
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/ Robert Lankford
-------------------------------------------
Robert Lankford
President