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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission file number 0-17651
HIGH CASH PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3347257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
High Cash Partners, L.P.
c/o Pembroke Companies Inc
70 East 55th Street 7th Floor
New York, New York 10022
(Address of principal executive offices)
(212) 350-9900
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
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HIGH CASH PARTNERS, L.P.
FORM 10-Q - September 30, 2002
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 2002 and December 31, 2001...........1
STATEMENTS OF OPERATIONS - For the three and nine months ended
September 30, 2002 and 2001...................................2-3
STATEMENT OF PARTNERS' DEFICIT - For the nine months ended
September 30, 2002..............................................4
STATEMENTS OF CASH FLOWS - For the nine months ended
September 30, 2002 and 2001.....................................5
NOTES TO FINANCIAL STATEMENTS.......................................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................10
ITEM 4 - CONTROLS AND PROCEDURES.......................................15
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K..............................16
SIGNATURES....................................................................17
This report contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places herein and include statements
regarding the intent, belief or current expectations of the Partnership,
primarily with respect to the future operating performance of the Partnership or
related developments. Any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and actual results and
developments may differ from those described in the forward-looking statements
as a result of various factors, many of which are beyond the control of the
Partnership.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
September 30,
2002 December 31,
(unaudited) 2001
------------------ -----------------
ASSETS
Real estate, net $ 14,242,825 $ 14,433,815
Cash and cash equivalents 876,854 1,100,234
Tenant receivables, net 200,546 112,339
Other assets 267,378 441,920
Prepaid expense -- 58,106
------------------ -----------------
$ 15,587,603 $ 16,146,414
================== =================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 20,408,432 19,691,497
Accounts payable and accrued expenses 39,935 57,134
Tenants' security deposits payable 70,985 64,618
------------------ -----------------
27,019,352 26,313,249
Commitments and contingencies
Partners' deficit
Limited partners' deficit (96,472 units
issued and outstanding) (11,317,430) (10,065,165)
General partners' deficit (114,319) (101,670)
------------------ -----------------
Total partners' deficit (11,431,749) (10,166,835)
------------------ ----------------
$ 15,587,603 $ 16,146,414
================== ================
See notes to financial statements.
1
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(unaudited)
--------------------------------------------
For the three months ended
September 30,
-------------------- -------------------
2002 2001
------------------- -------------------
Revenues
Rental income $ 685,635 $ 690,602
Interest income 2,748 3,836
-------------------- -------------------
688,383 694,438
-------------------- -------------------
Costs and expenses
Mortgage loan interest 744,925 714,222
Operating 140,510 125,742
Depreciation and amortization 117,510 107,743
Partnership management fees 75,369 75,369
Property management fees 20,569 20,702
General and administrative 35,806 27,566
-------------------- -------------------
1,134,689 1,071,344
-------------------- -------------------
Net loss $ (446,306) $ (376,906)
==================== ===================
Net loss attributable to
Limited partners $ (441,843) $ (373,137)
General partners (4,463) (3,769)
-------------------- -------------------
$ (446,306) $ (376,906)
==================== ===================
Net loss per unit of limited partnership
interest (96,472 units outstanding) $ (4.58) $ (3.87)
==================== ===================
See notes to financial statements.
2
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(unaudited)
--------------------------------------------
For the nine months ended
September 30,
-------------------- -------------------
2002 2001
-------------------- -------------------
Revenues
Rental income $ 2,004,762 $ 2,057,638
Interest income 19,004 33,781
-------------------- -------------------
2,023,766 2,091,419
-------------------- -------------------
Costs and expenses
Mortgage loan interest 2,200,002 2,113,428
Operating 394,881 367,928
Depreciation and amortization 342,825 324,782
Partnership management fees 226,107 226,107
Property management fees 60,348 61,852
General and administrative 64,517 103,816
-------------------- -------------------
3,288,680 3,197,913
-------------------- -------------------
Net loss $ (1,264,914) $ (1,106,494)
==================== ===================
Net loss attributable to
Limited partners $ (1,252,265) $ (1,095,429)
General partners (12,649) (11,065)
-------------------- -------------------
$ (1,264,914) $ (1,106,494)
==================== ===================
Net loss per unit of limited partnership
interest (96,472 units outstanding) $ (12.98) $ (11.36)
==================== ===================
See notes to financial statements.
3
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' DEFICIT
(unaudited)
General Partners' Limited Partners' Total Partners'
Deficit Deficit Deficit
--------------------- ----------------------- ---------------------
Balance, January 1, 2002 $ (101,670) $ (10,065,165) $ (10,166,835)
Net loss for the nine months ended
September 30, 2002 (12,649) (1,252,265) (1,264,914)
--------------------- ----------------------- ---------------------
Balance, September 30, 2002 $ (114,319) $ (11,317,430) $ (11,431,749)
===================== ======================= =====================
See notes to financial statements.
4
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended
September 30,
--------------------------------
2002 2001
-------------- --------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $ (1,264,914) $ (1,106,494)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Deferred interest expense 716,935 1,285,482
Depreciation and amortization 342,825 324,782
Changes in operating assets and liabilities
Tenant receivables (88,207) (2,543)
Other assets 71,461 (111,812)
Prepaid expenses 58,106 (28,492)
Accounts payable and accrued expenses (17,199) (111,829)
Due to affiliates -- 49
Tenants' security deposits payable 6,367 (1,949)
-------------- --------------
Net cash (used in) provided by operating activities (174,626) 247,194
-------------- --------------
Cash flows from investing activities
Additions to real estate (48,754) (25,718)
-------------- --------------
Net (decrease) increase in cash and cash equivalents (223,380) 221,476
Cash and cash equivalents, beginning of period 1,100,234 1,103,651
-------------- --------------
Cash and cash equivalents, end of period $ 876,854 $ 1,325,127
============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ 1,483,067 $ 827,946
============== ==============
See notes to financial statements.
5
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that
High Cash Partners, L.P. (the "Partnership") will continue as a going
concern. However, if the Partnership is unable to refinance or otherwise
restructure its outstanding indebtedness to Resources Accrued Mortgage
Investors 2 L.P. ("RAM 2") prior to the Extended Maturity Date (as
hereinafter defined), the Partnership will lose its entire interest in its
sole real estate asset (See Note 3). These circumstances raise substantial
doubt as to the Partnership's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
2. INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction with
the financial statements, related footnotes and discussions contained in
the Partnership's Annual Report on Form 10-K for the year ended December
31, 2001. The results of operations for the three and nine months ended
September 30, 2002 are not necessarily indicative of the results to be
expected for the full year ending December 31, 2002.
3. MORTGAGE LOAN PAYABLE
The mortgage loan payable (the "Mortgage Loan") represents a first
mortgage loan held by RAM 2, a public limited partnership sponsored by
affiliates of the former general partners of the Partnership. The Mortgage
Loan bears interest at the rate of 11.22% per annum, compounded monthly
and did not require payment until its original maturity date of February
28, 2001. The principal balance, along with deferred interest thereon, was
$26,908,432 at September 30, 2002, and aggregated approximately
$25,000,000 at its original maturity date of February 28, 2001.
Because the Partnership believed that it would be unable either to repay
or refinance the Mortgage Loan at its original maturity date of February
28, 2001, the Managing General Partner negotiated and caused the
Partnership to enter into a mortgage loan modification agreement (the
"Mortgage Loan Modification Agreement") with RAM 2 in order to effect a
modification of the Mortgage Loan and prevent the immediate foreclosure of
the Mortgage Loan and the consequent loss of the Partnership's sole real
estate asset (the "Property").
The Partnership entered into the Mortgage Loan Modification Agreement with
RAM 2 effective January 31, 2001. Pursuant to the terms of the Mortgage
Loan Modification Agreement, RAM 2 agreed to forbear, for not less than
one year and up to two years, the exercise of its rights and remedies
under the Mortgage Loan for the Partnership's failure
6
to repay all amounts due and payable thereunder at its original maturity
date of February 28, 2001. Under the Mortgage Loan Modification Agreement,
the deed to the Property, along with a bill of sale, assignment of leases
and other conveyance documents (the "Conveyance Documents") were placed in
escrow with counsel to RAM 2. The Conveyance Documents will not be
released to RAM 2 until the earliest to occur of the following dates (the
"Extended Maturity Date"):
I. Any date on which any action taken or omitted to be taken by the
Partnership in bad faith, intended to hinder or impede RAM 2's
exercise of its rights or remedies under the terms of the Mortgage
Loan Modification Agreement, remains uncured for more than 10 days
after notice thereof from RAM 2;
II. Any date on or after March 1, 2002, upon the closing date of the
sale or other conveyance of the Property (a) if RAM 2 identifies a
bona fide third party purchaser to acquire the Property, or (b) for
any other reason deemed reasonably necessary by RAM 2 to avoid a
material economic disadvantage to it; and
III. March 1, 2003.
Unless the Partnership is able to arrange alternate financing or a sale of
the Property, the Conveyance Documents can be released to RAM 2 at any
time on or before March 1, 2003, at and after which the Partnership will
no longer have any interest in the Property; however, there can be no
assurance that RAM 2 will not foreclose earlier under the other terms of
the Mortgage Loan Modification Agreement, as set forth above.
The Mortgage Loan Modification Agreement further provides that, from March
1, 2001, until such time as the Conveyance Documents have been released,
the Partnership will be entitled to receive $100,000 per annum pro-rated
monthly and paid monthly to the extent cash flow generated by the Property
permits and RAM 2 will be entitled to receive the balance of the net
operating income generated by the Property to be applied against current
interest and the outstanding principal and deferred interest on the
Mortgage Loan. For the three months ended September 30, 2002, the
Partnership retained $25,000 of operating cash flow and applied $461,485
to current interest incurred under the Mortgage Loan. For the nine months
ended September 30, 2002, the Partnership retained $75,000 of operating
cash flow and applied $1,483,068 to current interest incurred under the
Mortgage Loan.
Under the terms of the Mortgage Loan Modification Agreement, the
Partnership will retain its interest in the Property until and unless the
Conveyance Documents are released to RAM 2 in accordance with the terms
thereof. Prior to March 1, 2003, until RAM 2 notifies the Partnership that
it has entered into a contract to sell or convey the Property, the
Partnership will have the right to satisfy the Mortgage Loan for an amount
equal to the sum of (x) the then unpaid principal balance of the Mortgage
Loan, and all accrued interest thereon and other charges due thereunder
and (y) 66% of the value of the Property in excess of the amount described
in clause (x) above, as additional interest on the Mortgage Loan. If the
Mortgage Loan is satisfied, the Conveyance Documents will be returned to
the Partnership. If the Partnership is unable to refinance or otherwise
restructure this outstanding indebtedness prior to the Extended Maturity
Date, the Partnership will lose its entire interest in the Property.
Under the terms of the Mortgage Loan, the Partnership was obligated to
provide RAM 2 with a then current appraisal of the Property upon RAM 2's
request. If it was
7
determined, based upon the requested appraisal, that the sum of (i) the
principal balance of the Mortgage Loan plus all other then outstanding
indebtedness secured by the Property and (ii) all accrued and unpaid
interest on the Mortgage Loan, calculated at a rate of 6.22% per annum
compounded monthly through the date of such appraisal, exceeded 85% of the
appraised value of the Property, an amount equal to such excess (the
"Excess Payment") would become immediately due and payable to RAM 2. In
accordance with the terms of the Mortgage Loan Modification Agreement,
shortly after the Mortgage Loan Modification Agreement was entered into,
RAM 2 requested an appraisal of the Property by a real estate appraisal
firm unaffiliated with the Partnership, Pembroke HCP, LLC, its managing
general partner (the "Managing General Partner") or RAM 2. The appraisal,
which was performed as of March 1, 2001, indicated that an Excess Payment
was not due or payable to RAM 2 at that date. Consequently, under the
terms of the Mortgage Loan Modification Agreement, RAM 2 has no further
appraisal right pursuant to the terms of the Mortgage Loan.
Since the Mortgage Loan Modification was entered into, the Managing
General Partner has continued to seek a long-term, creditworthy anchor
tenant for the space that was originally occupied by Levitz. (See Item 2
below.) However, the search for such a tenant has thus far been
unsuccessful. The inability to enter into an attractive lease for this
space has significantly impaired the value of the Property. Although an
appraisal has not been obtained for the Property since March 1, 2001, the
Managing General Partner does not believe that the present fair market
value of the Property exceeds the outstanding balance of the Mortgage
Loan. Accordingly, it is highly unlikely that the Partnership will be able
to either refinance the Mortgage Loan or sell the Property for an amount
sufficient to satisfy the Mortgage Loan prior to its extended maturity
date of March 1, 2003. In addition, RAM 2 has indicated that it is not
prepared to further extend or to restructure the Mortgage Loan. The
Managing General Partner will continue to pursue an appropriate anchor
tenant; however, under the circumstances, the likelihood that such a
tenant will be secured sufficiently in advance of the extended maturity
date on the Mortgage Loan to enable the Property to be sold or refinanced
is highly doubtful. As a result, it is anticipated that the Conveyance
Documents will be released to RAM 2 and that the Partnership will lose its
interest in the Property on or about March 1, 2003. Limited Partners of
the Partnership should consult with their tax advisors as to the tax
consequences to them of the loss of the Property at that time.
After the Conveyance Documents are released to RAM 2 and the Partnership
no longer has any interest in the Property, the Managing General Partner
expects to terminate and dissolve the Partnership in accordance with the
provisions of the Partnership's Amended and Restated Agreement of Limited
Partnership.
4. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES
On June 13, 1997, Resources High Cash, Inc. ("RHC") and Presidio AGP Corp.
("AGP") sold their general partnership interests in the Partnership to
Pembroke HCP LLC ("Pembroke HCP") and Pembroke AGP Corp. ("Pembroke AGP")
(collectively, the "General Partners"), respectively. In the same
transaction, XRC Corp. ("XRC"), the parent company of RHC, sold its 8,361
Units to Pembroke Capital II, LLC, an affiliate of Pembroke HCP and
Pembroke AGP. Subsequently, Pembroke Capital II LLC acquired beneficial
ownership of an additional 6,257 Units in the secondary market.
Prior to the sale of the general partnership interests in the Partnership
to Pembroke HCP and Pembroke AGP, Wexford Management LLC had performed
management and
8
administrative services for AGP, XRC and XRC's direct and indirect
subsidiaries, as well as for the Partnership. Following the sale, an
affiliate of Pembroke HCP was engaged to perform administrative services
for the Partnership. During each of the quarters ended September 30, 2002
and 2001, $12,000 in reimbursable payroll expenses were paid to the
affiliate of Pembroke HCP for services performed during the quarter.
The Partnership had been a party to a supervisory management agreement
with Resources Supervisory Management Corp. ("Resources Supervisory"), an
affiliate of RHC and AGP, pursuant to which Resources Supervisory
performed certain property management functions. Resources Supervisory
performed such services through June 13, 1997. Effective June 13, 1997,
the Partnership terminated this agreement and entered into a similar
agreement with Pembroke Realty Management LLC ("Pembroke Realty"), an
affiliate of Pembroke HCP and Pembroke AGP. No property management fees
were payable to Pembroke Realty for the quarters ended September 30, 2002
or 2001. No leasing activity compensation was paid to Pembroke Realty for
the quarters ended September 30, 2002 or 2001.
In connection with its entering into the Mortgage Loan Modification
Agreement with RAM 2, which became effective on January 31, 2001, the
Partnership retained Kestrel Management LP ("Kestrel"), an affiliate of
RAM 2, to perform property management functions commencing on January 2,
2001. Kestrel assumed all management services previously performed by
Pembroke Realty and the unaffiliated management companies, pursuant to the
terms of a management agreement. In January 2002, responsibility for the
management of the Property was assigned by Kestrel to Pelican, LLC
("Pelican"), an affiliate of the general partner of RAM 2. For the quarter
ended September 30, 2002, Pelican was entitled to receive $20,569 in
respect of property management services rendered to the Partnership.
For managing the affairs of the Partnership, the Managing General Partner
is entitled to a partnership management fee equal to $75,369 per quarter.
For each of the quarters ended September 30, 2002 and September 30, 2001,
the Managing General Partner received a partnership management fee of
$75,369.
The General Partners are allocated 1% of the net income or losses of the
Partnership, which amounted to losses of $4,463 and $3,769 in the quarters
ended September 30, 2002 and 2001, respectively. They also are entitled to
receive 1% of the distributions of the Partnership.
5. REAL ESTATE
Real estate, which is the Partnership's sole asset, is summarized as
follows:
September 30, 2002
(unaudited) December 31, 2001
------------------ -----------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 13,014,699 12,965,945
------------------ -----------------
19,681,888 19,633,134
Accumulated depreciation (5,439,063) (5,199,319)
------------------ -----------------
$ 14,242,825 $ 14,433,815
================== =================
9
The land, building and improvements that comprise the Partnership's sole
real estate asset collateralize a mortgage loan payable.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. However, if the Partnership
is unable to refinance or otherwise restructure its outstanding
indebtedness to Resources Accrued Mortgage Investors 2 L.P. ("RAM 2")
prior to the Extended Maturity Date, the Partnership will lose its entire
interest in its sole real estate asset. These circumstances raise
substantial doubt as to the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Partnership's sole real estate asset (the "Property") is a community
shopping center located in Reno, Nevada containing approximately 233,000
square feet of net leasable area.
The Partnership uses undistributed cash flow from operations as its
primary measure of liquidity. As of September 30, 2002, working capital
reserves amounted to approximately $1,037,000 which does not include any
amount which may be currently payable under the Partnership's mortgage
loan (the "Mortgage Loan") payable to RAM 2 or deferred interest thereon.
Such reserves may be used to fund capital expenditures, insurance, real
estate taxes and loan payments. All expenditures made during the quarter
ended September 30, 2002 were funded from operations.
At September 30, 2002, the total amount outstanding on the Mortgage Loan
was $26,908,432, which included deferred interest of $20,408,432. The
scheduled maturity date of the Mortgage Loan was originally February 28,
2001, at which time the total amount outstanding on the mortgage was
approximately $25,000,000.
Pursuant to the Mortgage Loan Modification Agreement, RAM 2 has agreed to
forbear for not less than one year and up to two years in the exercise of
its rights and remedies under the Mortgage Loan triggered by the
Partnership's failure to repay fully all amounts due and payable
thereunder at maturity.
Under the Mortgage Loan Modification Agreement, the deed to the Property,
along with a bill of sale, assignment of leases and other conveyance
documents (the "Conveyance Documents") have been placed in escrow with
counsel to RAM 2. The Conveyance Documents will not be released to RAM 2
until the earliest to occur of (such date referred to herein as the
"Extended Maturity Date"):
(i) any date on which any action taken or omitted to be taken by the
Partnership in bad faith, intended to hinder or impede RAM 2's
exercise of its rights or remedies under the terms of the Mortgage
Loan Modification Agreement, remains uncured for more than 10 days
after notice of same from RAM 2;
(ii) any date on or after March 1, 2002, upon the closing date of the
sale or other conveyance of the Property (a) if RAM 2 identifies a
bona fide third party purchaser to acquire the Property or (b) for
any other reason deemed reasonably necessary by RAM 2 to avoid a
material economic disadvantage to it; and
10
(iii) March 1, 2003.
Unless the Partnership is able to arrange alternate financing or a sale of
the Property, the Conveyance Documents can be released to RAM 2 at any
time on or before March 1, 2003, at and after which the Partnership will
no longer have any interest in the Property; however, there can be no
assurance that RAM 2 will not foreclose earlier under the other terms of
the Mortgage Loan Modification Agreement, as set forth above.
The Mortgage Loan Modification Agreement further provides that 100% of the
net operating income generated by the Property allocable to the period
ending February 28, 2001, the original maturity date of the Mortgage Loan,
will be retained by the Partnership. From and after March 1, 2001 until
such time as the Conveyance Documents have been released, the Partnership
will be entitled to receive $100,000 per annum pro-rated monthly and paid
monthly to the extent cash flow permits and RAM 2 will be entitled to
receive the balance of the net operating income generated by the Property
to be applied to current interest and the outstanding principal and
deferred interest on the Mortgage Loan. For the three months ended
September 30, 2002, the Partnership retained $25,000 of operating cash
flow and applied $461,485 to current interest incurred under the Mortgage
Loan. For the nine months ended September 30, 2002, the Partnership
retained $75,000 of operating cash flow and applied $1,483,068 to current
interest incurred under the Mortgage Loan. From and after March 1, 2001,
the Partnership has used its cash flow and cash reserves to fund the
payment of Partnership fees and expenses. To the extent not used to pay
Partnership fees and expenses, these funds will be available for
distribution to the Limited Partners. However, there can be no assurance
that the Partnership will have excess cash available, or that future
distributions will be made to the Limited Partners. At September 30, 2002,
the Partnership had cash and cash equivalents of $876,854.
In addition, RAM 2 has agreed to release the Partnership and its
affiliates from all claims for principal or interest due under the
Mortgage Loan effective on the date that the Conveyance Documents are
released to RAM 2 or such other party as agreed to by RAM 2. Such release
will be effective provided that the Partnership (i) does not become the
subject of any bankruptcy proceeding on or before one year from the date
of release of the Conveyance Documents and (ii) has not perpetrated any
fraud upon RAM 2.
Under the terms of the Mortgage Loan, the Partnership was obligated to
provide RAM 2 with a then current appraisal of the Property upon RAM 2's
request. If it was determined, based upon the requested appraisal, that
the sum of (i) the principal balance of the Mortgage Loan plus all other
then outstanding indebtedness secured by the Property and (ii) all accrued
and unpaid interest on the Mortgage Loan calculated at a rate of 6.22% per
annum compounded monthly through the date of such appraisal (that sum, the
"Measurement Amount"), exceeded 85% of the appraised value of the
Property, an amount equal to such excess (the "Excess Payment") would
become immediately due and payable to RAM 2. Any amount so paid by the
Partnership would be applied first against accrued and unpaid interest on
the Mortgage Loan, and the balance, if any, against the principal thereof.
In accordance with the terms of the Mortgage Loan Modification Agreement,
RAM 2 was entitled to request an appraisal of the Property; however, if
such appraisal indicated that no Excess Payment was due, RAM 2 would have
no further appraisal rights. Shortly after the Mortgage Loan Modification
Agreement was entered into, RAM 2 requested that the Property be appraised
by a real estate appraisal firm unaffiliated with the Partnership, the
Managing General Partner or RAM 2. The appraisal, which was performed as
of March 1, 2001, indicated a fair market value of $20 million for the
Property. As of March 1, 2001 the
11
Measurement Amount was $13,684,645. Because the Measurement Amount did not
exceed 85% of the appraised value of the Property on that date, no Excess
Payment was or is payable to RAM 2. Consequently, under the terms of the
Mortgage Loan Modification Agreement, RAM 2 has no further appraisal right
thereunder.
Under the terms of the Mortgage Loan Modification Agreement, the
Partnership will retain its interest in the Property until and unless the
Conveyance Documents are released to RAM 2 in accordance with the terms
thereof. In addition, the Partnership retained the right to repay the
Mortgage Loan in accordance with its terms on any date prior to March 1,
2001. Thereafter, and prior to March 1, 2003, until RAM 2 notifies the
Partnership that it has entered into a contract to sell or convey the
Property, the Partnership will have the right to satisfy the Mortgage Loan
for an amount equal to the sum of (x) the then unpaid principal balance of
the Mortgage Loan, and all accrued interest thereon and other charges due
thereunder and (y) 66% of the value of the Property in excess of the
amount described in clause (x) above, as additional interest on the
Mortgage Loan. If the Mortgage Loan is satisfied, the Conveyance Documents
will be returned to the Partnership.
Since the Mortgage Loan Modification was entered into, the Managing
General Partner has continued to seek a long-term, creditworthy anchor
tenant for the space that was originally occupied by Levitz. (See Item 2
below.) However, the search for such a tenant has thus far been
unsuccessful. The inability to enter into an attractive lease for this
space has significantly impaired the value of the Property. Although an
appraisal has not been obtained for the Property since March 1, 2001, the
Managing General Partner does not believe that the present fair market
value of the Property exceeds the outstanding balance of the Mortgage
Loan. Accordingly, it is highly unlikely that the Partnership will be able
to either refinance the Mortgage Loan or sell the Property for an amount
sufficient to satisfy the Mortgage Loan prior to its extended maturity
date of March 1, 2003. In addition, RAM 2 has indicated that it is not
prepared to further extend or to restructure the Mortgage Loan. The
Managing General Partner will continue to pursue an appropriate anchor
tenant; however, under the circumstances, the likelihood that such a
tenant will be secured sufficiently in advance of the extended maturity
date on the Mortgage Loan to enable the Property to be sold or refinanced
is highly doubtful. As a result, it is anticipated that the Conveyance
Documents will be released to RAM 2 and that the Partnership will lose its
interest in the Property on or about March 1, 2003. Limited Partners of
the Partnership should consult with their tax advisors as to the tax
consequences to them of the loss of the Property at that time.
After the Conveyance Documents are released to RAM 2 and the Partnership
no longer has any interest in the Property, the Managing General Partner
expects to terminate and dissolve the Partnership in accordance with the
provisions of the Partnership's Amended and Restated Agreement of Limited
Partnership.
In connection with the Partnership's entering into the Mortgage Loan
Modification Agreement, Lawrence J. Cohen, the sole shareholder and
director of Pembroke Companies Inc., which is the sole member and the
manager of the Managing General Partner, has executed an unconditional
limited guaranty of payment in the amount of the principal balance of the
Mortgage Loan, all accrued and unpaid interest thereon and all other
charges due thereunder, that will be effective only if Mr. Cohen or his
affiliates cause the Partnership to file for bankruptcy or to commence a
civil action seeking to hinder, impede or delay RAM 2's exercise of any
right or remedy available to it.
12
Until November 1997, Levitz Furniture Corporation ("Levitz") had occupied
approximately 23% of the space of the Partnership's property (i.e.,
approximately 53,000 out of approximately 233,000 square feet of net
leasable area). In November 1997, Levitz, which had filed for protection
under Chapter 11 of the Bankruptcy Code, vacated its space. Levitz ceased
paying rent to the Partnership as of April 2, 1998. The Partnership
pursued a claim in the Levitz bankruptcy proceedings and was awarded a
general unsecured claim and an administrative expense claim in 2001.
During the quarter ended June 30, 2002, the Partnership received 4,127
shares of Levitz common stock in satisfaction of its unsecured claim and
$15,000 in satisfaction of its administrative expense claim. As all
amounts due from Levitz had been previously written off, the $15,000 was
recorded as Revenues during the quarter ended June 30, 2002. The 4,127
shares of Levitz common stock have no value.
The vacancy at the Levitz space resulted in a loss of income to the
Partnership. This vacancy may have adversely affected the surrounding
tenants and the Partnership's ability to attract new tenants, particularly
in light of the limited visibility those tenants have to the main
thoroughfare. See "Real Estate Market" below. The Partnership is actively
seeking a long-term, creditworthy substitute tenant for the Levitz space.
However, the Partnership has not thus far been successful in its search
and there can be no assurance the Partnership will, significantly in
advance of the Extended Maturity Date of the Mortgage Loan, succeed in
finding a long-term, creditworthy substitute tenant on terms comparable to
those under the Levitz lease. In addition, if a substitute tenant is
procured, the Partnership expects to have to make capital expenditures to
secure such tenant.
During 1999, the Partnership entered into a short-term lease for the
Levitz space with a then existing tenant at an annual rent substantially
less than under the Levitz lease. The Partnership has the right to
terminate this lease upon written notice in the event that the Partnership
secures a long-term, creditworthy tenant for the space.
The level of leasing activity cannot be predicted, particularly in light
of the Levitz situation, and, therefore, the amount of further capital
expenditures arising from leasing activity is uncertain. There can be no
assurance the Partnership will have sufficient liquidity to make such
capital expenditures.
Real Estate Market
The market value of the Property reflects real estate market conditions in
the vicinity of Property. Recently built shopping centers in the vicinity
have increased competition for tenants. This competitive factor, together
with the fact that much of the unleased space in the Partnership's
property (including the Levitz space) has only limited visibility to the
main thoroughfare has hindered the lease-up of new space.
Inflation
Inflation has not had a material impact on the Partnership's operations or
financial condition in recent years and is not expected to have a material
impact in the foreseeable future.
13
Results of Operations
Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001
The Partnership realized a net loss of $446,306 ($4.58 per Unit) for the
three months ended September 30, 2002 compared to a net loss of $376,906
($3.87 per Unit) for the corresponding 2001 period, an increased loss of
$69,400. The increased loss was primarily the result of an overall
increase in costs and expenses.
Costs and expenses increased from 2001 to 2002 as a result of increased
mortgage loan interest, operating, depreciation and amortization, as well
as general and administrative expenses.
Mortgage loan interest increased due to the compounding effect from the
deferral of interest on the Mortgage Loan. Operating expenses reflect the
addition of one salaried clerical employee paid by the Property.
Depreciation and amortization increased as a result of capitalized costs
incurred. The increase in general and administrative reflects higher
professional costs than those incurred during the corresponding period in
2001.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
The Partnership realized a net loss of $1,264,914 ($12.98 per Unit) for
the nine months ended September 30, 2002 compared to a net loss of
$1,106,494 ($11.36 per Unit) for the corresponding 2001 period, an
increased loss of $158,420. The increased loss was the result of decreased
revenues combined with increased costs and expenses.
Revenues decreased from 2001 to 2002 due to decreases in rental income and
interest income.
Rental income decreased from 2001 to 2002 because rental income recorded
for the corresponding period in 2001 reflected the inclusion of rental
income relating to a prior period due to a non-recurring retroactive
billing adjustment effected during the quarter ended June 30, 2001.
Interest income decreased as a result of lower available interest rates
and a decrease in the level of available funds invested.
Costs and expenses increased from 2001 to 2002 as a result of increased
mortgage loan interest, operating and depreciation and amortization
expenses. General and administrative expenses decreased.
Mortgage loan interest increased due to the compounding effect from the
deferral of interest on the Mortgage Loan. Operating expenses reflect the
addition of one salaried clerical employee paid by the Property.
Depreciation and amortization increased as a result of capitalized costs
incurred. General and administrative expenses decreased as a result of
decreased legal costs; the legal costs incurred in connection with the
Mortgage Loan Modification Agreement during 2001 represented a one-time
non-recurring expense.
Certification
The certification by Lawrence J. Cohen, the President, chief executive
officer and chief financial officer of Pembroke Companies Inc., which is
the sole member and the
14
manager of the Managing General Partner, of this report on Form 10-Q, as
required by section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350), accompanies this report on Form 10-Q as correspondence.
ITEM 4 - CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Managing General
Partner carried out an evaluation, under the supervision and with the
participation of Lawrence J. Cohen, the President, chief executive officer
and chief financial officer of the Managing General Partner's sole member,
Pembroke Companies Inc., of the effectiveness of the design and operation
of the Partnership's disclosure controls and procedures. Based on that
evaluation, Mr. Cohen concluded that the Partnership's disclosure controls
and procedures are effective in timely alerting him to material
information required to be disclosed by the Partnership in reports that it
files or submits under the Securities Exchange Act of 1934.
There have been no significant changes in the Partnership's internal
controls or in other factors that could significantly affect those
controls subsequent to the date of their last evaluation.
15
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
By: Pembroke Companies, Inc.
Managing Member
Dated: November 14, 2002 By: /s/ Lawrence J. Cohen
--------------------------------
President and Principal
Financial and Accounting Officer
17
CERTIFICATION
I, Lawrence J. Cohen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of High Cash Partners,
L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ Lawrence J. Cohen
---------------------------
Lawrence J. Cohen,
President, chief executive officer and
chief financial officer of Pembroke
Companies, Inc., the sole member of
Pembroke HCP, LLC, the managing general
partner of High Cash Partners, L.P.
18