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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 March 31, 2003
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
----- -----
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 under the Securities Exchange Act of 1934.
Yes No X
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HIGH CASH PARTNERS, L.P.
FORM 10-Q - March 31, 2003
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 2003 and December 31, 2002............1
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 2003 and 2002......................................2
STATEMENT OF PARTNERS' DEFICIT - For the three months ended
March 31, 2003...............................................3
STATEMENTS OF CASH FLOWS - For the three months ended
March 31, 2003 and 2002......................................4
NOTE TO FINANCIAL STATEMENTS.....................................5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................6
ITEM 4 - CONTROLS AND PROCEDURES..................................8
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.........................9
SIGNATURES....................................................................10
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 High Cash Partners, L.P.
(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
March 31,
2003 December 31,
(unaudited) 2002
------------------- -------------------
ASSETS
Real estate, net $ -- $ 14,162,257
Cash and cash equivalents 713,488 794,022
Tenant receivables, net -- 314,010
Other assets -- 281,327
------------------- -------------------
$ 713,488 $ 15,551,616
=================== ===================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage loan payable $ -- $ 6,500,000
Deferred interest payable -- 20,856,117
Distribution payable 511,594 --
Accounts payable and accrued expenses 201,894 39,980
Tenants' security deposits payable -- 66,648
------------------- -------------------
713,488 27,462,745
Commitments and contingencies
Partners' deficit
Limited partners' deficit (96,472 units
issued and outstanding) -- (11,792,016)
General partners' deficit -- (119,113)
------------------- -------------------
Total partners' deficit -- (11,911,129)
------------------- -------------------
$ 713,488 $ 15,551,616
==================== ===================
See note to financial statements.
1
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(unaudited)
----------------------------------------
For the three months ended
March 31,
---------------- --------------------
2003 2002
---------------- --------------------
Revenues
Rental income $ 428,703 $ 661,168
Interest income 1,462 13,126
-------------------- --------------------
430,165 674,294
-------------------- --------------------
Costs and expenses
Mortgage loan interest 496,818 713,914
Operating 115,851 111,208
Depreciation and amortization 65,830 109,059
Partnership management fees 75,369 75,369
Property management fees 12,861 19,792
General and administrative 184,270 13,333
-------------------- --------------------
950,999 1,042,675
-------------------- ---------------------
(Loss) from operations before
gain on foreclosure of property (520,834) (368,381)
Gain on foreclosure of property 12,943,557 --
Net Income (Loss) $ 12,422,723 $ (368,381)
==================== ====================
Net Income (Loss) attributable to
Limited partners $ 12,298,494 $ (364,697)
General partners 124,229 (3,684)
-------------------- --------------------
$ 12,422,723 $ (368,381)
==================== ====================
Net loss per unit of limited
partnership interest (96,472
units outstanding)
From operations $ (5.34) $ (3.78)
==================== ====================
Gain on foreclosure of property 132.83 --
==================== ====================
Total $ 127.49 $ (3.78)
==================== ====================
See note to financial statements.
2
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' DEFICIT
(unaudited)
General Partners' Limited Partners' Total Partners'
Deficit Deficit Deficit
----------------------- ----------------------- ------------------
Balance, January 1, 2003 $ (119,113) $ (11,792,016) $ (11,911,129)
Net income for the three
months ended March 31, 2003 124,229 12,298,494 12,422,723
Distributions (5,116) (506,478) (511,594)
----------------------- ----------------- -----------------
Balance, March 31, 2003 $ -- $ -- $ --
======================= ================= =================
See note to financial statements.
3
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(unaudited)
For the three months ended
March 31,
-------------------------------
2003 2002
-------------- ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net income (loss) $ 12,422,723 $ (368,381)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Gain on foreclosure of property (12,943,557) --
Deferred interest expense 99,635 211,514
Depreciation and amortization 65,830 109,059
Changes in operating assets and liabilities
Tenant receivables 14,876 (36,391)
Other assets 94,391 41,418
Prepaid expenses 58,106 --
Accounts payable and accrued expenses 161,914 (19,874)
Tenants' security deposits payable (54,452) 2,187
Net cash (used in) provided by operating
activities (80,534) (60,468)
--------------- --------------
Cash flows from investing activities
Additions to real estate -- (6,250)
--------------- --------------
Net (decrease) in cash and cash equivalents (80,534) (66,718)
Cash and cash equivalents, beginning of period 794,022 1,100,234
--------------- --------------
Cash and cash equivalents, end of period $ 713,488 $ 1,033,516
--------------- --------------
Supplemental disclosure of cash flow information:
Interest paid $ 397,183 $ 502,401
=============== =============
Supplemental disclosure of non-cash investing and financing activities:
On March 3, 2003, the Partnership released the deed to the Partnership's sole
real estate asset to the Partnership's first mortgage lender, in lieu of
foreclosure, which resulted in gain of $12,943,557. The Partnership's
indebtedness to its first mortgage lender at that date was $27,455,752.
See note to financial statements.
4
HIGH CASH PARTNERS, L.P.
NOTE TO FINANCIAL STATEMENTS
(unaudited)
1. 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, 2002.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WINDING UP OF THE PARTNERSHIP'S BUSINESS
On March 3, 2003, the Partnership's deed to the Partnership's sole real
estate asset, the Sierra Marketplace, a community retail shopping
center located in Reno, Nevada (the "Property"), was released to the
Partnership's first mortgage lender, Resources Accrued Mortgage
Investors 2 L.P. ("RAM 2") in lieu of foreclosure under the terms of
the Mortgage Loan Modification Agreement entered into between the
Partnership and RAM 2, effective January 31, 2001, and, as a result,
the Partnership no longer has an interest in the Property.
Consequently, in accordance with the provisions of its Amended and
Restated Agreement of Limited Partnership, the Partnership intends to
discontinue operations and will proceed to wind up its business and
distribute its remaining assets to its partners.
In connection with the winding up of the Partnership's business,
Pembroke HCP, LLC (the "Managing General Partner") expects to
distribute cash, after paying Partnership expenses and establishing
such reserves for contingencies as the Managing General Partner
considers necessary, during the second quarter of 2003 in the
amount of approximately $5.25 per Unit. The total expected
distribution of $511,594, which includes $5,116 payable to the
Managing General Partner and Pembroke AGP Corp.
(collectively, the "General Partners"), is accrued at March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, cash and cash equivalents amounted to approximately
$713,488. A portion of such cash and cash equivalents will be used to
fund expenses incurred in connection with the winding up of the
Partnership. The balance will be used to fund distributions payable to
the partners of $511,594.
MORTGAGE LOAN MODIFICATION AGREEMENT
Until November 1997, Levitz Furniture Corporation ("Levitz") had
occupied approximately 23% of the space of the Property (i.e.,
approximately 53,000 out of approximately 233,000 square feet of net
leasable area) under a lease that extended through 2008. 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 vacancy at the Levitz space
resulted in a loss of income to the Partnership and may have adversely
affected the surrounding tenants and the Partnership's ability to
attract new tenants. During 1999, in order to maximize cash flow from
the Property, the Partnership entered into a short-term lease,
terminable by the Partnership upon written notice to the tenant, for
the Levitz space at an annual rent substantially less than under the
Levitz lease. The Partnership's entry into this lease enabled it to
continue to actively seek a long-term, creditworthy substitute tenant
for the Levitz space at a higher rent.
Because the Managing General Partner anticipated that the Partnership
would be unable either to repay or refinance its first mortgage loan
(the "Mortgage Loan") at the Mortgage Loan's original maturity date of
February 28, 2001 and in order to provide the Partnership with
additional time to maximize the Property's value, the Managing General
Partner caused the Partnership to enter into the Mortgage Loan
Modification Agreement
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with RAM 2, effective January 31, 2001. Under 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 to repay all amounts
due and payable thereunder at the original maturity date. Pursuant to
the terms of 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 were not to be released
to RAM 2 until the earliest to occur of certain events specified in the
Mortgage Loan Modification Agreement and March 1, 2003. Prior to March
1, 2003, the Partnership retained the right (unless notified by RAM 2
that RAM 2 had entered into a contract to sell or convey the Property)
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.
The Partnership's search for a long-term, creditworthy substitute
tenant for the Levitz space and its ability to attract additional
tenants at higher rents was impeded by the strong competition for
tenants (including existing tenants whose leases expire) among existing
shopping centers in the vicinity of the Property. In addition, a
portion of the land available for development in the immediate
geographic vicinity of the Property had recently been developed by
centers predominantly occupied by large anchor tenants, which created
additional competition for the Property. This competitive factor,
together with the fact that much of the space (including the space
previously occupied by Levitz) had only limited visibility to the main
thoroughfare, hindered the Partnership's entry into a new lease of the
space on terms comparable to the Levitz lease. The Partnership's
inability to enter into such a lease impaired its efforts to increase
the cash flow generated by the Property and resulted in a significant
diminution in the value of the Property.
Both prior to and after the Partnership's entry into the Mortgage Loan
Modification Agreement, the Managing General Partner sought a
long-term, creditworthy anchor tenant for the space that was previously
occupied by Levitz. The Managing General Partner also explored options
for a sale or refinancing of the Property. However, despite the
Managing General Partner's continuing efforts, the Partnership was
unable to increase the value of the Property, thereby precluding a sale
or refinancing of the Mortgage Loan on terms favorable to the
Partnership.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF CONVEYANCE OF PROPERTY TO RAM 2
The conveyance of the Property to RAM 2 on March 3, 2003 resulted in
the Partnership recognizing gain for federal income tax purposes in an
amount equal to approximately $8,800,000, representing the excess of
the outstanding amount of the mortgage loan to which the Property was
subject, over the Partnership's tax basis in the Property. This gain
will be recognized in 2003. A portion of the gain is subject to the
federal income tax rate of 25% on gain attributable to depreciation
recapture and the balance is subject to a tax rate of 20%. In addition,
registration costs paid by the Partnership at its inception may result
in a taxable loss, which may offset a portion of the gain.
The amount of gain and the portion of such gain that will be
attributable to depreciation recapture for each limited partner in the
Partnership (a "Limited Partner") will vary depending on a number of
factors, including whether the Limited Partner purchased its
7
limited partnership interest at the initial offering or at some later
time, the price paid for the Limited Partner's limited partnership
interest and the nature of the Limited Partner (for example, whether
the Limited Partner is an individual, corporation or tax-exempt entity,
such as an individual retirement account, Keogh plan or other pension
plan). The ability of a Limited Partner to offset all or any portion of
the gain will similarly vary, including based on whether the Limited
Partner has passive losses from this or any other investment. Each
Limited Partner, therefore, should consult with his or her own tax
advisor to ascertain the tax liability arising from such Limited
Partner's interest in the Partnership.
The Partnership intends to liquidate prior to the end of the
Partnership's taxable year. In such event, a Limited Partner who would
have a loss upon liquidation of his or her interest in the Partnership
may be able to use such loss to offset such Limited Partner's share of
the gain.
Each Limited Partner should also consult his or her own tax advisor as
to the state and local income tax consequences in the Limited Partner's
state of residence of the Partnership's conveyance of the Property to
RAM 2.
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.
8
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (attached).
(b) Reports on Form 8-K:
March 3, 2003 - Items 2 and 7, disclosing the release of the
Registrant's deed to Sierra Marketplace to Resources Accrued
Mortgage Investors 2 L.P. ("RAM 2"), in lieu of foreclosure,
under the terms of the Mortgage Loan Modification Agreement
dated December 21, 2000 between Registrant and RAM 2.
9
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: May 15, 2003 By: /s/ Lawrence J. Cohen
---------------------
President and Principal
Financial and Accounting Officer
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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: May 15, 2003 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.
11