-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W0+StnMzSCkshbzP143xGRogqoeY7cmCZhE4yjL9FBq6X4F/OE0lFyGs9gcH3SVx sH2wV4Q463Am3kV7yrP3xg== 0000928385-97-000934.txt : 19970520 0000928385-97-000934.hdr.sgml : 19970520 ACCESSION NUMBER: 0000928385-97-000934 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORUM RETIREMENT PARTNERS L P CENTRAL INDEX KEY: 0000804752 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SOCIAL SERVICES [8300] IRS NUMBER: 351686799 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09302 FILM NUMBER: 97608220 BUSINESS ADDRESS: STREET 1: 8900 KEYSTONE CROSSING STE 200 STREET 2: PO BOX 40498 CITY: INDIANAPOLIS STATE: IN ZIP: 46240-0498 BUSINESS PHONE: 3178460700 MAIL ADDRESS: STREET 1: 8900 KEYSTONE CROSSING STE 200 STREET 2: PO BOX 40498 CITY: INDIANAPOLIS STATE: IN ZIP: 46240-0498 10-Q 1 FORM 10-Q 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 QUARTER ENDED MARCH 31, 1997 COMMISSION FILE NUMBER: 1-9302 FORUM RETIREMENT PARTNERS, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ORGANIZED IN DELAWARE I.R.S. NO.35-1686799 10400 FERNWOOD ROAD BETHESDA, MD 20817 TELEPHONE: (301) 380-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Preferred Depository Units Representing American Stock Exchange Preferred Limited Partners' Interests SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No INDEX FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP PART I. FINANCIAL INFORMATION PAGE - ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets -- March 31, 1997 and December 31, 1996 3 Condensed consolidated statements of operations -- Three months ended March 31, 1997 and 1996 5 Condensed consolidated statement of partners' equity -- March 31, 1997 and December 31, 1996 6 Condensed consolidated statements of cash flows -- Three months ended March 31, 1997 and 1996 7 Notes to condensed consolidated financial statements -- March 31, 1997 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 Exhibit 99 E-99 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 1997 1996 --------- ------------ (in thousands) ASSETS ------ Current Assets: Cash and cash equivalents $ 5,271 6,199 Accounts receivable, less allowances for doubtful 4,565 3,210 accounts of $501,000 and $420,000, respectively Other receivables 419 419 Restricted cash (note C) 3,499 2,663 Estimated third-party settlements --- 684 Inventory and prepaid expenses 252 229 Other current assets 93 86 --------- ------- TOTAL CURRENT ASSETS 14,099 13,490 --------- ------- Property and equipment: Land and land improvements 14,966 14,871 Buildings 103,648 103,496 Furniture and equipment 10,066 9,955 Construction in progress 1,408 941 --------- ------- 130,088 129,263 Less accumulated depreciation 32,667 31,723 --------- ------- Net Property and Equipment 97,421 97,540 --------- ------- Deferred financing costs, net of accumulated amortization of $1,217,000 and $1,125,000, respectively 1,436 1,528 --------- ------- TOTAL ASSETS $ 112,956 112,558 ========= =======
See Notes to Condensed Consolidated Financial Statements. 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 1997 1996 ---------- ------------ (in thousands) LIABILITIES AND PARTNERS' EQUITY -------------------------------- Current Liabilities: Current portion of long-term debt $ 1,158 1,129 Accounts payable and accrued expenses 2,143 3,476 Amounts due to parent of general partner and its affiliates (note D) 5,755 4,242 Resident deposits 1,190 1,232 ---------- ------------ TOTAL CURRENT LIABILITIES 10,246 10,079 Long-term debt, less current portion 46,554 46,855 Deferred management fees due to parent of general partner 15,780 15,780 ---------- ------------ TOTAL LIABILITIES 72,580 72,714 ---------- ------------ General partner's equity in subsidiary partnership 241 236 Partners' equity: General partner 507 502 Limited partners (15,285 units issued and outstanding) 39,628 39,106 ---------- ------------ TOTAL PARTNERS' EQUITY 40,135 39,608 ---------- ------------ Commitments and contingencies (note E) TOTAL LIABILITIES AND PARTNERS' EQUITY $ 112,956 112,558 ========== ===========
See Notes to Condensed Consolidated Financial Statements. 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 1997 1996 --------- -------- (in thousands, except per unit amounts) Revenues: Routine revenue $ 12,396 11,430 Ancillary revenue 1,874 1,689 Other income 41 51 --------- -------- TOTAL REVENUES 14,311 13,170 --------- -------- Costs and expenses: Routine expenses 8,749 7,868 Ancillary costs 1,538 1,290 Management fees to parent of general partner 1,138 1,041 General and administrative 101 221 Litigation 37 114 Depreciation 944 948 Interest, including amounts to parent of general partner of $5,000 and $6,000, respectively 1,272 1,311 -------- -------- TOTAL COSTS AND EXPENSES 13,779 12,793 -------- -------- Income before general partner's interest in income of subsidiary partnership 532 377 -------- -------- General partner's interest in income of subsidiary partnership 5 3 -------- -------- NET INCOME $ 527 374 ======== ======== General partner's interest in net income $ 5 4 ======== ======== Limited partners' interest in net income $ 522 370 ======== ======== Average number of units outstanding 15,285 15,285 ======== ======== Net income per limited partner unit $ 0.03 0.02 ======== ========
See Notes to Condensed Consolidated Financial Statements. 5 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (Unaudited)
General Limited Partner Partners ------- -------- (in thousands) Balances at January 1, 1997 $ 502 39,106 Net Income 5 522 ------ ------- Balances at March 31, 1997 $ 507 39,628 ====== ======= Accumulated balances: Capital contributions $1,173 $116,279 Offering costs (4) (6,715) Cash distributions (255) (29,679) Accumulated losses (407) (40,257) ------ -------- Balances at March 31, 1997 $ 507 $ 39,628 ====== ========
See Notes to Condensed Consolidated Financial Statements. 6 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1997 1996 ------- ------ (in thousands) Cash flows from operating activities: Net income $ 527 374 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 944 948 Amortization of deferred financing costs 92 92 Amounts due to parent of general partner and its affiliates 1,525 (162) Accrued revenues and expenses, net (2,683) 197 Other 612 436 ------- ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 1,017 1,885 ------- ------ NET CASH USED IN INVESTING ACTIVITIES - Additions to property and equipment (825) (1,116) ------- ------ Cash flows from financing activities: Reduction of long-term debt (272) (247) Payments on note payable to parent of general partner (12) (8) Net increase in restricted cash (836) (508) ------- ------ NET CASH USED IN FINANCING ACTIVITIES (1,120) (763) ------- ------ Net increase (decrease) in cash and cash equivalents (928) 6 Cash and cash equivalents at beginning of period 6,199 2,960 ------- ------ Cash and cash equivalents at end of period 5,271 2,966 ======= ======
See Notes to Condensed Consolidated Financial Statements 7 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 1997 NOTE A - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements have been prepared using the accounting policies described in the consolidated financial statements of Forum Retirement Partners, L.P. and Subsidiary Partnership (the "Partnership") included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1996 (the "Annual Report"). The unaudited condensed consolidated financial statements include all adjustments which are necessary, in the opinion of management, to reflect fairly, in all material respects, the Partnership's financial position and results of operations for the applicable periods. Certain amounts in the 1996 consolidated financial statements have been reclassified to conform to the 1997 presentation. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997 and these financial statements should be read in conjunction with the Partnership's Annual Report. NOTE B - OWNERSHIP INTEREST OF THE GENERAL PARTNER AND ITS AFFILIATES - --------------------------------------------------------------------- Forum Retirement, Inc., a wholly-owned subsidiary of Forum Group, Inc. ("Forum Group"), is the general partner of the Partnership (the "General Partner") and owns a one percent interest in the Partnership and a one percent interest in a subsidiary operating partnership in which the Partnership owns a ninety-nine percent interest. The General Partner's interest in the subsidiary operating partnership is reflected in the statements of operations as a reduction of the income or loss of the Partnership. Forum Group beneficially owns approximately 79.0% of the outstanding Preferred Depository Units (the "Units") representing preferred limited partner's interests in the Partnership. On March 18, 1997, Marriott International, Inc. ("Marriott"), which owns Forum Group, and Host Marriott Corporation, announced that they had entered into a letter of intent providing for the sale of Forum Group to Host Marriott Corporation, and for the transfer of the management of the Forum Group retirement communities (including those owned by the Partnership) to a Marriott International subsidiary, subject to receipt of required consents. The parties announced that the sale is expected to be completed by the second quarter of 1997, but is subject to customary due diligence, documentation, approval by the Boards of Directors of Marriott International and Host Marriott Corporation, and expiration or termination of the Hart-Scott-Rodino Antitrust Act waiting period requirements. NOTE C- RESTRICTED CASH - ----------------------- Restricted cash is summarized as follows: March 31, 1997 December 31, 1996 ---------------- ----------------- Debt service reserve fund $ 487,000 487,000 Fixed asset reserve fund 379,000 246,000 Real estate tax reserve fund 854,000 510,000 Insurance reserve fund 321,000 --- ---------------- ----------------- 2,041,000 1,243,000 Resident security deposits 1,458,000 1,420,000 ---------------- ----------------- $3,499,000 2,663,000 ================ ================= The debt service, fixed asset, insurance and real estate tax reserve funds consist of monies transferred into segregated escrow accounts out of revenues generated by the Partnership, pursuant to the Partnership's secured loan facility. These funds are periodically disbursed by the collateral agent to pay for debt service, capital expenditures, insurance premiums and real estate taxes 8 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) March 31, 1997 relating to the secured property. Resident security deposits are amounts paid by retirement community residents that are repayable to the resident upon departure from the retirement community. In some cases, to ensure prompt payment, the Partnership utilizes its unrestricted cash to pay for capital expenditures, insurance premiums, real estate taxes, and resident security deposits and is thereafter reimbursed for such payments out of funds held in the appropriate escrow account. The liabilities corresponding to the uses of restricted cash are payable within one year or, in the case of resident security deposits, are payable on demand upon departure of the resident from the retirement community. NOTE D - AMOUNTS DUE TO PARENT OF GENERAL PARTNER AND ITS AFFILIATES - -------------------------------------------------------------------- Pursuant to the terms of the Management Agreement in effect since the Partnership's formation in 1986, management fees (based on the Partnership's gross operating revenues) payable to Forum Group for all periods prior to 1994 have been deferred. Fees occurring after January 1, 1994 are paid quarterly, in arrears. In March 1996, a subsidiary of Marriott acquired Forum Group. Beginning in July 1996, Marriott has funded certain operating expenses and expansion and renovation costs of the Partnership on behalf of Forum Group. All such fundings are to be reimbursed to Marriott by the Partnership on a current basis out of the Partnership's cash flow. Amounts due to the parent of the General Partner and its affiliates is summarized as follows: March 31, 1997 December 31, 1996 ---------------- ----------------- Due to Forum Group: Management fees $1,285,000 1,130,000 Other 192,000 512,000 ---------------- ----------------- 1,477,000 1,642,000 ---------------- ----------------- Due to Marriott: Accounts payable 1,045,000 1,313,000 Payroll 2,393,000 1,246,000 Expansion and renovation costs 588,000 --- Other 252,000 41,000 ---------------- ----------------- 4,278,000 2,600,000 ---------------- ----------------- $5,755,000 4,242,000 ================ ================= NOTE E - COMMITMENTS AND CONTINGENCIES - -------------------------------------- On January 24, 1994, The Russell F. Knapp Revocable Trust (the "Plaintiff") filed a complaint (the "Iowa Complaint") in the United States District Court for the Northern District of Iowa (the "Iowa Court") against the General Partner alleging breach of the Partnership Agreement, breach of fiduciary duty, fraud, insider trading, and civil conspiracy/aiding and abetting. The Plaintiff subsequently amended the Iowa Complaint, adding Forum Group as a defendant. The Iowa Complaint is a derivative action seeking recovery of damages and other relief on behalf of, and not from, the Partnership. The Iowa Complaint alleged, among other things, that the Plaintiff holds a substantial number of Units, that the Board of Directors of the General Partner is not comprised of a majority of independent directors as required by the Partnership Agreement and as allegedly represented in the Partnership's 1986 Prospectus for its initial public offering, and that the General Partner's Board of Directors has approved and/or acquiesced to an 8% management fee charged by Forum Group under the Management 9 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) March 31, 1997 Agreement. The Iowa Complaint further alleged that the "industry standard" for such fees is 4%, thereby resulting in an "overcharge" to the Partnership estimated by the Plaintiff at $1.8 million per annum beginning in 1994. The Plaintiff sought the restoration of certain former directors to the Board of Directors of the General Partner and the removal of certain other directors from the Board, an injunction prohibiting the payment of an 8% management fee, and unspecified compensatory and punitive damages. On April 3, 1995, the Iowa Court entered an order dismissing the Iowa Complaint on jurisdictional grounds. Although the Plaintiff filed a notice of appeal of the Iowa Court's ruling, it subsequently dismissed this appeal. On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint") in the United States District Court for the Southern District of Indiana (the "Indiana Court") against the General Partner and Forum Group seeking essentially the same relief. The defendants moved to dismiss the Indiana Complaint for failure to state a claim for which relief could be granted and, in response, on December 11, 1995 the Plaintiff amended the Indiana Complaint. The defendants moved to dismiss the amended complaint on similar grounds, and on May 17, 1996, the Indiana Court ruled on the defendant's motion by dismissing without prejudice two of the four counts contained in the amended complaint, namely the counts for alleged insider trading and civil conspiracy/aiding and abetting. The litigation continues to be in the discovery phase, and both the plaintiff and the defendant filed motions for summary judgment. The court has changed the scheduled trial date from May 5, 1997 to December 8, 1997. The General Partner intends to vigorously defend against this litigation. 10 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ------------------------------------------------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP March 31, 1997 FORWARD-LOOKING STATEMENTS - -------------------------- When used throughout this report, the words "believes", "anticipates", and "expects", and similar expressions, are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties which could cause actual results to differ materially from those projected, including: competition with other retirement communities, the balance between supply of and demand for retirement communities, the Partnership's ability to timely effect its planned expansion program on current and anticipated terms, including sufficiency of cash flow from operations to finance the expansion (or the availability of borrowings if necessary) and timely receipt of zoning and other governmental approvals, potential changes in Medicaid and/or Medicare reimbursement levels or criteria, potential changes in the regulatory environment applicable to retirement communities and related healthcare services and the effect of national and regional economic conditions, and other risks described from time to time in the Partnership's filings with the Securities and Exchange Commission, including Exhibit 99 to this report. Given these uncertainties, readers are cautioned not to place undue reliance on such statements. The Partnership also undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. RESULTS OF OPERATIONS - --------------------- Three Months Ended March 31, 1997 and 1996. As of March 31, 1997 and 1996, ------------------------------------------- the Partnership owned nine retirement communities ("RCs"), all of which were managed by Forum Group. The Partnership reported net income of $527,000 for the three month period ended March 31, 1997 compared to net income of $374,000 for the same period in 1996. Total revenues for the three month period ended March 31, 1997 increased $1,141,000, or 8.7%, to $14,311,000 compared to the same period last year. Total revenues consist primarily of routine service and ancillary service revenues. Routine service revenues are generated from monthly charges for independent living units and daily charges for assisted living suites and nursing beds which are recognized monthly based on the terms of the residents' agreements. Ancillary service revenues are generated on a "fee for service" basis for supplementary items requested by residents and are recognized as the services are provided. Combined average occupancy (calculated based on the number of units occupied during the respective period) at the nine RCs was 93.3% for the three month period ended March 31, 1997, a decrease of approximately 0.4% points compared to the same period in 1996. The decrease in occupancy is primarily attributable to the effect of three expansion projects which opened in April 1996, June 1996, and October 1996, and which, as of March 31, 1997, were not fully leased. Occupancy has also been negatively impacted by two RCs which are expected to open expansion units in the third and fourth quarters of 1997, due to the temporary inability to lease certain existing units during construction. These decreases in occupancy were partially offset by an RC which experienced an occupancy increase of 7.3%, primarily in the assisted living and nursing components. The combined average monthly rental rate per occupied unit (calculated using revenue generated from the respective rental components and excluding non- rental revenues and prior period adjustments) increased 6.0% for the three month period ended March 31, 1997 compared to the same period in 1996, with each of the nine communities experiencing increases. Routine and ancillary revenues for the three month period ended March 31, 1997 increased $1,151,000, or 8.8%, to $14,270,000 over the comparable period in 1996. The revenue increase is primarily the result of increases in residency fees and charges in the independent living, assisted living and nursing components, the favorable impact of recently opened expansion units at three RCs (one located in New Mexico, which added twenty assisted living units in April 1996; one located in South Carolina which increased its healthcare capacity by nineteen units in June 1996; and one located in Delaware, which added fifteen assisted living units in October 1996), increases in the provision of therapy and other ancillary healthcare services and a significant occupancy increase experienced at one RC. Two RCs experienced decreases in routine and ancillary revenues due to declines in occupancy relating to expansion unit construction as described above, while the remaining seven RCs experienced increases in routine and ancillary revenues. Routine expenses and ancillary costs for the three month period ended March 31, 1997 increased $1,129,000, or 12.3%, to $10,287,000 compared to the same period in 1996. The increased costs and expenses resulted primarily from a generally higher level of nursing and therapy healthcare staffing, the increased 11 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ------------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP March 31, 1997 provision of therapy and other ancillary healthcare services and normal inflationary and other operational increases in other expenses. The recently opened expansion units at three RCs and a significant occupancy increase experienced at one RC principally impacted the costs associated with the higher level of nursing, therapy, housekeeping and dining services required by the residents at the RCs. Net Operating Income ("NOI") calculated as routine and ancillary revenues ("operating revenues") less routine and ancillary expenses ("operating expenses") and management fees decreased $75,000, or 2.6%, to $2,845,000 and the operating margin (operating revenues less operating expenses) as a percentage of operating revenues decreased from 30.2% for the three month period ended March 31, 1996 to 27.9% for the comparable period in 1997. NOI and operating margin were negatively impacted by the recently opened expansion units at three RCs. These RCs all incurred significant start-up costs relating to the opening and lease-up of the expansion units, and at March 31, 1997, the expansion units were not fully leased. In addition, occupancy declines at two RCs due to expansion unit construction , described above, negatively impacted NOI and operating margin. Management fees increased as a function of revenue. Total interest expense for the three months ended March 31, 1997 decreased by $39,000 compared to total interest expense for the same period in 1996 due primarily to a reduction in the principal amount of long-term debt. Pursuant to the terms of the Management Agreement in effect since the Partnership's formation in 1986, management fees (based on the Partnership's gross operating revenues) payable to Forum Group for all periods prior to 1994 have been deferred. Fees occurring after January 1, 1994 are paid on a current basis. The deferred management fees were expensed in the Partnership's statements of operations and reflected on a deferred basis in the Partnership's balance sheets for the relevant periods. Accordingly, except for changes in management fees payable resulting from variations in revenue levels, the current payment of such fees for periods after January 1, 1994 had a comparable impact on the Partnership's operating and net income as compared to prior periods, although it did affect the Partnership's cash position commencing in 1994. Income Taxes. The Omnibus Budget Reconciliation Act of 1987 provides that certain publicly traded partnerships will be treated as corporations for federal income tax purposes. A grandfather provision delays corporate tax status until 1998 for publicly traded partnerships in existence prior to December 18, 1987. On August 8, 1988 the General Partner was authorized by the limited partners to do all things deemed necessary or desirable to insure that the Partnership is not treated as a corporation for federal income tax purposes. Alternatives available to avoid corporate taxation after 1998 include: (i) selling or otherwise disposing of all or substantially all of the Partnership's assets pursuant to a plan of liquidation and (ii) converting the Partnership into a real estate investment trust or other type of legal entity. Such actions are prohibited or restricted under the Partnership's current financing and may require the granting of a waiver by the lender thereunder. There can be no assurance that any such waiver would be granted. There can be no assurance that the Partnership will avoid being taxed as a corporation for federal income tax purposes. FINANCIAL CONDITION - ------------------- Liquidity and Capital Resources. At March 31, 1997, the Partnership had cash and cash equivalents of $5,271,000, accounts receivable of $4,565,000, remaining current assets of $4,263,000 and current liabilities of $10,246,000. The Partnership believes that it has adequate liquidity to meet its foreseeable working capital requirements. The Partnership has initiated an expansion program relating to certain of its properties in an effort to further improve the Partnership's results of operations. Currently, four expansion projects have been completed, five expansion projects are under construction and another four expansion projects are in certain stages of active development or design. Three of the four projects currently in development or design are expected to begin construction by the end of 1997. The four completed projects increased the number of living and nursing units owned by the Partnership by approximately 4% at a capital cost of $3.8 million. The nine projects which are either under construction or are in certain stages of active development or design are expected to increase the number of living and nursing units owned by the Partnership by approximately 15% at a budgeted capital cost of $16.8 million. A tenth project previously in the design phase is being re-evaluated and may be reduced in scope or discontinued. 12 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ------------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- (continued) FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP March 31, 1997 The expansions are designed to modify the uses of or add capacity to existing facilities without incurring substantial land acquisition and common area build- out costs. Certain expansions will require additional regulatory approvals. The Partnership presently intends to finance this expansion program from the Partnership's cash flow from operations. If cash flow from operations is insufficient to complete such expansion on a timely basis, the expansion may be delayed, reduced in scope or discontinued. The terms of the Partnership's current long-term debt agreement restrict the Partnership from incurring additional third-party financing (other than $1 million of equipment financing) and prohibit the imposition of liens on the Partnership's assets. There can be no assurance that a waiver can be obtained from the lender to permit any third- party financing, or whether, when and on what terms any such financing may be available. As a result of the capital required to fund the expansion program, the Partnership does not expect to make distributions in respect of limited partner units in the foreseeable future. The implementation of the expansion program and its impact on the value of an investment in the Partnership is subject to a number of variables, including without limitation the cost and availability of any required financing, the timing with respect to obtaining any such financing, the ability to obtain required zoning variances and permits from local governmental authorities and the timing thereof, whether development and construction costs are higher or lower than anticipated, whether construction is completed faster or slower than anticipated, whether newly added living units are occupied faster or slower than anticipated and whether operating costs are higher or lower than anticipated. The management fee payable to Forum Group of $15,780,000 for all periods from the formation of the Partnership in 1986 to December 31, 1993 was deferred. Management fees for periods after December 31, 1993 are paid quarterly, in arrears. Deferred management fees are payable to Forum Group out of proceeds of sales and refinancing after making distributions of those proceeds in an amount sufficient to (i) meet limited partners' tax liabilities, (ii) repay limited partners' capital contributions, and (iii) pay a 12% cumulative, simple annual return on limited partners' unrecovered capital contributions. Deferred management fees become immediately due and payable in the event that the Management Agreement is terminated, which may occur under certain conditions including, but not limited to, if Forum Retirement, Inc. is removed as the General Partner and 80% in interest of the limited partners vote to terminate such agreement. The Partnership is unable to predict when or if management fees deferred prior to January 1, 1994 will become payable. Operating activities provided $868,000 less cash during the three months ended March 31, 1997 than during the comparable period in 1996 due principally to an increase in accounts receivable and a decrease in certain accounts payable and accrued expenses, partially offset by an increase in amounts due to parent of General Partner and its affiliates for the funding of payroll, certain expansion and renovation costs and certain other accounts payable. The amounts due to parent of General Partner and its affiliates are to be reimbursed on a current basis. Investing activities used $291,000 less cash during the three months ended March 31, 1997 than during the comparable period in 1996 due principally to a decrease in expansion and renovation costs incurred in the current year. This decrease is primarily a function of the timing of payments of the expansion and renovation costs at several of the RCs and is not reflective of a decrease in the scope of the expansion activity. Financing activities used $357,000 more cash during the three months ended March 31, 1997 than during 1996 due principally to an increase in restricted cash. Inflation. Management does not believe that inflation has had a material effect on net income. To the extent possible, increased costs are recovered through increased residency fees and charges. 13 PART II. Other Information --------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP March 31, 1997 ITEM 1. LEGAL PROCEEDINGS - -------------------------- On January 24, 1994, The Russell F. Knapp Revocable Trust (the "Plaintiff") filed a complaint (the "Iowa Complaint") in the United States District Court for the Northern District of Iowa (the "Iowa Court") against the General Partner alleging breach of the Partnership Agreement, breach of fiduciary duty, fraud, insider trading, and civil conspiracy/aiding and abetting. The Plaintiff subsequently amended the Iowa Complaint, adding Forum Group as a defendant. The Iowa Complaint alleged, among other things, that the Plaintiff holds a substantial number of Units, that the Board of Directors of the General Partner is not comprised of a majority of independent directors as required by the Partnership Agreement and as allegedly represented in the Partnership's 1986 Prospectus for its initial public offering, and that the General Partner's Board of Directors has approved and/or acquiesced to an 8% management fee charged by Forum Group under the Management Agreement. The Iowa Complaint further alleged that the "industry standard" for such fees is 4%, thereby resulting in an "overcharge" to the Partnership estimated by the Plaintiff at $1.8 million per annum beginning in 1994. The Plaintiff sought the restoration of certain former directors to the Board of Directors of the General Partner and the removal of certain other Directors from the Board, an injunction prohibiting the payment of an 8% management fee, and unspecified compensatory and punitive damages. On April 3, 1995, the Iowa Court entered an order dismissing the Iowa Complaint on jurisdictional grounds. Although the Plaintiff filed a notice of appeal of the Iowa Court's ruling, it subsequently dismissed this appeal. On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint") in the United States District Court for the Southern District of Indiana (the "Indiana Court") against the General Partner and Forum Group seeking essentially the same relief. The defendants moved to dismiss the Indiana Complaint for failure to state a claim for which relief could be granted and, in response, on December 11, 1995 the Plaintiff amended the Indiana Complaint. The defendants moved to dismiss the amended complaint on similar grounds, and on May 17, 1996, the Indiana Court ruled on the defendant's motion by dismissing without prejudice two of the four counts contained in the amended complaint, namely the counts for alleged insider trading and civil conspiracy/aiding and abetting. The litigation continues to be in the discovery phase, and both the plaintiff and the defendant filed motions for summary judgment. The court has changed the scheduled trial date from May 5, 1997 to December 8, 1997. The General Partner intends to vigorously defend against this litigation. ITEM 2. CHANGES IN SECURITIES - ------------------------------ None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ---------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. ITEM 5. OTHER INFORMATION - -------------------------- None. 14 PART II. Other Information (continued) --------------------------------------- FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP March 31, 1997 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits Exhibit No. Description ----------- ----------- 99 Forward-Looking Statements (b) Reports on Form 8-K None. 15 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. FORUM RETIREMENT PARTNERS, L.P., A Delaware limited partnership BY: FORUM RETIREMENT, INC., GENERAL PARTNER --------------------------------------- Date: May 15, 1997 By: /s/ Paul E. Johnson, Jr. ------------------------------------------- PAUL E. JOHNSON, JR. PRESIDENT AND CHAIRMAN OF THE BOARD 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 5,271 0 5,066 501 0 14,099 130,088 32,667 112,956 10,246 46,554 0 0 0 40,135 112,956 14,270 14,311 10,287 13,779 0 0 1,272 527 0 527 0 0 0 527 .03 .03
EX-99 3 EXHIBIT 99 EXHIBIT 99 IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Reference is also made to uncertainties discussed in the following portions of the Partnership's annual report on Form 10-K for the fiscal year ended December 31, 1996: (a) the subsections entitled "Sources of Payment", "Regulation and Other Factors" and "Competition" in Item 2, within the "PROPERTIES" section, which describe (i) the federal and state governmental involvement and discretion in the funding and payment of Medicare and Medicaid payments that comprise a significant portion of the Partnership's revenues, (ii) the federal, state and local governmental regulation of healthcare facilities, including the requirements of continued licensure, and (iii) the competitive conditions faced by the Partnership, and (b) Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Competition: The profitability of retirement communities is subject to general economic conditions, competition, the desirability of particular locations, the relationship between supply of and demand for senior living facilities, and other factors. The Partnership's retirement communities are generally located in markets that contain numerous competitors, and the continued success of the Partnership's retirement communities in their respective markets will be dependent, in large part, upon those facilities' ability to compete in such areas as access, location, quality of accommodations, amenities, specialized services and rate structure. Facility Expansion: The timing and success of the planned expansion of the Partnership's existing retirement communities is dependent upon a number of factors, including without limitation the amount and timing of cash flow from operations to fund the expansion, the ability to obtain required zoning variances and permits from local governmental authorities and the timing thereof, whether development and construction costs are higher or lower than anticipated, whether construction is completed faster or slower than anticipated, whether newly added living units are occupied faster or slower than anticipated, whether rental rates for additional living units are higher or lower than anticipated, and whether operating costs are higher or lower than anticipated. Availability of Financing: The Partnership presently intends to finance the planned expansion of its existing retirement communities out of the Partnership's cash flow from operations. If cash flow from operations is insufficient to complete such expansion on a timely basis, the expansion may be delayed, reduced in scope or discontinued. The Partnership's long-term financing agreement restricts the ability of the Partnership to obtain third- party financing above $1 million in the aggregate, and prohibits the imposition of liens on the Partnership's assets. There can be no assurance that a waiver could be obtained from the lender to permit any third-party financing, or whether, when and on what terms any such financing may be available. -----END PRIVACY-ENHANCED MESSAGE-----