-----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, G93Hh0dZhSA0EblXwe1fA48FQLuUT281HjhBr6CkDxopgNJWKuayf6fiIPfDHWv3 VpxLQj90yuoyh+bzaVjdew== 0000892569-99-001484.txt : 19990518 0000892569-99-001484.hdr.sgml : 19990518 ACCESSION NUMBER: 0000892569-99-001484 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RETIREMENT VILLAS PROPERTIES III LTD PARTNERSHIP CENTRAL INDEX KEY: 0000853274 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330365417 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-30084 FILM NUMBER: 99627772 BUSINESS ADDRESS: STREET 1: 245 FISCHER AVE STE D 1 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7147517400 MAIL ADDRESS: STREET 2: 245 FISCHER AVE STE D1 CITY: COSTA MESA STATE: CA ZIP: 92626 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN RETIREMENT VILLAS PROPERTIES III L P DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q PERIOD END MARCH 31, 1999 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ___________ COMMISSION FILE NUMBER: 0-26470 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 33-0365417 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 245 FISCHER AVENUE, D-1 COSTA MESA, CA 92626 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400 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 [ ] =============================================================================== 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS American Retirement Villas Properties III, L.P. (a California limited partnership) Condensed Balance Sheets (Unaudited) (In thousands) ASSETS
MARCH 31, DECEMBER 31, 1999 1998 -------- ------------ Properties, at cost: Land $ 2,224 $ 4,674 Buildings and improvements, less accumulated depreciation of $2,361 and $5,177 at March 31, 1999 and December 31, 1998, respectively 13,139 23,572 Furniture, fixtures and equipment, less accumulated depreciation of $385 and $395 at March 31, 1999 and December 31, 1998, respectively 826 874 -------- -------- Net properties 16,189 29,120 Cash 2,112 1,900 Restricted cash 164 162 Notes receivable 2,765 -- Other assets 170 496 -------- -------- $ 21,400 $ 31,678 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Notes payable to banks $ 7,700 $ 18,326 Notes payable to others 4,730 4,745 Accounts payable 100 677 Accrued expenses 435 441 Amounts payable to affiliate 392 122 Distributions payable to Partners 440 399 -------- -------- Total liabilities 13,797 24,710 -------- -------- Commitments and contingencies Minority interest 97 95 -------- -------- Partners' capital (deficit): General partners' deficit (84) (90) Limited partners' capital, 18,666 units outstanding 7,590 6,963 -------- -------- Total partners' capital 7,506 6,873 -------- -------- $ 21,400 $ 31,678 ======== ========
See accompanying notes to the unaudited financial statements. 2 3 American Retirement Villas Properties III, L.P. (a California limited partnership) Condensed Statements of Income (unaudited) (In thousands, except unit data)
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 1999 1998 ------- ------- Revenues: Rent $ 1,954 $ 1,909 Assisted living 265 218 Interest and other 109 64 ------- ------- Total operating revenues 2,328 2,191 ------- ------- Costs and expenses: Rental property operations 1,121 969 Assisted living 124 87 General and administrative 119 136 Depreciation and amortization 288 334 Property taxes 80 70 Advertising 18 22 Interest 413 474 Minority interest in operations 51 35 ------- ------- Total operating costs and expenses 2,214 2,127 ------- ------- Operating income 114 64 Gain on sale of properties 4,739 -- ------- ------- Net income before cumulative effect of change in accounting principle 4,853 64 Cumulative effect of change in accounting principle (96) -- ------- ------- Net income $ 4,757 $ 64 ======= ======= Net income per limited partner unit before cumulative effect of change in accounting principle $257.42 $ 3.40 Cumulative effect of change in accounting principle (5.12) -- ------- ------- Net income per limited partner unit $252.30 $ 3.40 ======= =======
See accompanying notes to the unaudited financial statements. 3 4 American Retirement Villas Properties III, L.P. (a California limited partnership) Condensed Statements of Cash Flows (unaudited) (In thousands)
FOR THE THREE MONTHS ENDED MARCH 31, --------------------- 1999 1998 -------- ------- Cash flows from operating activities: Net income ............................................. $ 4,757 $ 64 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...................... 288 334 Gain on sale of properties ......................... (4,739) -- Cumulative effect of change in accounting principle 96 -- Interest expense on notes payable to bank added to principal ............................... -- 115 Change in assets and liabilities: Increase in restricted cash ..................... (2) (3) Decrease (increase) in other assets ............. 230 (136) Decrease in accounts payable and accrued expenses ...................................... (583) (156) Increase in amounts payable to affiliates, net... 270 785 Increase in minority interest ................... 2 5 -------- ------- Net cash provided by operating activities .... 319 1,008 -------- ------- Cash flows provided by (used in) investing activities: Improvements and building construction ............... -- (176) Proceeds from sale of senior apartment projects ...... 4,030 -- Additions to furniture, fixtures and equipment ....... (18) (250) -------- ------- Net cash provided by (used in) investing activities .................................. 4,012 (426) -------- ------- Cash flows provided by (used in) financing activities: Proceeds from notes payable .......................... -- 663 Principal repayments on notes payable to banks and others ......................................... (36) (72) Distributions paid ................................... (4,083) -- -------- ------- Net cash provided by (used in) financing activities ................................. (4,119) 591 -------- ------- Net increase in cash ..................................... 212 1,173 Cash at beginning of period .............................. 1,900 1,086 -------- ------- Cash at end of period .................................... $ 2,112 $ 2,259 ======== ======= Supplemental schedule of cash flow information - Cash paid during the period for interest ............. $ 413 $ 490 ======== ======= Supplemental schedule of non-cash investing and financing activities: Note receivable from sale of senior apartments ....... $ 2,765 -- Notes payable assumed by the buyer of the senior apartments ................................... 10,605 --
See accompanying notes to the unaudited financial statements. 4 5 American Retirement Villas Properties III, L.P. (a California limited partnership) Notes to Condensed Financial Statements (Unaudited) March 31, 1999 (1) SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION We prepared the accompanying condensed financial statements of American Retirement Villas Properties III, L.P. following the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by generally accepted accounting principles ("GAAP") can be condensed or omitted. The financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. These are condensed financial statements. To obtain a more detailed understanding of our results, you should also read the financial statements and notes in our Form 10-K for 1998, which is on file with the SEC. The results of operation can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. USE OF ESTIMATES In preparing the financial statements conforming with GAAP, we have made estimates and assumptions that affect the following: o reported amounts of assets and liabilities at the date of the financial statements; o disclosure of contingent assets and liabilities at the date of the financial statements; and o reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENT ACCOUNTING DEVELOPMENTS In April 1998, the Accounting Standards Executive Committee issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up Activities," which is effective for fiscal years beginning after December 15, 1998. The SOP provides guidance on the financial reporting of start-up activities and organizational costs. It requires costs of start-up activities and organizational costs to be expensed when incurred and, upon adoption, the write-off as a cumulative effect of a change in accounting principle of any previously capitalized start-up or organizational costs. We adopted the provisions of SOP 98-5 on January 1, 1999 and reported a charge of approximately $96,000 for the cumulative effect of this change in accounting principle. (2) TRANSACTIONS WITH AFFILIATES We have an agreement with ARV Assisted Living, Inc. ("ARV"), our Managing General Partner, providing for a property management fee of five percent of gross revenues amounting to $116,000 and $110,000, for the three-month periods ended March 31, 1999 and 1998, respectively. Additionally, we pay ARV a partnership management fee of 10 percent of cash flow before distributions, as defined in the Partnership Agreement, which amounted to $52,000 and $51,000 for the three-month periods ended March 31, 1999 and 1998, respectively. 5 6 (3) SALE OF SENIOR APARTMENT PROJECTS On February 19, 1999, we sold the three senior apartment projects for approximately $17.4 million, net of costs. In connection with the sale, we received cash of approximately $4.0 million, notes receivable, secured by the properties, due in November 1999 of approximately $2.8 million and the buyer assumed outstanding mortgage balances of approximately $10.6 million. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS
DOLLARS IN MILLIONS) Increase/ 1999 1998 (decrease) ------ ------ ---------- Revenue: Rent ............................... $ 1.9 $ 1.9 2.4% Assisted living .................... 0.3 0.2 21.7% Interest and other revenue ......... 0.1 0.1 54.0% ------ ------ ------ Total revenue .............. 2.3 2.2 6.3% ------ ------ ------ Costs and expenses: Rental property operations ......... 1.1 1.0 15.8% Assisted living .................... 0.1 0.1 43.6% General and administrative ......... 0.1 0.1 12.3% Depreciation and amortization ...... 0.3 0.3 (14.2)% Property taxes ..................... 0.1 0.1 13.9% Interest ........................... 0.4 0.5 (12.8)% Minority interest in operations .... 0.1 0.0 42.8% ------ ------ ------ Total costs and expenses ... 2.2 2.1 4.1% ------ ------ ------ Operating income ........... 0.1 0.1 77.9% Gain on sale of property ............. 4.7 -- 100.0% ------ ------ ------ Net income before cumulative effect of change in accounting principle ...... 4.8 0.1 7456.9% Cumulative effect of change in accounting principle ............... (0.1) -- (100.0)% ------ ------ ------ Net income ................ $ 4.7 $ 0.1 7306.7% ====== ====== ======
The increase in rental revenue is attributable to: o average occupancy for our assisted living communities increased to 93.4% for the three month period ended March 31, 1999 compared to 84.1% for the three month period ended March 31, 1998; o an increase in average rental rate per occupied unit to $1,528 for the three month period ended March 31, 1999 compared to $1,355 the three month period ended March 31, 1998; offset by: o only one and a half months of rent from senior apartments in 1999 due to the sale of the three apartment projects on February 19, 1999. The increase in assisted living revenue is attributable to: o an increase in assisted living penetration to 34.7% for the three month period ended March 31, 1999 compared with 32.5% for the three month period ended March 31, 1998; and o an increase in average assisted living rate per occupied unit to $249 for the three month period ended March 31, 1999 as compared with $228 the three month period ended March 31, 1998. The increase in interest and other revenue is attributable to: o bank accounts which utilize commercial paper investments being used during 1999; and o an increase in processing and other resident fees for the three month period ended March 31, 1999 resulting from increasing occupancy. The increase in rental property operations and assisted living operating expenses is attributable to: 6 7 o increased occupancy of Villa Las Posas as the community was in the lease-up phase during 1998; o staffing requirements related to increased assisted living services provided; and o increased wages of staff. General and administrative expenses and property taxes remained constant between periods. The decrease in interest expense is related to the buyer's assumption of the notes payable for the three senior apartments sold on February 19, 1999. The decrease in depreciation and amortization expense is related to sale of the three senior apartments and the elimination of amortization of start-up costs due to the adoption of SOP 98-5 which required us to write-off all capitalized start-up costs in January 1999. The increase in minority interest is a result of our improved financial results from a community in which we hold a 50% partnership interest. Cumulative effect of change in accounting principle is a result of the adoption of SOP 98-5 which requires that costs of start-up activities and organizational costs be expensed as incurred. LIQUIDITY AND CAPITAL RESOURCES We expect that the cash to be generated from operations of all our properties will be adequate to pay operating expenses, make necessary capital improvements, make required principal reductions of debt and make quarterly distributions. On a long-term basis, our liquidity is sustained primarily from cash flow provided by operating activities. During the three-month period ended March 31, 1999, cash provided by operating activities decreased to $0.4 million compared to $1.0 million for the corresponding period in 1998. The decrease was primarily due to timing of payments for accounts payable and amounts due to affiliates. During the three-month period ended March 31, 1999, our net cash provided by investing activities was $3.9 million compared to cash used in investing activities of $0.4 million for the corresponding period in 1998. The increase was a result of the sale of the three senior apartment projects and a reduction of capital expenditures in 1999. During the three-month period ended March 31, 1999, our net cash used in financing activities was $4.1 million compared to cash provided by financing activities of $0.6 million for the corresponding period in 1998. The cash used in financing activities was the result of distributions of the sale proceeds from the senior apartment sale to the partners. On September 30, 1999, $7.7 million of outstanding debt will become due and payable, however, we are currently working with a bank to refinance two of our ALCs and anticipate that a refinancing will be completed in June 1999; however, no assurances can be given that the refinancing will be completed. At March 31, 1999, we were not in compliance with the debt service coverage ratio and the liabilities to net worth ratio under this agreement. We have obtained a waiver for those covenants with which we were not in compliance. Had we not obtained the waiver, we would have been in default of $7.7 million of debt. We contemplate spending approximately $400,000 for capital expenditures during 1999 for physical improvements at our communities. Funds for these improvements are expected to be available from operations. We are not aware of any trends, other than national economic conditions which have had, or which may be reasonably expected to have, a material favorable or unfavorable impact on the revenues or income from the operations or sale of properties. We believe that if the inflation rate increases, we will be able to pass the subsequent increase in operating expenses onto the residents of the communities by way of higher rental and assisted living rates. The implementation of price increases is intended to lead to an increase in revenue; however, those increases may result in an initial decline in occupancy and/or a delay in increasing occupancy. If this occurs, revenues may remain constant or even decline. YEAR 2000 ISSUE 7 8 General We use certain computer programs that were written using two digits rather than four to define the year. As a result, those programs may recognize a date using "00" as the year 1900 rather than the year 2000. In the event this were to occur with any of our computer programs, a system failure or miscalculation causing disruptions of operations could occur. Such a failure could cause the temporary inability to process transactions, send invoices or engage in similar normal business activities. We have developed a comprehensive program to test and modify our information technology to address the Year 2000 Issue. We believe that our program is on schedule for completion by the end of 1999, and that there will be no material impact on our business, results of operations, financial position or liquidity as a result of Year 2000 Issues. Program Our program is focused on the following three main projects: o information technology infrastructure - all of our hardware and software systems; o community maintenance - community specific systems, including alarms (security, fire and emergency call), elevator, phone, HVAC, and other systems; and o third party suppliers/vendors. For each component, we are addressing the Year 2000 Issues in the following six phases: o taking inventory of systems with potential Year 2000 Issues; o assigning priorities to systems identified with Year 2000 Issues; o assessing items which may have a material effect on our operations; o testing items assessed as material; o replacing or repairing material non-compliant items; and o designing and implementing business continuation plans. We have received communications from third-party providers of our administrative services, as well as our significant suppliers of services and products, to determine the extent to which we are vulnerable to those parties' failures to remediate their own Year 2000 Issues. We completed our evaluation of those suppliers during the third quarter of 1998. We do not presently believe that third party Year 2000 issues will have a material adverse effect on us. However, there can be no guarantee that the systems of other companies on which our operations or systems rely will be remedied on a timely basis or that a failure by another company to remediate its systems in a timely manner would not have a material adverse effect on us. Costs We expect to successfully implement the changes necessary to address our Year 2000 Issues, and do not believe that the cost of such actions will have a material adverse effect on our financial position, results of operations or liquidity. We are currently unable to assess the costs to remediate any Year 2000 Issues that may result from the assessment. Risks We believe that our Year 2000 program will be completed by the end of the third quarter of 1999. Our program's schedule is based on a number of factors and assumptions, such as: o the accuracy and completeness of responses to our inquiries; and o the availability of skilled personnel to complete the program. Our program's schedule could be adversely impacted if either of the factors and assumptions is incorrect. The failure to correct a material Year 2000 Issue could result in an interruption in our normal business operations. There can be no assurance, however, that there will not be delays in, or increased costs associated with, the implementation of such changes, and our inability to implement such changes could have a material adverse effect on our business, operating results, and financial condition. 8 9 We intend to determine if contingency plans are needed for any aspect of our business with respect to Year 2000 Issues (including most likely worst case Year 2000 scenarios), and to create those contingency plans by the end of the third quarter of 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Disclosures about our market risk are included in Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 1998, filed March 31, 1999. In the opinion of our management, no material changes have occurred with respect to our market risks since December 31, 1998. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibit 27 - Financial Data Schedule B. None 9 10 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. AMERICAN RETIREMENT VILLAS PROPERTIES III, A CALIFORNIA LIMITED PARTNERSHIP By: ARV Assisted Living, Inc., a Delaware Corporation (Managing General Partner) By: /s/ Douglas M. Pasquale ------------------------------------------ Douglas M. Pasquale President, Chief Executive Officer and Director of ARV Assisted Living, Inc. Date: May 14, 1999 By: /s/ Abdo H. Khoury ------------------------------------------ Abdo H. Khoury Senior Vice President, Chief Financial Officer or ARV Assisted Living, Inc. Date: May 14, 1999 10 11 EXHIBIT INDEX Exhibit 27 - Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 2,112 0 0 0 0 0 18,935 2,746 21,400 0 12,430 0 0 0 7,506 21,400 0 2,328 0 1,801 0 4,739 413 4,853 0 4,853 0 0 (96) 4,757 252.30 252.30 Net income per limited partner unit. Gain on sale of properties.
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