-----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, HsevmM+Q6yi8rYnq+UxBzFdutRrrg1yV6qr0BI76BHIuPY7hfaGnhumN7Y9Xjufr uy82q3iFCn/5NUO7sGNPNg== /in/edgar/work/20000811/0001095811-00-002667/0001095811-00-002667.txt : 20000921 0001095811-00-002667.hdr.sgml : 20000921 ACCESSION NUMBER: 0001095811-00-002667 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RETIREMENT VILLAS PROPERTIES III LTD PARTNERSHIP CENTRAL INDEX KEY: 0000853274 STANDARD INDUSTRIAL CLASSIFICATION: [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: 694054 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 e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED JUNE 30, 2000 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 JUNE 30, 2000 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 33-365417 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER 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 Consolidated Balance Sheets (Unaudited) (In thousands) ASSETS
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Properties, at cost: Land $ 2,224 $ 2,224 Buildings and improvements, less accumulated depreciation of $3,260 and $2,976 at June 30, 2000 and December 31, 1999, respectively 12,494 12,768 Furniture, fixtures and equipment, less accumulated depreciation of $602 and $527 at June 30, 2000 and December 31, 1999, respectively 665 746 -------- -------- Net properties 15,383 15,738 Cash 2,529 2,190 Restricted cash 172 168 Loan fees, less accumulated amortization of $373 and $240 at June 30, 2000 and December 31, 1999, respectively 295 401 Other assets 400 289 -------- -------- $ 18,779 $ 18,786 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Notes payable to banks $ 13,249 $ 13,323 Notes payable to others 2,325 2,342 Accounts payable 95 116 Accrued expenses 536 486 Amounts payable to affiliate 109 118 Distributions payable to Partners 107 286 -------- -------- Total liabilities 16,421 16,671 -------- -------- Minority interest 128 115 -------- -------- Partners' capital (deficit): General partners' deficit (135) (139) Limited partners' capital, 18,666 units outstanding 2,365 2,139 -------- -------- Total partners' capital 2,230 2,000 -------- -------- Commitments and contingencies $ 18,779 $ 18,786 ======== ========
See accompanying notes to the unaudited financial statements. 2 3 American Retirement Villas Properties III, L.P. (a California limited partnership) Consolidated Statements of Operations (unaudited) (In thousands, except unit data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------- 2000 1999 2000 1999 ------- ------- ------ ------- REVENUES: Rent ................................. $ 1,852 $ 1,655 $3,759 $ 3,609 Assisted living ...................... 284 253 551 518 Interest and other ................... 66 202 158 311 ------- ------- ------ ------- Total operating revenues .... 2,202 2,110 4,468 4,438 ------- ------- ------ ------- COSTS AND EXPENSES: Rental property operations ........... 1072 1008 2,186 2,126 Assisted living ...................... 149 156 329 313 Depreciation and amortization ........ 272 231 542 519 Interest ............................. 270 322 653 736 General and administrative ........... 85 103 171 189 Property taxes ....................... 57 57 114 137 Advertising .......................... 28 25 57 46 ------- ------- ------ ------- Total operating costs and expenses ................... 1,933 1,902 4,052 4,066 ------- ------- ------ ------- Operating income ............ 269 208 416 372 Income tax expense ................... 3 -- 5 -- ------- ------- ------ ------- Income from continuing operations before minority interest in income of majority owned entities, gain (loss) on sale of properties and change in accounting principle ................ 266 208 411 372 Minority interest in income of majority owned entities ............. 39 36 119 87 ------- ------- ------ ------- Net income before gain (loss) on sale of properties and change in accounting principle ................ 227 172 292 285 Gain (loss) on sale of properties .... -- (178) -- 4,562 ------- ------- ------ ------- Net income before cumulative effect of change in accounting principle ... 227 (6) 292 4,847 ------- ------- ------ ------- Cumulative effect of change in accounting principle ................ -- -- -- (96) ------- ------- ------ ------- Net income (loss) .................... $ 227 $ (6) $ 292 $ 4,751 ======= ======= ====== ======= Net income per limited partner unit before cumulative effect of change in accounting principle ................ 12.09 .0 15.48 259.62 Cumulative effect of change in accounting principle ................ -- -- -- (5.09) ------- ------- ------ ------- Net income (loss) per limited partner unit ................................ $ 12.09 $ .0 $15.48 $254.53 ======= ======= ====== =======
See accompanying notes to the unaudited financial statements. 3 4 American Retirement Villas Properties III, L.P. (a California limited partnership) Consolidated Statements of Cash Flows (unaudited) (In thousands)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 -------- -------- Cash flows from operating activities: Net income ................................................ $ 292 $ 4,751 Adjustments to reconcile net income to net cash provided by Operating activities: Depreciation and amortization ......................... 542 519 Gain on sale of properties ............................ -- (4,562) Cumulative effect of change in accounting principle ... -- 96 Increase in minority interest ......................... 119 8 Change in assets and liabilities: Increase in restricted cash ......................... (4) (2) Increase in other assets ............................ (138) (231) Increase (decrease) in accounts payable and accrued expenses ........................................... 29 (734) Increase (decrease) in amounts payable to affiliates, net ................................................ (9) 15 -------- -------- Net cash provided by (used in) operating activities ................................... 831 (140) -------- -------- Cash flows used in investing activities: Improvements and building construction .................. -- -- Proceeds from sale of properties ........................ -- 3,962 Additions to furniture, fixtures and equipment, net ..... (53) (90) -------- -------- Net cash provided by (used in) investing activities .................................... (53) 3,872 -------- -------- Cash flows from financing activities: Proceeds from notes payable ............................. -- 13,191 Principal repayments on notes payable to banks and others (91) (10,081) Proceeds from note receivable ........................... -- 2,765 Distributions paid ...................................... (348) (4,430) -------- -------- Net cash provided by (used in) financing activities ................................... (439) 1,445 -------- -------- Net increase in cash ........................................ 339 5,177 Cash at beginning of period ................................. 2,190 1,900 -------- -------- Cash at end of period ....................................... $ 2,529 $ 7,077 ======== ======== Supplemental disclosure of cash flow information- Cash paid during the period for interest ................ $ 765 $ 808 ======== ======== Supplemental schedule of non-cash investing and financing activities: 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 Financial Statements (Unaudited) June 30, 2000 (1) SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING We prepared the accompanying condensed consolidated 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, one should also read the financial statements and notes in our Form 10-K for 1999, which is on file with the SEC. The results of operations 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 amount 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 Standard Executive Committee issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up Activities," which was 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 provision of SOP 98-5 on January 1, 1999 and reported a charge of approximately $96,000 in 1999 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 $ 108,384 and $ 95,372 for the three-month period and $219,994 and $210,427 for the six-month period ended June 30, 2000 and 1999 respectively. Additionally, a partnership management fee of 10 percent of cash flow before distributions, as defined in the Partnership Agreement, amounted to $ 44,379 and $ 40,372 for the three-month period and $ 88,474 and $ 91,939 for the six-month period ended June 30, 2000 and 1999 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, $2.8 million in notes receivable paid in June, and assumption of mortgage balances of approximately $10.6 million by the buyer. (4) NOTES PAYABLE On June 28, 1999, we obtained financing of $13.2 million on two owned communities. As part of the loan requirements, we created a wholly owned subsidiary Retirement Inns III, LLC. The loan is for 24 months and is secured by the various properties; in addition, ARV Assisted Living, our managing general partner, is a guarantor on the loan for fraud, material misrepresentation and certain covenants. The mortgage loans are due June 2001 and are in the process of being refinanced with 30-year loans. However, we have not received the approvals necessary to ensure the loans will be available. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONDENSED RESULTS OF OPERATIONS
For the Six Months Ended June 30, (DOLLARS IN MILLIONS) Increase/ 2000 1999 (decrease) ----- ----- ---------- Revenue: Rent ............................................... $ 3.8 $ 3.6 4.2% Assisted living .................................... 0.6 0.5 6.4% Interest and other revenue ......................... 0.1 0.3 (49.4)% ----- ----- ------ Total revenue .............................. 4.5 4.4 0.7% ----- ----- ------ Costs and expenses: Rental property operations ......................... 2.3 2.2 2.8% Assisted living .................................... 0.3 0.3 5.0% General and administrative ......................... 0.2 0.2 (2.4)% Depreciation and amortization ...................... 0.5 0.5 4.6% Property taxes ..................................... 0.1 0.1 (16.9)% Interest ........................................... 0.7 0.7 (11.3)% ----- ----- ------ Total costs and expenses ................... 4.1 4.0 (0.2)% ----- ----- ------ Operating income ........................... 0.4 0.4 10.2% Minority interest in operations .................... 0.1 0.1 36.9% ----- ----- ------ Net Income before gain (loss) on sale of properties and change in accounting principle .................. 0.3 0.3 2.0% ----- ----- ------ Net profit on sale of property ....................... -- 4.6 (100.0)% ----- ----- ------ Net income before cumulative effect of change in accounting principle ................................ 0.3 4.9 (94.0)% Cumulative effect of change in accounting principle .. -- (0.1) (100.0)% ----- ----- ------ Net income ................................ $ 0.3 $ 4.8 (93.9)% ===== ===== ======
The increase in rental revenue is attributable to: o average occupancy for our assisted living communities increased to 97.3% for the six-month period ended June 30, 2000 compared to 92.7% for the six-month period ended June 30, 1999; and o an increase in average rental rate per occupied unit to $1,752 for the six-month period ended June 30, 2000 compared to $1,598 for the six-month period ended June 30, 1999; offset by o only one and a half month 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 an increase in assisted living average monthly revenue from $670 for the six-month period ended June 30, 1999 compared with $680 for the six-month period ended June 30, 2000. 6 7 The decrease in interest and other revenue is attributable to: o a lack of interest income from notes receivable in connection with the sale of three apartment projects in February 1999; offset by o an increase in interest earned from bank accounts which utilize commercial paper investments; and o a decrease in processing and other resident fees for the six-month period ended June 30, 2000 due to competitor's waiving such fees to increase occupancy. The increase in rental property operations and assisted living operating expenses is attributable to: o increased occupancy in assisted living communities; and o staffing requirements related to increased assisted living services provided; and o increased salaries of staff; offset by o a decrease in expenses from senior apartments which were sold in 1999. General and administrative expenses decreased due to a reduction of expenses due to cost-cutting efforts. Property taxes decreased due to the sale of the senior apartments in February 1999. The decrease in interest expense is related to the following: o buyer's assumption of the notes payable for the three senior apartments sold on February 19, 1999; and o $112,000 recovery of the interest rate lock and commitment fees incurred in connection with the failed refinancing of certain notes payable in 1998; offset by o an increase in expense from refinancing in June 1999 of two communities.
For the Three Months Ended June 30, (DOLLARS IN MILLIONS) Increase/ 2000 1999 (decrease) ---- ---- ---------- Revenue: Rent ......................................... $1.9 $1.7 11.9% Assisted living .............................. 0.2 0.2 12.0% Interest and other revenue ................... 0.1 0.2 (67.1)% ---- ---- ------- Total revenue ........................ 2.2 2.1 4.4% ---- ---- ------- Costs and expenses: Rental property operations ................... 1.1 1.0 6.3% Assisted living .............................. 0.1 0.2 (4.0)% General and administrative ................... 0.1 0.1 (17.4)% Depreciation and amortization ................ 0.3 0.2 (17.7)% Property taxes ............................... 0.1 0.1 (0.8)% Interest ..................................... 0.3 0.3 (16.3)% ---- ---- ------- Total costs and expenses ............. 2.0 1.9 1.8% ---- ---- ------- Operating income ..................... 0.2 0.2 28.1% Minority interest in operations .............. 0.0 0.0 (7.2)% ---- ---- ------- Net income before gain(loss) on sale of property 0.2 0.2 32.5% Net loss on sale of property ................... 0.0 (0.2) (100.0)% ---- ---- ------- Net income .......................... $0.2 $0.0 (3799.7)% ==== ==== =======
The increase in rental revenue is attributable to: o average occupancy for our assisted living communities increased to 96.2% for the three-month period ended June 30, 2000 compared to 92.8% for the three-month period ended June 30, 1999; 7 8 o an increase in average rental rate per occupied unit to $1,745 for the three-month period ended June 30, 2000 compared to $1,609 for three-month period ended June 30, 1999. The increase in assisted living revenue is attributable to an increase, noted earlier, in assisted living average monthly revenue from $674 for the three-month period ended June 30, 1999 compared with $687 for the three-month period ended June 30, 2000. The decrease in interest and other revenue is attributable to: o a lack of interest income from notes receivable in connection with the sale of three apartment projects in February 1999; offset by o an increase in interest earned from bank accounts which utilize commercial paper investments; and o a decrease in processing and other resident fees for the three-month period ended June 30, 2000 due to competitor's waiving such fees to increase occupancy. The increase in rental property operations and assisted living operating expenses is attributable to: o increased occupancy in assisted living communities; and o staffing requirements related to increased assisted living services provided; and o increased salaries of staff; offset by o a decrease in expenses from the senior apartments which were sold in February 1999. Minority interest and property taxes remained relatively constant between periods. The decrease in interest expense is related to the $112,000 recovery of the interest rate lock and commitment fees incurred in connection with the failed refinancing of certain notes payable in 1998; offset by the refinancing in June 1999 of two communities. 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, fund necessary capital improvements, meet required principal payments of debt and pay quarterly distributions. On a long-term basis, our liquidity is sustained primarily from cash flow provided by operating activities. During the six-month period ended June 30, 2000, cash provided by operating activities increased to $0.8 million compared to cash used in operating activities of $0.1 million for the corresponding period in 1999. During the six-month period ended June 30, 2000, our net cash used in investing activities was $0.05 million compared to cash provided by investing activities of $3.9 million for the corresponding period in 1999. The decrease was primarily a result of the sale of the three senior apartment projects in 1999. During the six-month period ended June 30, 2000, our net cash used in financing activities was $0.4 million compared to $1.4 million provided by financing activities for the corresponding period in 1999. The components of which are as follows: o Cash provided by proceeds from refinancing of two properties in June 1999; offset by o repayments of bridge loan in 1999; o Collection of $2.8 million receivable from the sale of apartments in the first quarter of 1999; offset somewhat by o Distribution of the sale proceeds from the senior apartment sale to the partners. The mortgage loans from Banc One are due June 2001 and, are in the process of being refinanced with 30-year loans. However, the company has not received the approvals necessary to ensure the loans will be available. 8 9 Our debt agreements contain restrictive covenants requiring us to maintain a certain level of debt service coverage. At June 30, 2000, we were not in compliance with the debt service coverage ratio. We have obtained waivers for those covenants with which we were not in compliance. Had we not obtained waivers we would have been in default on certain debt agreements. We anticipate spending approximately $300,000 for capital expenditures during 2000 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 they 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. ITEM 3. QUANATITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risks related to fluctuations in interest rates on our fixed rate notes payable. Currently, we do not utilize interest rate swaps. You should be aware that many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading "Forward-Looking Statements" in Form-10K for the fiscal year ended December 31, 1999. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair market value of the debt instrument, but do affect our future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until we would be required to refinance such debt. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibit 27 - Financial Data Schedule B. None 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 Chairman of the Board of ARV Assisted Living, Inc., General Partner Date: August 11, 2000 By: /s/ Abdo H. Khoury -------------------------------------- Abdo H. Khoury Senior Vice President and Chief Financial Officer of ARV Assisted Living, Inc., General Partner Date: August 11, 2000 9 10 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 27 Financial Data Schedule EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 2,701 0 0 0 0 0 19,245 3,862 18,779 0 15,574 0 0 0 2,230 18,779 0 4,468 0 3,399 119 0 653 297 5 292 0 0 0 292 15.48 15.48 Net income per limited partner unit.
-----END PRIVACY-ENHANCED MESSAGE-----