-----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, ChIzOeiFwt99XPwNo/F43eSYHgDRGgcmw02n97Ei+Ig6ju19kYNT2yw1MhGn+Ahh CXxQX5vzxAfFmAhBWKN6rQ== 0000899078-98-000120.txt : 19980401 0000899078-98-000120.hdr.sgml : 19980401 ACCESSION NUMBER: 0000899078-98-000120 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NHP RETIREMENT HOUSING PARTNERS I LTD PARTNERSHIP CENTRAL INDEX KEY: 0000793730 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521453513 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16815 FILM NUMBER: 98584121 BUSINESS ADDRESS: STREET 1: 14160 DALLAS PARKWAY STREET 2: STE 300 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2147703600 MAIL ADDRESS: STREET 1: 14160 DALLAS PKWY STE 300 CITY: DALLAS STATE: TX ZIP: 75240 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1997, 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 0-16815 ------- NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) DELAWARE 52-1453513 - -------------------------------------------------------------------------------- (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 770-5600 -------------- Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- 42,711 Limited Partnership Assignee Interests 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 twelve 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 check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in defini tive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The Registrant's outstanding securities consist of assignee interests in limited partnership interests which have no readily ascertainable market value since there is no public trading market for these securities on which to base a calculation of aggregate market value. Documents incorporated by reference. None ------ Page 1 of 25 ------------ Exhibit Index: Page 24 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP (A Delaware Limited Partnership) 1997 Form 10-K Annual Report TABLE OF CONTENTS PART I ------ Page ---- Item 1. Business 1 Item 2. Properties 2 Item 3. Legal Proceedings 3 Item 4. Submission of Matters to a Vote of Security Holders 3 PART II ------- Item 5. Market for the Registrant's Pension Notes and Limited Partnership Assignee Interests and Related Partnership Matters 3 Item 6. Selected Financial Data 4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Item 8. Financial Statements and Supplementary Data 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 21 PART III -------- Item 10. Directors and Executive Officers of the Registrant 21 Item 11. Executive Compensation 22 Item 12. Security Ownership of Certain Beneficial Owners and Management 23 Item 13. Certain Relationships and Related Transactions 23 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 24 PART I ------ Item 1. Business - ------ -------- NHP Retirement Housing Partners I Limited Partnership (the Partnership), a Delaware limited partnership, was formed under the Delaware Revised Uniform Limited Partnership Act as of March 10, 1986. On September 23, 1986, the Partnership commenced offering 25,000 Assignee Interests and 50,000 Pension Notes, both at a price of $1,000 per unit (the Offering). The Partnership subsequently exercised its right to increase the offering to 75,000 Assignee Interests and 100,000 Pension Notes. The offering was managed by NHP Real Estate Securities, Inc. and was terminated on September 22, 1987, with subscriptions for 42,711 Assignee Interests and 42,697 Pension Notes. The Assignee Interests were sold to taxable individuals or entities and represent assignments of limited partnership interests in the Partnership issued to NHP RHP-I Assignor Corporation (Assignor Corporation), a Delaware corporation, the assignor and sole limited partner. Pension Notes were sold to qualified profit-sharing, pension and other retirement trusts, bank commingled trust funds for such trusts, Keogh Plans and IRAs, government pension and retirement trusts, and other entities intended to be exempt from Federal taxation. The Pension Notes are obligations of the Partnership issued under a Trust Indenture between the Partnership and The National Bank of Washington (NBW), Washington, D.C., as Trustee, and have a preference over the Assignee Interests with respect to payment. In August 1990, the assets of NBW were purchased by Riggs National Bank, Washington, D.C. which became the successor trustee. In November 1996, Riggs National Bank transferred its trust operations to the Bank of New York, New York City, which claims to be the successor trustee. The original General Partner of the Partnership was NHP/RHGP-I Limited Partnership (NHP/RHGP-I), a Delaware limited partnership, and NHP/RHGP-I held a 2% interest as general partner in the Partnership. On December 19, 1991, NHP/RHGP-I executed an amended and restated purchase agreement with Capital Realty Group Properties, Inc. (CRG), a Texas corporation, for the transfer of its general partner interests in the Partnership. CRG assigned its rights under this purchase agreement to an affiliate, Capital Realty Group Senior Housing, Inc. (CRGSH), a Texas corporation. The substitution of CRGSH as sole general partner of the Partnership required the consent of 50% or more of the outstanding Assignee Interests which had been issued by the Partnership and assigned by Assignor Corporation to the Assignee Holders. Under the Partnership Agreement, holders of the Pension Notes are not entitled to vote. Pursuant to a Consent Solicitation dated October 25, 1994, Assignee Holders holding more than 64% of the equity interests in the Partnership approved the election of CRGSH, as the replacement general partner of the Partnership. Effective January 23, 1995, CRGSH became the new sole general partner of the Partnership. CRGSH is a wholly owned subsidiary of Capital Realty Group Corporation, a Texas corporation (Capital). Capital is owned 50% by James A. Stroud (through a trust) and 50% by Jeffrey L. Beck. The address of the principal executive offices of CRGSH is the same as the Partnership: 14160 Dalla Parkway, Suite 300, Dallas, Texas 75240, and their telephone number at such address is the same as the Partnership, (972)770-5600. The Partnership's business is to acquire existing and to develop new residential rental properties for retirement age occupants (the Properties) to the extent possible on an all cash basis (without third party mortgage indebtedness) and to operate such Properties. The Partnership presently owns four properties and has a 99.99% interest in a fifth property. See Item 2. Properties for a description of these Properties and the business plan for these Properties. Effective January 1, 1992, CRGSH was selected by NHP/RHGP-I to manage the five Properties of the Partnership. Effective June 1, 1993, the Partnership entered into a Partnership Management Agreement with CRGSH to provide administrative services on behalf of the Partnership. This Partnership management agreement was terminated effective upon CRGSH becoming the substitute general partner. CRGSH assigned its contract rights to manage the Partnership properties to Capital Senior Living, Inc. ("CSL"), a subsidiary of Capital Senior Living Corporation, effective February 1, 1996. The Partnership did not have any employees as of December 31, 1997. 1 Regulatory Matters - ------------------ Federal, state and local government regulations govern fitness and adequacy, equipment, personnel and standards of medical care at a health care facility, as well as health and fire codes. Changes in the applicable regulations could adversely affect the operations of a property, which could also affect the financial results of the Partnership. Any impact from proposed health care legislation is not known at this time; however, such impact could adversely affect the Partnership operations. Item 2. Properties - ------ ---------- The following is a schedule of the Properties owned by the Partnership. All of the Properties are owned in fee directly by the Partnership except The Amberleigh, which is owned by a limited partnership in which the Partnership is a 99.99% partner. The Properties are encumbered by mortgages in favor of the trustee for the benefit of the Pension Note holders. Units Occupied Units Occupied Number as a Percentage of as a Percentage of Property of Total Units, as of Total Units, as of Name/Location Units December 31, 1997 December 31, 1997 ------------- ------ ------------------ ------------------ Veranda Club 189 96% 98% Boca Raton, Florida The Amberleigh 271 97% 98% At Woodstream Farms Williamsville, New York The Atrium at Carmichael 153 99% 98% Sacramento, California Crosswood Oaks 122 91% 86% Sacramento, California The Heatherwood 160 98% 81% Southfield, Michigan 2 The cornerstones of the General Partner's business plan for continuing to improve the Properties' performance are expanding the services offered to residents to include special services and home health care programs, continued effective use of creative marketing techniques such as outreach to local hospitals and physicians, and sound, cost effective site operations. The introduction of special services and home health care is intended to end the premature loss of tenants which some of the Partnership's properties have experienced in the past. Special services and home health care also tends to attract the well elderly to a community because they see the possibility of receiving assistance in their day-to-day living (e.g., bathing, dressing, eating and taking medication) without having to move to another facility at a difficult time. Thus, offering special services and home health care tends to attract more people who know they can stay for a longer period, with obvious benefits to the community's occupancy and resident turnover. The General Partner believes this philosophy provides an opportunity for improved operations at the Properties. Due to aging of the Properties and the Partnership's goal to remain competitive in its real estate markets, the General Partner developed an ongoing capital improvement program that was implemented in 1994. The program varies by property, but generally includes painting of the building, replacement of carpet and curtains, purchase of new furniture and furniture refurbishment, and purchase of new equipment. In 1997 , 1996 and 1995 , $1,022,465 (which includes a land purchase of $502,440), $712,919, and $525,567 respectively, was spent for capital expenditures. Budgeted capital expenditures for 1998 are approximately $619,520 . Item 3. Legal Proceedings - ------ ----------------- The Partnership is not involved in any material legal proceedings as of March 1, 1998. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- None. PART II ------- Item 5. Market for the Registrant's Pension Notes and Limited Partnership ----------------------------------------------------------------------- Assignee Interests and Related Partnership Matters -------------------------------------------------- (a) Assignee Interests and Pension Notes were sold through a public offering managed by NHP Real Estate Securities, Inc. There is not currently, and it is not anticipated that there will be, any established public trading market for resale of Assignee Interests or Pension Notes. Accordingly, an investor may be unable to sell or otherwise dispose of his interest in the Partnership. (b) As of March 1, 1998, there were 2,403 registered holders of Assignee Interests and 3,206 registered holders of Pension Notes. As of March 1, 1998, an affiliate of the general partner of the Partnership had purchased approximately 13,478 Pension Notes, or approximately 31.6% of the Partnership's outstanding Pension Notes. (c) Each Pension Note bears stated interest in an amount equal to 13 percent per annum, 9 percent of which was subject to deferral through December 31, 1988 and 6 percent of which is subject to deferral thereafter. Interest is payable quarterly. Quarterly distributions of Cash Available for Distribution (as defined in the Partnership Agreement) are payable to Assignee Interest Holders within 60 days after the end of each three-month period, subject to the General Partner' right to restrict or suspend such distributions for limited periods, if the General Partner, in its absolute discretion, determines that such restriction or suspension is in the best interests of the Partnership. 3 For each of the years ended December 31, 1997 , 1996 and 1995 , interest paid to the Pension Note Holders as a group totaled $2,987,040, $2,995,574, and $2,987,040 , respectively, per year. With respect to the fourth quarter of 1997 , interest payments paid to Pension Note Holders on February 28, 1998 amounted to $752,734 . No cash distributions were paid to the Assignee Interest Holders during 1997 , 1996 , or 1995 . As presented in the Statement of Cash Flows (as excerpt below), cash and cash equivalents increased $478,552 and $538,577 for the years ended December 31, 1997 and 1996 respectively, and decreased $114,543 for the year ended December 31, 1995 . Future cash requirements have caused the General Partner to determine that it is not financially appropriate to make distributions to Assignee Interest Holders. The General Partner anticipates that distributions will be suspended until operating results significantly improve. See Item 7 below. Item 6. Selected Financial Data - ------ -----------------------
Years Ended December 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Revenue $ 15,548,138 $ 14,488,099 $ 14,020,626 $ 13,445,022 $ 12,247,313 ============= ============= ============= ============= ------------- Loss due to reduction in carrying value of rental property $ 0 $ 0 $ 0 $ 0 $ 3,300,000 ============= ============= ============= ============= ============= Net loss $ 3,522,917 $ 3,574,668 $ 3,690,549 $ 3,773,975 $ 7,580,517 ============= ============= ============= ============= ============= Net Loss per Assignee Interest $ 81 $ 82 $ 85 $ 87 $ 174 ============= ============= ============= ============= ============= Total assets $ 55,585,840 $ 56,071,884 $ 57,749,496 $ 58,967,958 $ 60,399,012 ============= ============= ============= ============= ============= Long-term obligations - Pension Notes, and related interest payable $ 66,402,407 $ 63,353,172 $ 60,573,461 $ 58,039,450 $ 55,729,421 ============= ============= ============= ============= ============= Cash distributions per Assignee Interest $ 0 $ 0 $ 0 $ 0 $ 0 ============= ============= ============= ============= =============
Item 7. Management's Discussion and Analysis of Financial Condition and Results ------------------------------------------------------------------------ of Operations ------------- Results of Operations - --------------------- Income from rental operations increased to $3,166,234 from $2,706,587 and $2,377,625 for the years ended December 31, 1997 , 1996 , and 1995 , respectively. Rental revenue increased in 1997 to $15,243,028 from $14,241,055 in 1996 , or an increase of 7.0 %, primarily as a result of rental rate increases and improved occupancy at Crosswood Oaks and the Heatherwood. Rental expenses also increased to $12,381,904 in 1997 from $11,781,512 in 1996 , or an increase of 5.1 %, reflecting increased costs primarily in salaries, management fees, administration, depreciation, taxes and insurance costs, utilities, maintenance and food services. The Partnership's net loss is $3,522,917, $3,574,668, and $3,690,549 for the years ended December 31, 1997, 1996 and 1995, respectively. Rental revenue increased in 1996 to $14,241,055 from $13,754,959 in 1995, or an increase of 3.5%, primarily as a result of increased rental rates. Rental expenses also increased to $11,781,512 in 1996 from $11,643,001 in 1995, or an increase of 1.2%, reflecting increased costs in management fees, administration, depreciation, taxes and insurance, utilities, maintenance and resident services. 4 Liquidity and Capital Resources - ------------------------------- Net cash provided by operating activities during 1997 was $1,561,977, representing a significant improvement over 1996 and 1995 net cash provided by operating activities of $1,125,278 and $659,336, respectively. Rent collections increased in 1997 to $15,239,499 from $14,244,537 in 1996, an increase of 7.0%, primarily from rental rate increases and increased occupancies at Crosswood Oaks and the Heatherwood. Rental collections likewise increased from $13,747,228 in 1995 to $14,244,537 in 1996, or an increase of 3.6%, primarily from rental rate increases. Operating expenses paid increased from $10,370,794 in 1996 to $10,996,792 in 1997, or an increase of 6.0%, reflecting increased costs in salaries, management fees, administration, depreciation, taxes and insurance, utilities, maintenance and food services. Operating expenses paid slightly increased from $10,366,496 in 1995 to $10,370,794 in 1996. Interest paid was $2,987,040 in 1997, $2,995,574 in 1996 and $2,987,040 in 1995. For the years ended 1997 , 1996 and 1995 , cash generated from rental operations was sufficient to pay the base interest amount on the $42,672,000 of outstanding Pension Notes of $2,987,040, $2,995,574, and $2,987,040 , respectively. Interest payments on the Pension Notes are accrued at a 13% rate, but were paid based on a 7% pay rate in 1997 , 1996 , and 1995 . The remaining 6% unpaid portion for these years as well as amounts deferred in prior years in accordance with the terms of the Pension Notes continues to be accrued and are due at maturity, December 31, 2001. Accrued and unpaid interest at December 31, 1997 , amounted to $23,730,407 . At the time of the maturity of the Pension Notes, total principal and accrued interest due will approximate $81 million. Cash and cash equivalents at December 31, 1997, amounted to $4,495,733 as compared to $4,017,181 at December 31, 1996. Cash required by operations, including interest on Pension Notes, has been funded by maturing short-term investments or available cash on hand. Though operations improved in the current year, if operations do not improve significantly in the long-term, future funds may not be available to meet operating requirements or for payment of the Pension Notes and accrued interest a described herein. This cash need has caused the General Partner to determine that it is not financially appropriate to make distributions to Assignee Interest Holders. The General Partner anticipates that distributions to the Assignee Interest Holders will be suspended until operating results significantly improve. The Trust Indenture Agreement (the Indenture) governing the terms of the Pension Notes provides for certain events of default. The Partnership would be in default under the Notes for any of the following reasons: (i) the failure of the Partnership to pay interest on a quarterly basis for any quarter at the stated pay rate of 7%; (ii) the default in payment of principal of the Pension Notes at maturity or upon call or redemption of the Notes; (iii) default by the Partnership in the performance or breac of any covenant; and (iv) institution or decree of bankruptcy of the Partnership. All covenants included in the Indenture are non-financial in nature. Additionally, the Indenture provides for call or redemption of the Notes either at the election of the Partnership or upon sale or refinancing of the underlying properties of the Partnership. The Partnership Agreement does not specifically prohibit the Partnership from incurring additional mortgage indebtedness related to the Properties by borrowing from banks and other institutional lenders in order to finance the acquisition and development of Properties. Although it is the present intent of the Partnership to hold the Properties free and clear of third party mortgage indebtedness (other than the mortgages in favor of the Pension Notes), to the extent that financing is available at favorable rates and would be in the best interest of investors, the Partnership may obtain future financings for Properties, subject to applicable limitations. Although cash flow from operations improved in 1997 , cash generated from operations prior to 1994 had not been adequate to meet the Partnership's minimum interest payment requirements. The annual shortfall was approximately $59,000 during 1993, and averaged approximately $1.5 million annually in the five-year period prior to 1993. The shortfall had been funded by Partnership's cash reserves, which principally resulted from funds remaining from the initial offering of Partnership Assignee Interest and Pension Notes, after the acquisition of the Partnership's Properties. Given the level of the Partnership's cash reserves at December 31, 1997 , if the Partnership is unable to significantly increase cash generated from operations over time, cash reserves may not be sufficient to fund its deferred Pension Note interest. 5 If interest payments continue to be deferred at the current rate (see Note 6 to the financial statements), the total accrual for unpaid interest and principal will approximate $81 million at December 31, 2001, the maturity date of the Pension Notes which is far in excess of projected cash reserves. Accordingly, there will need to be very significant improvements in cash flows from operations and/or increases in the disposition and refinancing values of the Properties to fund both the accrued interest and the face value of the Pension Notes upon their maturity. During July 1997, the Partnership obtained appraisals of the current market value of its properties. As of December 31, 1997, the July 1997 appraised values exceeded the Partnership's net book value of its properties. The Partnership, however, does not intend to sell any Properties in the near future, but rather intends to continue to hold and operate them as rental properties. Management's plans are to continue to manage the Properties prudently to achieve positive cash flows from operations after interest payments. Year 2000 Issue - --------------- The Partnership has developed a plan to modify its information technology to be ready for the year 2000. The Partnership relies upon PC-based systems and does not expect to incur material costs to transition to Year 2000 compliant systems in its internal operations. The Partnership does not expect this project to have a significant effect on operations. The Partnership will continue to implement systems and all new investments are expected to be with Year 2000 compliant software. Item 8. Financial Statements and Supplementary Data - ------ ------------------------------------------- The financial statements and supplementary data of the Partnership are included on pages 8 through 21 of this report. 6 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Partners NHP Retirement Housing Partners I Limited Partnership We have audited the accompanying statements of financial position of NHP Retirement Housing Partners I Limited Partnership as of December 31, 1997 and 1996, and the related statements of operations, partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NHP Retirement Housing Partners I Limited Partnership at December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Dallas, Texas February 13, 1998 7
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- STATEMENTS OF FINANCIAL POSITION -------------------------------- December 31, ------------ 1997 1996 ---- ---- ASSETS (Note 6) ------ Cash and cash equivalents (Note 2) $ 4,495,733 $ 4,017,181 Interest receivable 0 1,200 Other receivables 31,892 28,363 Pension notes issuance costs (Note 1) 1,009,842 1,264,634 Pension notes organization costs (Note 1) 215,326 265,102 Prepaid expenses 300,654 285,111 Rental property (Notes 1, 4 and 10): Land 6,820,468 6,318,028 Buildings and improvements, net of accumulated depreciation of $15,456,154 in 1997 and $13,752,920 in 1996 42,670,005 43,853,213 Other assets 41,920 39,052 ----------------- ---------------- Total assets $ 55,585,840 $ 56,071,884 ================= ================ LIABILITIES AND PARTNERS' DEFICIT --------------------------------- Liabilities: Accounts payable $ 320,796 $ 336,446 Interest payable (Note 6) 23,730,407 20,681,172 Pension Notes (Note 6) 42,672,000 42,672,000 Other liabilities (Note 2) 882,625 818,377 ----------------- ---------------- 67,605,828 64,507,995 ----------------- ---------------- Partners' deficit (Notes 5 and 7): General Partner (1,596,670) (1,465,252) Assignee Limited Partner - 42,691 investment units outstanding (10,423,318) (6,970,859) ----------------- ---------------- Total partners' deficit (12,019,988) (8,436,111) ----------------- ---------------- Total liabilities and partners' deficit $ 55,585,840 $ 56,071,884 ================= ================ See notes to financial statements.
8
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- STATEMENTS OF OPERATIONS ------------------------ Year Ended December 31, ----------------------- 1997 1996 1995 ---- ---- ---- REVENUES: Rental income $ 15,243,028 $ 14,241,055 $ 13,754,959 Interest income 89,872 79,811 83,348 Other income 215,238 167,233 182,319 -------------- -------------- --------------- 15,548,138 14,488,099 14,020,626 -------------- -------------- --------------- COSTS AND EXPENSES: Salaries, related benefits and overhead reimbursements (Note 3) 3,984,975 3,825,002 3,919,906 Management fees, dietary fees and other services (Note 3) 1,432,813 1,350,502 1,326,272 Administrative and marketing 778,400 754,504 700,594 Utilities 890,070 874,156 852,805 Maintenance 521,464 451,412 444,394 Resident services, other than salaries 296,468 297,794 292,097 Food services, other than salaries 1,591,266 1,511,771 1,513,898 Depreciation 1,703,233 1,615,089 1,525,513 Taxes and insurance 1,183,215 1,101,282 1,067,522 -------------- -------------- --------------- 12,381,904 11,781,512 11,643,001 -------------- -------------- --------------- INCOME FROM RENTAL OPERATIONS 3,166,234 2,706,587 2,377,625 -------------- -------------- --------------- COSTS AND EXPENSES: Interest expense - pension notes (Note 6) 6,036,275 5,775,285 5,521,051 Amortization of pension notes issuance costs 254,792 254,792 254,792 Amortization of pension notes organization costs 49,776 49,776 49,776 Other expenses 348,308 201,402 242,555 -------------- -------------- --------------- 6,689,151 6,281,255 6,068,174 -------------- -------------- --------------- NET LOSS $ (3,522,917) $ (3,574,668) $ (3,690,549) ============== ============== =============== ALLOCATION OF NET LOSS: General Partner $ (70,458) $ (71,493) $ (73,811) Assignor Limited Partner (3,452,459) (3,503,175) (3,616,738) -------------- -------------- --------------- $ (3,522,917) $ (3,574,668) $ (3,690,549) ============== ============== =============== NET LOSS PER ASSIGNEE INTEREST $ (81) $ (82) $ (85) ============== ============== =============== See notes to financial statements.
9
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- STATEMENTS OF PARTNERS' EQUITY (DEFICIT) ---------------------------------------- General Partner- Capital Realty Assignee Group Senior Limited Housing, Inc. Partners Total ---------------- -------- ----- Partners' equity (deficit) at January 1, 1995 $ (1,197,854) $ 149,054 $ (1,048,800) Distributions (60,960) 0 (60,960) Net Loss (73,811) (3,616,738) (3,690,549) ---------------- --------------- --------------- Partners' deficit at December 31, 1995 (1,332,625) (3,467,684) (4,800,309) Distributions (61,134) 0 (61,134) Net Loss (71,493) (3,503,175) (3,574,668) ---------------- --------------- --------------- Partners' deficit at December 31, 1996 (1,465,252) (6,970,859) (8,436,111) Distributions (60,960) 0 (60,960) Net Loss (70,458) (3,452,459) (3,522,917) ---------------- --------------- --------------- Partners' deficit at December 31, 1997 $ (1,596,670) $ (10,423,318) $ (12,019,988) ================ =============== =============== See notes to financial statements.
10
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- STATEMENTS OF CASH FLOWS ------------------------ Year Ended December 31, 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Rent collections $ 15,239,499 $ 14,244,537 $ 13,747,228 Interest received 91,072 79,876 83,325 Other income 215,238 167,233 182,319 Management fees, dietary fees and other services (1,429,906) (1,351,527) (1,326,188) Salary, related benefits and overhead reimbursements (3,971,789) (3,816,530) (3,925,369) Other operating expenses paid (5,595,097) (5,202,737) (5,114,939) Interest paid (2,987,040) (2,995,574) (2,987,040) --------------- -------------- -------------- Net cash provided by operating activities 1,561,977 1,125,278 659,336 Cash flows from investing activity: Capital expenditures (1,022,465) (525,567) (712,919) --------------- -------------- -------------- Net cash used in investing activity (1,022,465) (525,567) (712,919) Cash flows from financing activity: Distributions (60,960) (61,134) (60,960) --------------- -------------- -------------- Net cash used in financing activity (60,960) (61,134) (60,960) --------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents 478,552 538,577 (114,543) Cash and cash equivalents at beginning of year 4,017,181 3,478,604 3,593,147 --------------- -------------- -------------- Cash and cash equivalents at end of year $ 4,495,733 $ 4,017,181 $ 3,478,604 =============== ============== ==============
11
NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- STATEMENTS OF CASH FLOWS ------------------------ (continued) Year Ended December 31, 1997 1996 1995 ---- ---- ---- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net loss $ (3,522,917) $ (3,574,668) $ (3,690,549) --------------- -------------- -------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 1,703,233 1,615,089 1,525,513 Amortization of pension notes organization costs 49,776 49,776 49,776 Amortization of pension notes issuance costs 254,792 254,792 254,792 Interest Payable 3,049,235 2,779,711 2,534,011 Changes in operating assets and liabilities: Interest receivable 1,200 65 (23) Other assets and receivables (6,397) 827,993 (7,461) Prepaid expenses (15,543) (5,959) (5,759) Accounts payable (15,650) (254,782) 88,374 Purchase installments 0 (552,000) 0 Other liabilities 64,248 (14,739) (89,338) --------------- -------------- -------------- Net cash provided by operating activities $ 1,561,977 $ 1,125,278 $ 659,336 =============== ============== ============== See notes to financial statements.
12 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- December 31, 1997 and 1996 1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------------------- Organization ------------ NHP Retirement Housing Partners I Limited Partnership (the Partnership) is a limited partnership organized under the laws of the State of Delaware on March 10, 1986. The Partnership was formed for the purpose of raising capital by issuing both Pension Notes (Notes) to tax-exempt investors and selling additional partnership interests in the form of Assignee Interests (Interests) to taxable individuals. Interests represent assignments of the limited partnership interests of the Partnership issued to the Assignor Limited Partner, NHP RHP-I Assignor Corporation. The proceeds from the sale of the Notes and Interests have been invested in residential rental properties for retirement age occupants. A description of the Projects now owned directly or indirectly and operated by the Partnership is as follows: The Amberleigh. This project is a 271 unit retirement living center located in Williamsville, New York. The facility was approximately 97 % and 98 % occupied at December 31, 1997 and 1996 , respectively. The Atrium of Carmichael. This project is a 153 unit retirement living center located in Sacramento, California. This facility was approximately 99 % and 98 % occupied at December 31, 1997 and 1996 , respectively. Crosswood Oaks. This project is an 122 unit retirement living center located in Sacramento, California. This facility was approximately 91 % and 86 % occupied at December 31, 1997 and 1996 , respectively. The Heatherwood. This project is an 160 unit retirement living center located in Southfield, Michigan. This facility was approximately 98 % and 81 % occupied at December 31, 1997 and 1996 , respectively. Veranda Club. This project is an 189 unit retirement living center located in Boca Raton, Florida. This facility was approximately 96 % and 98 % occupied at December 31, 1997 and 1996 , respectively. Significant Accounting Policies ------------------------------- Offering costs, issuance costs and organization costs related to the sale of Notes are being amortized using the straight line method over the term of the Notes. Accumulated amortization at December 31, 1997 and 1996 was $2,547,920 and $2,293,128 , respectively. Selling commissions related to the sale of Interests were recorded as a direct reduction to the capital account of the holders of Interests. Accumulated amortization at December 31, 1997 and 1996 was 497,760 and $447,984 , respectively. Direct costs of acquisition, including acquisition fees and expenses paid to the General Partner, have been capitalized as a part of buildings and improvements. 13 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) Other fees and expenses of the Partnership are recognized as expenses in the period the related services are performed. Interest expense on Notes is calculated using the effective interest method (see Note 6). Operating deficit and cash flow guarantee payments received from the sellers of The Heatherwood, The Atrium and Crosswood Oaks are recognized as a reduction of the basis of the respective properties. Buildings and improvements are recorded at the lower of cost or net recoverable value (Note 10) and depreciated using the straight-line method, assuming a 30-year life and a 30% salvage value. Furniture and equipment are recorded at cost and depreciated using the straight line method over 5 years. The cost of rental property and their useful lives are summarized as follows:
Useful Life 1997 1996 ----------- ---- ---- Land $ 6,820,468 $ 6,318,028 ============= ============== Land improvements 30 years 91,318 75,809 Building and building improvement 30 years 55,239,208 55,179,219 Furniture and equipment 5 years 2,795,633 2,351,105 ------------- -------------- 58,126,159 57,606,133 Less-accumulated depreciation (15,456,154) (13,752,920) ------------- -------------- $ 42,670,005 $ 43,853,213 ============= ==============
Rental income is recognized when earned based on residents' signed rental agreements. Rental payments received in advance are deferred and recognized when earned. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Pronouncements ----------------------------- The Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income effective for fiscal 1998. Statement No. 130 requires reporting and display of comprehensive income and its components in the financial statements. This new Statement will only expand the Partnership's disclosures with respect to this item. 2. CASH AND CASH EQUIVALENTS ------------------------- As of December 31, 1997 and 1996 , cash and cash equivalents consisted of demand deposits and repurchase agreements. All repurchase agreements have an original maturity of three months or less and, therefore, are considered to be cash equivalents. Cash and cash equivalents also includes $531,056 and $504,879 of tenant security deposits at December 31, 1997 and 1996 , respectively, which are designated for the purpose of providing refunds to tenants upon move-out. 14 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) 3. TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES -------------------------------------------------------- Through January 22, 1995, the sole general partner of the Partnership was NHP/RHGP-I Limited Partnership (NHP/RHGP-I). The sole limited partner of the Partnership is NHP RHP-I Assignor Corporation, a Delaware corporation which is an affiliate of NHP/RHGP-I. On December 19, 1991, the General Partner executed an amended and restated purchase agreement with Capital Realty Group Properties, Inc. (CRG) for the transfer of the General Partner's interest in the Partnership, subject to the approval of Assignee Holders. CRG's rights and obligations under the purchase agreement were subsequently assigned to an affiliate, Capital Realty Group Senior Housing, Inc. (CRGSH). CRGSH is the management agent under a five year contract with an optio to renew for an additional five years under certain conditions. Pursuant to a Consent Solicitation dated October 25, 1994, Assignee Holders holding more than 64% of the equity interests in the Partnership approved the election of CRGSH, as the replacement general partner of the Partnership. Effective January 23, 1995, CRGSH became the sole general partner of the Partnership. Effective February 1, 1995, CRGSH assigned its contract rights to manage the Partnership's properties to Capital Senior Living, Inc. ("CSL"), a subsidiary of Capital Senior Living Corporation. CRGSH and CSL received $1,429,906, $1,351,527, and $1,326,188 in 1997, 1996 and 1995, respectively, for management fees, dietary services fees and other operating expense reimbursements related to services provided to the Properties and the Partnership. Personnel working at the Property sites and certain home office personnel who perform services for the Partnership are employees as of February 1, 1995 of CSL, an affiliate of CRGSH, and prior to February 1, 1995 were employees of CRGSH. The Partnership reimburses CRGSH or CSL for the salaries and related benefits of such personnel as reflected in the accompanying financial statements. During 1997 , 1996 and 1995 , such reimbursements for salaries, related benefits and overhead reimbursements amounted to $3,971,789, $3,816,530, and $3,925,369 , respectively. During 1997 and 1996 , an affiliate of the General Partner, Capital Senior Living Communities, L.P., purchased approximately 11,318 and 422 , respectively, of Pension Notes, or approximately 30.74 % of the Partnership's outstanding Pension Notes at an average price of $822 per Note. On November 3, 1997, Capital Senior Living Communities, L.P. sold its Pension Notes to Capital Senior Living Properties, Inc., an affiliate of the General Partner and a subsidiary of Capital Senior Living Corporation, at a price of $1,422 per Note. At December 31, 1997, Capital Senior Living Properties, Inc. holds 13,128 Pension Notes. Capital Senior Living Corporation is subject to the periodic reporting obligations of the Securities and Exchange Commission. A 50% partner in Retirement Living Communities, L.P. ("RLC") is chairman of the board of a bank where the Partnership holds the majority of its operating cash accounts 4. ACQUISITION OF PROPERTY ----------------------- On November 5, 1997, the Partnership purchased approximately 3.10 acres of land adjacent to the Amberleigh property for $500,000 plus closing costs. The land will be used in development of a 60 unit assisted living retirement facility. 15 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) In connection with the purchase of the Heatherwood in 1988, the Partnership has recorded receivables of $826,877 from the seller and purchase installments and other liabilities due to the seller totaling $816,583. Amounts due to the Seller at December 31, 1995 include $264,583 in property management fees and the remaining $525,000 plus accrued interest of $27,000 purchase installment payment due to the seller. During 1996, the General Partner attempted to contact the Seller, but was unable to do so. The General Partner wrote off the amounts due to and from the Seller and recorded a $10,294 adjustment to income during 1996. 5. CASH DISTRIBUTION POLICIES -------------------------- The Partnership Agreement allows for quarterly payments of substantially all Cash Available For Distribution Before Interest Payments (as defined in the Partnership Agreement), subject to the following: (i) distributions to Assignee Holders may be restricted or suspended for limited periods when the General Partner determines in its absolute discretion that it is in the best interests of the Partnership; and (ii) all Assignee Holder distributions are subject to the payment of Partnership expenses and maintenance of working capital reserves. Cash Available For Distribution Before Interest Payments generally consists of cash received from the ordinary operations of the Partnership less operating expenses, without reduction for interest payments to Pension Note Holders, and working capital reserves. Distributions of Cash Available For Distribution Before Interest Payments are made in the following order of priority, to the extent available: First, to the General Partner in an amount equal to 2 percent of Cash Available For Distribution Before Interest Payments for each quarterly cash distribution period (payable only if the Note Holders receive the distribution as described below). Second, to the Pension Note Holders in an amount equal to an annual return of 7 percent on the adjusted principal amount of their Pension Notes for each quarterly cash distribution period. Third, to the Assignee Holders in an amount equal to an annual return of 7 percent on their adjusted capital contributions for each quarterly cash distribution period. Fourth, to the Pension Note Holders and Assignee Holders pro rata based on the relationship between the adjusted principal amount of the Pension Notes to the adjusted capital contributions of the Assignee Holders until the Note Holders have received an amount equal to an aggregate annual return of 10 percent on the adjusted principal amount of their Pension Notes for each quarterly cash distribution period and the Assignee Holders have received an amount equal to an aggregate annual return of 10 percent on their adjusted capital contributions for each quarterly cash distribution period. Fifth, to the General Partner as a Partnership Incentive Fee in an amount equal to 8 percent of Cash Available For Distribution Before Interest Payments for the fiscal year. If the amount of Cash Available for Distribution Before Interest Payments for any fiscal year is insufficient to pay the General Partner its Partnership Incentive Fee, the fee shall not accrue and shall not be paid from Cash Available For Distribution Before Interest Payments payable in subsequent fiscal years. 16 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) Sixth, the balance to the Note Holders and Assignee Holders pro rata based on the relationship between the adjusted principal amount of the Pension Notes to the adjusted capital contributions of the Assignee Holders. However, the amount of interest payable to the Note Holders shall not exceed a cumulative noncompounded return of 13 percent per annum on the adjusted principal amount of their Pension Notes. No payments of Cash Available For Distribution Before Interest Payments shall reduce the principal balance of the Pension Notes. No distributions were paid to the Assignee Interest Holders during 1997 , 1996 or 1995 . The General Partner anticipates that distributions to Assignee Interest Holders will be suspended until operating results significantly improve. Cash received from sales or refinancings of any Partnership Property, after retirement of applicable mortgage debt and the payment of all expenses related to the transaction and any payments of debt service on the Pension Notes including interest at a noncompounded rate of 13% per annum less any prior payments (see Note 6), is to be distributed in the following manner: First, to the Assignee Interest Holders until their adjusted capital accounts are reduced to zero; Second, to the Assignee Interest Holders until cumulative cash distributions received equal a 13% non-compounded return on their adjusted capital accounts, reduced by prior distributions; Third, to the General Partner in the form of a disposition fee; and Fourth, 85% to the Assignee Interest Holders and 15% to the General Partner. Taxable net income or loss from operations is allocated to the Interest Holders as a class and to the General Partner in proportion to available cash distributed during the fiscal year. If no cash is distributed during the year, net income or loss is allocated 90% to the Assignee Holders as a class and 10% to the General Partner. Other provisions exist if there is net income or loss other than from operations. As discussed in Note 7, 2% for 1997, 1996 and 1995 of the Cash Available For Distribution Before Interest Payments was paid to the General Partner. Accordingly, net loss for each of the three years in the period ended December 31, 1997 was allocated in the same manner. The deficit balance in the Assignee Limited Partner account reflects their percentage interest in the Partnership's cumulative net losses, although there are no restoration requirements for the Assignee Limited Partner interest upon termination of the Partnership 6. PENSION NOTES ------------- The Notes bear stated simple interest at a rate equal to 13% per annum. Payment of up to 9% of stated interest was subject to deferral through December 31, 1988 and payment of up to 6% of stated interest is subject to deferral thereafter. Deferred interest does not bear interest. 17 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) Interest not deferred is payable quarterly. Using the effective interest method, interest on principal and accrued interest of the Pension Notes has been accrued at the rate of approximately 9% per annum compounded quarterly. The approximate 9% effective interest rate was calculated using estimates of the amounts of interest that will be deferred and the time period in which such deferred amounts will be paid and will provide a liability for the full amount of deferred interest upon the maturity of the Pension Notes. If interest had been provided based on 13% versus the effective rate of approximately 9%, an additional liabilit of approximately $4,113,073 would be recorded at December 31, 1997 and future interest expense would be reduced by this amount. The Partnership made payments of $2,987,040, $2,995,574 and $2,987,040 in 1997, 1996 and 1995, respectively, to Pension Note Holders. The Partnership's obligation to repay the principal amount of the Notes, which mature on December 31, 2001, and stated interest thereon, is secured by a lien on the Partnership's assets (see Note 9). The liability of the Partnership under the Pension Notes is limited to the assets of the Partnership. The Pension Notes are subject to redemption in whole or in part upon not less than 30 nor more than 60 days prior notice, at the election of the Partnership. 7. DISTRIBUTIONS TO PARTNERS ------------------------- During 1997, 1996 and 1995, the General Partner received distributions, representing 2% of the Cash Available For Distribution Before Interest Payments to the Pension Note Holders. The Partnership did not make a distribution to the holders of Assignee Interests during 1997, 1996 or 1995. 8. INCOME TAXES ------------ The Partnership is not taxed on its income. The partners are taxed in their individual capacities upon their distributive share of the Partnership's taxable income and are allowed the benefits to be derived from possibly off-setting their distributive share of the tax loss against taxable income from other sources subject to application of passive loss rules and subject to "At Risk" basis limitation. The taxable income or loss differs from amounts included in the statement of operations primarily because of different methods used in computing depreciation and interest on the Notes and determining start-up and marketing expenses for financial reporting and Federal income tax purposes. For Federal income tax purposes, the Partnership computes depreciation of buildings and improvements using the Modified Accelerated Cost Recovery System (MACRS) and the Accelerated Cost Recovery System (ACRS), while for financial statement purposes, depreciation is computed using the straight-line method. Interest on Pension Notes is computed in accordance with Internal Revenue Service regulations for original issue discount for Federal income tax purposes, while for financial statement purposes, interest on Pension Notes is computed using the effective interest method. Start-up and marketing costs incurred prior to initial occupancy were capitalized and amortized over sixty months for Federal income tax purposes, while for financial statement purposes, only those start-up and marketing costs that are expected to benefit future operations have been capitalized and amortized over sixty months. 18 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) A reconciliation between financial statement net loss and net loss for tax purposes follows:
Years Ended December 31, ----------------------------------------------------- 1997 1996 1995 ---- ---- ---- Net loss per financial statements $ 3,522,917 $ 3,574,668 $ 3,690,549 Temporary differences in determining losses for Federal income tax purposes: Depreciation 617,872 667,874 671,332 Amortization of start-up and marketing costs (48,116) (48,116) (48,116) Interest expense - pension notes (3,136,298) (2,903,363) (2,673,201) Miscellaneous 5,966 37,148 (18,001) ------------ ------------ ------------ Loss per tax return $ 962,341 $ 1,328,211 $ 1,622,563 ============ ============ ============
The basis of building and improvements, net of accumulated depreciation, for Federal income tax purposes was $35,166,014 and $36,967,094 at December 31, 1997 and 1996, respectively. 9. FUTURE OPERATIONS AND CASH FLOWS -------------------------------- Although cash flow from operations improved in 1997 , cash generated from operations over the past several years prior to 1994 was not adequate to meet the Partnership's minimum interest payment requirements. The shortfall was funded by Partnership's cash reserves, which principally resulted from funds remaining from the initial offering of Partnership Assignee Interests and Pension Notes, after the acquisition of the Partnership's Properties. Given the level of the Partnership's cash reserves at December 31, 1997 , if the Partnership is unable to increase cash generated from operations over time, cash reserves may not be sufficient to satisfy future obligations of the Partnership. If interest payments continue to be deferred at the current rate (see Note 6), the total accrual for unpaid interest and principal will approximate $81 million at December 31, 2001, the maturity date of the Pension Notes, which is far in excess of projected cash reserves. Accordingly, there will need to be very significant improvements in cash flows from operations and/or increases in the disposition and refinancing values of the Properties to fund both the accrued interest and the face value of the Pension Notes upon their maturity. Management plans to continue to manage the Properties prudently to achieve positive cash flows from operations after interest payments. 19 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP ----------------------------------------------------- A LIMITED PARTNERSHIP --------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) 10. VALUATION OF RENTAL PROPERTY ---------------------------- In accordance with FASB Statement No 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If such a shortfall exists, a write-down would be warranted based on the estimated shortfall of discounted cash flows. The Partnership performs such evaluations on an ongoing basis by comparing each property's net book value to the total estimated future operating cash flow for years through 2001 (the year the Pension Notes mature) plus cash projected to be received upon an assumed sale of the properties on December 31, 2001. Sales proceeds, net of an estimated 3% cost of disposal, are estimated using a 10% capitalization rate of the net operating incom projected for each property for the year 2001. During July 1997, the Partnership obtained appraisals of the current market value of its properties. As of December 31, 1997, the July 1997 appraised values exceeded the partnership's net book value of its properties. The Partnership, however, does not intend to sell any Properties in the near future, but rather intends to continue to hold and operate them as rental properties. The Partnership does not believe there are any indicators that would require an adjustment to the carrying value of the properties or their remaining useful lives as of December 31, 1997 or 1996. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS: ----------------------------------- The carrying amounts and fair values of financial instruments at December 31, 1997 and 1996 are as follows:
1997 1996 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- Cash and cash equivalents $ 4,495,733 $ 4,495,733 $ 4,017,181 $ 4,017,181 Pension Notes 42,672,000 60,714,122 42,672,000 27,753,050
The following methods and assumptions were used by the General Partner in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate fair value. Pension Notes: The fair values of Pension Notes are based on discounted cash flows at December 31, 1997 and quoted market prices at December 31, 1996. 20 Item 9. Changes in and Disagreements with Accountants on Accounting and ----------------------------------------------------------------------- Financial Disclosure -------------------- There have been no changes in or disagreements with accountants that are required to be reported herein. Part III -------- Item 10. Directors and Executive Officers of the Registrant -------------------------------------------------- (a). The Partnership has no directors, executive officers or significant employees of its own. (b). On January 23, 1995, CRGSH became the sole general partner of the Partnership. CRGSH is a privately owned corporation initially organized on December 1, 1988. Its principal business activity has been the ownership and management of real property for its own account and for the account of various limited partnerships of which it is the general partner. CRGSH is a wholly owned subsidiary of Capital Realty Group Corporation, a Texas corporation ("Capital"), with its corporate headquarters in Dallas, Texas. Capital is owned 50% by James A. Stroud (through a trust) and 50% by Jeffrey L. Beck. The Partnership properties during 1994 and through February 1, 1995, were managed by CRGSH. On February 1, 1995, CRGSH assigned its contract rights to manage the Partnership's properties to Capital Senior Living, a subsidiary of Capital Senior Living Corporation. The following are the directors and executive officers of Capital Realty Group Senior Housing, Inc., the general partner of the Partnership. Name Position ---- -------- James A. Stroud Chief Operating Officer, Secretary and Director Jeffrey L. Beck Chief Executive Officer and Director Keith N. Johannessen President David Beathard Vice President Rob L. Goodpaster Vice President, National Director of Marketing David Brickman Vice President Robert F. Hollister Controller - Property James A. Stroud, age 47. Mr. Stroud has served as a director and Chief Operating Officer of CSL and its predecessors since January 1986. He is currently Co-Chairman of the Board and Chief Operating Officer of Capital Senior Living Corporation. Mr. Stroud also serves on the boards of various educational and charitable organizations, and in varying capacities with several trade organizations, including as a member of the Founder's Council and Board of Directors of the Assisted Living Federation of America, and as Housing Commissioner, President-Elect, and as a member of the Board of Directors of the National Association For Senior Living Industries. Mr. Stroud also serves as an Advisory Group member to the National Investment Conference. Mr. Stroud was a Founder of the Texas Assisted Living Association and serves as a member of its Board of Directors. Mr. Stroud has earned a Masters in Law, is a licensed attorney and is also a Certified Public Accountant. Jeffrey L. Beck, age 53 . Mr. Beck has served as a director and Chief Executive Officer of CSL and its predecessors since January 1986. He is currently Co-Chairman of the Board and Chief Executive Officer of Capital Senior Living Corporation. Mr. Beck also serves on the boards of various educational, religious and 21 charitable organizations and in varying capacities with several trade associations. Mr. Beck served as Vice Chairman of the American Seniors Housing Association from 1992 to 1994, and as Chairman from 1994 to 1996, and remains a member of its Executive Board, and is a council member of the Urban Land Institute. Mr. Beck is Chairman of the Board of Directors of United Texas Bank of Dallas and is Chairman and President of Beck Properties Trophy Club. Keith N. Johannessen, age 41 . Mr. Johannessen has served as President of CSL and its predecessors since March 1994, and previously served as Executive Vice-President since May 1993. He is also President of Capital Senior Living Corporation. From 1992 to 1993, Mr. Johannessen served as Senior Manager in the health care practice of Ernst & Young. From 1987 to 1992, Mr. Johannessen was Executive Vice President of Oxford Retirement Services, Inc. Mr. Johannessen has served on the State of the Industry and Model Assisted Living Regulations Committees of the American Seniors Housing Association. Mr. Johannessen has been active in operational aspects of senior housing for 19 years. David W. Beathard, age 50 . Mr. Beathard has served as Vice President - Operations of CSL and its predecessors since August 1996. He is also Vice President - Operations of Capital Senior Living Corporation. From 1992 to 1996, Mr. Beathard owned and operated a consulting firm which provided operational, marketing and feasibility consulting regarding senior housing facilities. Mr. Beathard serves as a Designated Alternate member of the Board of Directors of the Texas Assisted Living Association. Mr. Beathard has been active in the operational, sales and marketing, and construction oversight aspects of senior housing for 23 years. Rob L. Goodpaster, age 45 . Mr. Goodpaster has served as Vice President - National Marketing of CSL and its predecessors since December 1992. He is also Vice President - National Marketing Director of Capital Senior Living Corporation. From 1990 to 1992, Mr. Goodpaster was National Director for Marketing for Autumn America, an owner and operator of senior housing facilities. Mr. Goodpaster is a member of the Board of Directors of the National Association For Senior Living Industries. Mr. Goodpaster has been active in the operational, development and marketing aspects of senior housing for 21 years. David Brickman, age 39 . Mr. Brickman has served as Vice President and General Counsel of CSL and its predecessors since July 1992. He is also Vice President and General Counsel of Capital Senior Living Corporation. From 1989 to 1992, Mr. Brickman served as in-house counsel with LifeCo Travel Management Company, a corporation which provided travel services to U.S. corporations. Mr. Brickman has earned a Masters of Business Administration and a Masters in Health Administration. Mr. Brickman has either practiced law or performed in-house counsel functions for 11 years. Robert F. Hollister, age 42 . Mr. Hollister, a Certified Public Accountant, has served as Property Controller for CSL and its predecessors since April 1992. He is also Property Controller for Capital Senior Living Corporation. From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of Kavanaugh Securities, Inc., a NASD broker dealer. Mr. Hollister is a Certified Financial Planner. Mr. Hollister is a member of the American Institute of Certified Public Accountants and is also a member of the Texas Society of Certified Public Accountants. The executive officers of CRGSH are required to spend only such time on the Partnership's affairs as is deemed necessary in the sole judgment of CRGSH. A significant amount of these officers' time is expected to be spent on matters unrelated to the Partnership. (c). Section 16(a) Beneficial Ownership Reporting Compliance. Based solely upon a review of Forms 3, 4 and 5 and any amendments thereto furnished to the Partnership pursuant to Rule 16a-3(c) of the Securities and Exchange Commission (SEC) rules, the Partnership is not aware of any failure of any officer or director of CRGSH or beneficial owner of more than ten percent of the Assignee Interests to file timely with the SEC any Forms 3, 4 or 5 relating to the Partnership for 1995. 22 Item 11. Executive Compensation ---------------------- NHP Retirement Housing Partners I Limited Partnership has no officers or directors. However, various fees and reimbursements are paid to the General Partner or its affiliates. The following is a summary of such fees paid or accrued during the year ended December 31, 1997 : Paid or payable from operating cash flow: Cash distributions of $60,960 to the General Partner, which represents 2% of Cash Available for Distribution Before Interest Payments to the Note Holders. Management fees, dietary service fees, and other operating expense reimbursements of $1,429,906 and salaries, related benefits and overhead reimbursements of $3,971,789, were paid to the General Partner and CSL, an affiliate of the General Partner See Item 8. Financial Statements and Supplementary Data. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- No person is known by the Partnership to own more than 5% of Assignee Interests. As of March 1, 1998, an affiliate of the General Partner, has purchased approximately 13,478 Pension Notes, or approximately 31.6% of the Partnership's outstanding Pension Notes. Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- Except as described in Items 8 (Note 3 in the Financial Statements), 10, and 11 the Partnership had no other transactions or business relationships with NHP, CRGSH, or its affiliates. 23 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K --------------------------------------------------------------- (a) Documents filed as part of this report: 1. Financial Statements -------------------- The financial statements, notes and reports listed below are included herein: Page ---- Report of Ernst & Young LLP, Independent Auditors 7 Statements of Financial Position, December 31, 1997 and 1996 8 Statements of Operations for the Years Ended December 31, 1997 , 1996 and 1995 9 Statements of Partners' Equity (Deficit) for the Years Ended December 31, 1997, 1996 and 1995 10 Statements of Cash Flows for the Years Ended December 31, 1997 , 1996 and 1995 11 Notes to Financial Statements 13 2. Financial Statement Schedules ----------------------------- All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 3. Exhibits -------- None. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of fiscal 1997. 24 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. NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP By: Capital Realty Group Senior Housing, Inc. General Partner By: /a/ James A. Stroud ----------------------------------------- James A. Stroud Chief Operating Officer and Director (Chief financial, and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in capacities and on the dates indicated. By: /s/ James A. Stroud ----------------------------------------------- James A. Stroud Chief Operating Officer and Director of the General Partner (Chief financial, and accounting officer) By: /s/ Jeffrey L. Beck ----------------------------------------------- Jeffrey L. Beck Chief Executive Officer and Director of the General Partner Date: March 30, 1998 25 March ____, 1997 Securities and Exchange Commission 450 5th Street N.W. Judiciary Plaza Washington, D.C. 20549 Re: NHP Retirement Housing Partners I Limited Partnership SEC File Number: 0-16815 Madam or Sir: Enclosed please find Form 10-K for the year ended December 31, 1997 for the above referenced partnership. Please acknowledge receipt of this filing by stamping and returning the enclosed copy of this letter in the self-addressed, stamped envelope provided. If there are any questions regarding this filing, please contact the undersigned. Very truly yours, NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP /s/ Scott Shamblin - --------------------------- Scott Shamblin Investor Relations Director Enclosure 26 EX-27 2 FDS --
5 Article 5 Financial Data Statement 0000793730 NHP Retirement Housing, L.P. 1 U.S. Dollars 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1.00 4,495,733 0 31,892 0 0 0 64,946,627 (15,456,154) 55,585,840 0 42,672,000 0 0 0 (12,019,988) 55,585,840 0 15,548,138 0 12,381,904 652,876 0 6,036,275 (3,522,917) 0 0 0 0 0 (3,522,917) 0 0
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