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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 SEPTEMBER 30, 2005.
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: | 333-89312-02 | |
333-90756-03 | ||
333-101598-03 | ||
333-107942-05 | ||
333-119261-27 | ||
333-120642-27 | ||
333-127262-45 |
ELDERTRUST OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
| Delaware | 23-2915846 | |
| (State or other jurisdiction) | (I.R.S. Employer Identification No.) |
10350 Ormsby Park Place, Suite 300
Louisville, Kentucky
(Address of principal executive offices)
40223
(Zip Code)
(502) 357-9000
(Registrant’s telephone number, including area code)
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. Yesx No¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
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ELDERTRUST OPERATING LIMITED PARTNERSHIP
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 24 | |
| 25 | ||
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PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
ELDERTRUST OPERATING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 2005 | December 31, 2004 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
Assets: | ||||||||
Real estate properties, at cost | $ | 144,212 | $ | 144,199 | ||||
Less – accumulated depreciation | (9,143 | ) | (5,026 | ) | ||||
Land | 16,570 | 16,570 | ||||||
Net real estate properties | 151,639 | 155,743 | ||||||
Cash and cash equivalents | 326 | 1,210 | ||||||
Escrow deposits and restricted cash | 5,175 | 6,705 | ||||||
Investment in affiliates | 9,039 | — | ||||||
Other | 1,258 | 890 | ||||||
Total assets | $ | 167,437 | $ | 164,548 | ||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
Liabilities: | ||||||||
Mortgages and bonds payable | $ | 67,537 | $ | 77,733 | ||||
Note payable to affiliate | 8,251 | 7,802 | ||||||
Accounts payable and other accrued liabilities | 2,558 | 3,323 | ||||||
Accrued interest | 428 | 703 | ||||||
Accrued dividend | 126 | — | ||||||
Total liabilities | 78,900 | 89,561 | ||||||
Partners’ capital | 88,537 | 74,987 | ||||||
Total liabilities and partners’ capital | $ | 167,437 | $ | 164,548 | ||||
See notes to condensed consolidated financial statements.
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ELDERTRUST OPERATING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
For the Three Months Ended | For the Nine Months Ended September 30, 2005 | For the Period through | ETOP For the Period | ||||||||||||
| 2005 | 2004 | ||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | |||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 4,314 | $ | 4,281 | $ | 12,874 | $ | 11,376 | $ | 1,512 | |||||
Interest and other income | 28 | 29 | 90 | 83 | 60 | ||||||||||
Total revenues | 4,342 | 4,310 | 12,964 | 11,459 | 1,572 | ||||||||||
Expenses: | |||||||||||||||
Property-level operating expenses | 364 | 331 | 1,061 | 828 | 101 | ||||||||||
Interest | 1,432 | 1,523 | 4,421 | 4,150 | 549 | ||||||||||
Intercompany interest | 151 | 151 | 449 | 258 | — | ||||||||||
Depreciation | 1,373 | 1,643 | 4,118 | 3,646 | 487 | ||||||||||
General, administrative and professional fees | 268 | 295 | 1,011 | 905 | 200 | ||||||||||
Restricted stock amortization | 13 | 20 | 50 | 53 | — | ||||||||||
Loss on sale of fixed assets | — | — | — | — | 10 | ||||||||||
Loss on debt extinguishment | — | — | — | — | 8 | ||||||||||
Total expenses | 3,601 | 3,963 | 11,110 | 9,840 | 1,355 | ||||||||||
Income before discontinued operations | 741 | 347 | 1,854 | 1,619 | 217 | ||||||||||
Discontinued operations | — | — | — | — | 414 | ||||||||||
Net income | $ | 741 | $ | 347 | $ | 1,854 | $ | 1,619 | $ | 631 | |||||
Net income allocated to Class A general partner | $ | 1 | $ | 1 | $ | 2 | $ | 2 | $ | 1 | |||||
Net income allocated to Class A limited partners | $ | 707 | $ | 345 | $ | 1,813 | $ | 1,611 | $ | 628 | |||||
Net income allocated to Class C limited partners | $ | 3 | $ | 1 | $ | 7 | $ | 6 | $ | 2 | |||||
Net income allocated to Class D limited partners | $ | 30 | $ | — | $ | 32 | $ | — | $ | — | |||||
Net income per unit: | |||||||||||||||
Class A general partnership units | $ | 0.13 | $ | 0.13 | $ | 0.03 | $ | 0.25 | $ | 0.13 | |||||
Class A limited partnership units | $ | 0.09 | $ | 0.04 | $ | 0.23 | $ | 0.20 | $ | 0.08 | |||||
Class C limited partnership units | $ | 0.10 | $ | 0.03 | $ | 0.23 | $ | 0.19 | $ | 0.06 | |||||
Class D limited partnership units | $ | 0.09 | $ | — | $ | 0.22 | $ | — | $ | — | |||||
Units used to compute per unit amount: | |||||||||||||||
Class A general partnership units | 8 | 8 | 8 | 8 | 8 | ||||||||||
Class A limited partnership units | 8,041 | 8,041 | 8,041 | 8,041 | 8,041 | ||||||||||
Class C limited partnership units | 31 | 31 | 31 | 31 | 31 | ||||||||||
Class D limited partnership units | 339 | — | 143 | — | — | ||||||||||
See notes to condensed consolidated financial statements.
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ELDERTRUST OPERATING LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Nine Months Ended September 30, 2005 | For the Period from February 5, 2004 through September 30, 2004 | ETOP Predecessor For the Period from January 1, 2004 through February 4, 2004 | ||||||||||
| (Unaudited) | (Unaudited) | (Audited) | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 1,854 | $ | 1,619 | $ | 631 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 4,118 | 3,646 | 484 | |||||||||
Amortization of restricted stock | 50 | — | — | |||||||||
Gain on sale of property, plant and equipment | — | — | (293 | ) | ||||||||
Gain on debt extinguishment | — | — | (112 | ) | ||||||||
Other | (337 | ) | (380 | ) | — | |||||||
Net changes in assets and liabilities: | ||||||||||||
Other assets | (31 | ) | (196 | ) | 210 | |||||||
Accounts payable and other accrued liabilities | (465 | ) | 1,237 | (636 | ) | |||||||
Escrow deposits and restricted cash | 1,530 | (1,152 | ) | (3 | ) | |||||||
Other | — | — | 799 | |||||||||
Net cash provided by operating activities | 6,719 | 4,774 | 1,080 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of real estate property | (13 | ) | (37 | ) | — | |||||||
Proceeds from sale of real estate | — | — | 2,806 | |||||||||
Net cash (used in) provided by investing activities | (13 | ) | (37 | ) | 2,806 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Cash distributions from (to) partners | 2,606 | (35,176 | ) | (1,293 | ) | |||||||
Repayment of debt | (10,196 | ) | (4,365 | ) | (242 | ) | ||||||
Proceeds from issuance of note payable to affiliate | — | 7,500 | — | |||||||||
Net cash used in financing activities | (7,590 | ) | (32,041 | ) | (1,535 | ) | ||||||
Net (decrease) increase in cash and cash equivalents | (884 | ) | (27,304 | ) | 2,351 | |||||||
Cash and cash equivalents, beginning of period | 1,210 | 28,020 | 25,669 | |||||||||
Cash and cash equivalents, end of period | $ | 326 | $ | 716 | $ | 28,020 | ||||||
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
ElderTrust Operating Limited Partnership (together with its subsidiaries, “we,” “us,” “our,” “ETOP” or the “Partnership,” except where the context otherwise requires) is a limited partnership organized under the laws of the State of Delaware on July 30, 1997. We invest in seniors housing and other healthcare facilities, primarily skilled nursing facilities, assisted and independent living facilities and medical and other office buildings. ElderTrust, a Maryland real estate investment trust (“ElderTrust”), is our sole general partner. On February 5, 2004, ElderTrust became a wholly owned direct subsidiary of Ventas, Inc. (“Ventas”), a healthcare real estate investment trust based in Louisville, Kentucky, whose common stock is publicly traded on the New York Stock Exchange. See “Note—3 Merger of ElderTrust.” All references to periods prior to February 5, 2004 refer to the activities of our predecessor (the “ETOP Predecessor”).
As of September 30, 2005, our consolidated assets included 18 properties located in three states, consisting of nine assisted living facilities, one independent living facility, five skilled nursing facilities, two medical office buildings and a financial office building. Except with respect to our office buildings, we lease these facilities to third-party healthcare providers, generally under “triple-net” leases. Triple-net leases dictate that all costs associated with the facilities, including real estate taxes, insurance and utilities, are the responsibility of the tenant.
NOTE 2—BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management of the general partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the nine months ended September 30, 2005 are not necessarily an indication of the results that may be expected for the year ending December 31, 2005. The Condensed Consolidated Balance Sheet as of December 31, 2004 has been derived from our audited consolidated financial statements for the year ended December 31, 2004. These financials statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004. Certain prior year amounts have been reclassified to conform to current year presentation.
We have one primary reportable segment, which consists of financing and owning healthcare-related and seniors housing facilities and leasing or subleasing such facilities to third parties. See “Note 4—Concentration of Credit Risk.” With the exception of our office buildings, we do not operate our facilities nor do we allocate capital to maintain our properties. Substantially all depreciation and interest expense reflected in the Condensed Consolidated Statements of Income relates to our investment in real estate.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—MERGER OF ELDERTRUST
On February 5, 2004, Ventas acquired all of the outstanding common shares of ElderTrust in an all cash transaction valued at $184.0 million. At the close of the ElderTrust acquisition, ElderTrust had approximately $33.5 million in unrestricted and restricted cash. After transaction costs, the net investment of the ElderTrust acquisition was approximately $160.0 million. Concurrent with the consummation of the ElderTrust acquisition, Ventas also purchased all of our limited partnership units then held by third parties at $12.50 per unit, other than 31,455 Class C limited partnership units, which remain outstanding. We own directly or indirectly all of the ElderTrust properties.
Ventas accounted for the acquisition under the purchase method. As a result, our assets and liabilities were adjusted to reflect the fair value as of the date of the acquisition. The following table summarizes the assets acquired and liabilities assumed by our general partner on February 5, 2004 (in millions):
Land | $ | 17 | ||
Buildings and improvements | 144 | |||
Cash and cash equivalents | 28 | |||
Other assets | 5 | |||
Total assets acquired | $ | 194 | ||
Notes payable and other debt | 83 | |||
Accounts payable and other accrued liabilities | 2 | |||
Total liabilities assumed | $ | 85 | ||
Net assets acquired | 109 | |||
Less cash acquired | (28 | ) | ||
Net cash paid | $ | 81 | ||
NOTE 4—CONCENTRATION OF CREDIT RISK
As of September 30, 2005, approximately 51.8% and 34.0% of our properties, based on their original cost, were leased to or managed by Genesis Health Ventures, Inc. (“Genesis Health”), its successor, Genesis HealthCare Corporation (“Genesis HealthCare”), or its consolidated subsidiaries or entities in which Genesis Health accounts for its investment using the equity method of accounting (collectively, “Genesis Equity Investees” and, together with Genesis Health and Genesis HealthCare, “Genesis”), and Benchmark Assisted Living, L.L.C. (“Benchmark”), respectively. Approximately 47.6% and 29.6% of our total rental revenue for the nine months ended September 30, 2005 were derived from leases with Genesis and Benchmark, respectively.
As a result of these relationships with Genesis and Benchmark, our revenues and ability to meet our obligations depend, in significant part, upon the ability of Genesis and Benchmark to meet their lease obligations. We cannot assure you that Genesis and Benchmark will have sufficient assets, income and access to financing and insurance coverage to enable them to satisfy their obligations under their respective agreements with us. In addition, any failure by Genesis or Benchmark to effectively conduct its operations could have a material adverse effect on its business reputation or on its ability to enlist and maintain patients in its facilities. Any inability or unwillingness on the part of Genesis or Benchmark to satisfy its obligations under its agreements with us could have a material adverse effect on our business, financial condition, results of operations or liquidity, or on our ability to service our indebtedness and other obligations.
Genesis HealthCare is subject to the reporting requirements of the Securities and Exchange Commission (the “Commission”) and is required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Genesis HealthCare provided in this Quarterly Report on Form 10-Q is derived from filings made by Genesis HealthCare with the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Commission or other publicly available information, or has been provided to us by Genesis HealthCare. Genesis HealthCare’s filings with the Commission can be found at the Commission’s website at www.sec.gov. We have not verified this information either through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you that all such information is accurate. We are providing this data for informational purposes only, and you are encouraged to obtain Genesis HealthCare’s publicly available filings from the Commission.
NOTE 5—DISCONTINUED OPERATIONS
Under Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we are required to reclassify from continuing operations to discontinued operations the results of operations from any property that is disposed of or is classified as held for sale and in which we will not have significant continuing involvement.
In September 2003, we entered into a definitive Master Agreement with Genesis (the “Genesis Agreement”). Under the terms of the Genesis Agreement, we sold five properties to Genesis. Four of the properties were sold in stages during the fourth quarter ended December 31, 2003, and the fifth property was sold on January 30, 2004.
On October 4, 2005, we received notification from a tenant regarding its intent to exercise its option to purchase a seniors housing facility located in Pennsylvania containing 90 licensed beds. We expect this sale to close in the fourth quarter of 2005. The carrying amount of this facility was approximately $5.1 million as of September 30, 2005 and the purchase price is approximately $10 million. Annual rent on this asset is $0.8 million.
During the nine months ended September 30, 2005 and the period from February 5, 2004 though September 30, 2004, we did not dispose of any operating assets or have any operating assets classified as held for sale, and therefore no amounts were reported in discontinued operations for these periods. Set forth below is a summary of the results of operations of the sold and held for sale facility during the period from January 1, 2004 through February 4, 2004:
| ETOP Predecessor | ||||
For the Period from January 1, 2004 February 4, 2004 | ||||
| (in thousands) | ||||
Rental income | $ | 45 | ||
Interest and other income | 335 | |||
Total revenue | 380 | |||
Interest | 18 | |||
General, administrative and professional fees | 2 | |||
Loss on sale of real estate | 62 | |||
Gain on debt extinguishment | (116 | ) | ||
Total expenses | (34 | ) | ||
Income from discontinued operations | $ | 414 | ||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6—DISTRIBUTIONS
We paid cash distributions of $35.2 million to our general partner, ElderTrust, for the period from February 5, 2004 through September 30, 2004.
NOTE 7—INVESTMENT IN AFFILIATES
On June 7, 2005, Ventas acquired all of the outstanding common shares of Provident Senior Living Trust (together with its subsidiaries, “Provident”) in a transaction valued at $1.2 billion. Provident conducted all of its business through its operating partnership, PSLT OP, L.P. (“PSLT OP”). At the same time, we acquired all of the limited partnership units in PSLT OP that were not owned by Provident. Each unit in PSLT OP was exchanged for 0.8022 units of a new class of our partnership interests (the “Class D limited partnership units”), resulting in the issuance of an aggregate of 345,146 Class D limited partnership units, representing 4.1% of our equity interests. The Class D limited partnership units are redeemable on a one-for-one basis (subject to adjustment upon the occurrence of certain events) into shares of Ventas common stock.Our ownership of PSLT OP is accounted for under the cost method of accounting. We invested $9.0 million in PSLT OP, which is recorded as investment in affiliates in the Condensed Consolidated Balance Sheet as of September 30, 2005.
NOTE 8—CONDENSED CONSOLIDATING INFORMATION
ETOP, which is a substantially owned indirect subsidiary of Ventas, and certain of our direct and indirect wholly owned subsidiaries (the “ETOP Subsidiary Guarantors”), have provided full and unconditional guarantees, on a joint and several basis with Ventas and certain of Ventas’s direct and indirect wholly owned subsidiaries, of the obligation to pay principal and interest with respect to the 8 3/4% Senior Notes due 2009, the 9% Senior Notes due 2012, the 6 5/8% Senior Notes due 2014, the 6 3/4% Senior Notes due 2010 and the 7 1/8% Senior Notes due 2015 (collectively, the “Senior Notes”) issued by Ventas Realty, Limited Partnership and Ventas Capital Corporation, wholly owned subsidiaries of Ventas. The total aggregate principal amount of Senior Notes outstanding as of September 30, 2005 was $891.0 million. Certain of our other subsidiaries (the “ETOP Non-Guarantor Subsidiaries”) have not provided the guarantee of the Senior Notes and therefore are not directly obligated with respect to the Senior Notes.
Contractual and legal restrictions, including those contained in the instruments governing certain of the ETOP Non-Guarantor Subsidiaries’ outstanding indebtedness, may under certain circumstances restrict our ability to obtain cash from the ETOP Non-Guarantor Subsidiaries for the purpose of satisfying our debt service obligations, including our guarantee of payment of principal and interest on the Senior Notes. Additionally, certain of the ETOP Subsidiary Guarantors’ properties are subject to mortgages.
For comparative purposes, the unaudited condensed consolidating financial statements for the period from January 1, 2004 through February 4, 2004 are presented as ETOP Predecessor financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2005
| (In thousands) | ETOP and ETOP Subsidiary | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | ||||||||||
Assets | ||||||||||||||
Net real estate investments | $ | 61,866 | $ | 89,773 | $ | — | $ | 151,639 | ||||||
Cash and cash equivalents | — | 326 | — | 326 | ||||||||||
Escrow deposits and restricted cash | 304 | 4,871 | — | 5,175 | ||||||||||
Investment in affiliates | 9,039 | — | — | 9,039 | ||||||||||
Equity in affiliates | 80,495 | 15 | (80,510 | ) | — | |||||||||
Other | 108 | 1,150 | — | 1,258 | ||||||||||
Total assets | $ | 151,812 | $ | 96,135 | $ | (80,510 | ) | $ | 167,437 | |||||
Liabilities and partners’ capital | ||||||||||||||
Liabilities: | ||||||||||||||
Mortgages and bonds payable | $ | 427 | $ | 67,110 | $ | — | $ | 67,537 | ||||||
Intercompany | (4,639 | ) | 4,639 | — | — | |||||||||
Note payable to affiliate | 8,251 | — | — | 8,251 | ||||||||||
Accounts payable and other accrued liabilities | 263 | 2,295 | — | 2,558 | ||||||||||
Accrued interest | 3 | 425 | — | 428 | ||||||||||
Accrued dividend | 126 | — | — | 126 | ||||||||||
Total liabilities | 4,431 | 74,469 | — | 78,900 | ||||||||||
Total partners’ capital | 147,381 | 21,666 | (80,510 | ) | 88,537 | |||||||||
Total liabilities and partners’ capital | $ | 151,812 | $ | 96,135 | $ | (80,510 | ) | $ | 167,437 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2004
| (In thousands) | ETOP and ETOP Subsidiary | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | ||||||||||
Assets | ||||||||||||||
Net real estate investments | $ | 63,608 | $ | 92,135 | $ | — | $ | 155,743 | ||||||
Cash and cash equivalents | 37 | 1,173 | — | 1,210 | ||||||||||
Escrow deposits and restricted cash | 2,658 | 4,047 | — | 6,705 | ||||||||||
Equity in affiliates | 80,447 | 15 | (80,462 | ) | — | |||||||||
Other | 209 | 681 | — | 890 | ||||||||||
Total assets | $ | 146,959 | $ | 98,051 | $ | (80,462 | ) | $ | 164,548 | |||||
Liabilities and partners’ capital | ||||||||||||||
Liabilities: | ||||||||||||||
Senior notes payable and other debt | $ | 9,666 | $ | 68,067 | $ | — | $ | 77,733 | ||||||
Intercompany | (4,180 | ) | 4,180 | — | — | |||||||||
Note payable to affiliates | 7,802 | — | — | 7,802 | ||||||||||
Accounts payable and other accrued liabilities | 607 | 2,716 | — | 3,323 | ||||||||||
Accrued interest | 264 | 439 | — | 703 | ||||||||||
Total liabilities | 14,159 | 75,402 | — | 89,561 | ||||||||||
Total partners’ capital | 132,800 | 22,649 | (80,462 | ) | 74,987 | |||||||||
Total liabilities and partners’ capital | $ | 146,959 | $ | 98,051 | $ | (80,462 | ) | $ | 164,548 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2005
| (In thousands) | ETOP and Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | ||||||||||
Revenues: | ||||||||||||||
Rental income | $ | 1,625 | $ | 2,689 | $ | — | $ | 4,314 | ||||||
Equity loss in affiliates | (71 | ) | — | 71 | — | |||||||||
Interest and other income | 14 | 14 | — | 28 | ||||||||||
Total revenues | 1,568 | 2,703 | 71 | 4,342 | ||||||||||
Expenses: | ||||||||||||||
Property-level operating expenses | — | 364 | — | 364 | ||||||||||
General, administrative and professional fees | 109 | 159 | — | 268 | ||||||||||
Restricted stock amortization | 6 | 7 | — | 13 | ||||||||||
Depreciation | 581 | 792 | — | 1,373 | ||||||||||
Interest | 140 | 1,292 | — | 1,432 | ||||||||||
Intercompany interest | (9 | ) | 160 | — | 151 | |||||||||
Total expenses | 827 | 2,774 | — | 3,601 | ||||||||||
Net income (loss) | $ | 741 | $ | (71 | ) | $ | 71 | $ | 741 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2004
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | ||||||||||
Revenues: | ||||||||||||||
Rental income | $ | 1,618 | $ | 2,663 | $ | — | $ | 4,281 | ||||||
Interest and other income | 20 | 9 | — | 29 | ||||||||||
Equity loss in affiliates | (160 | ) | — | 160 | — | |||||||||
Total revenues | 1,478 | 2,672 | 160 | 4,310 | ||||||||||
Expenses: | ||||||||||||||
Property-level operating expenses | — | 331 | — | 331 | ||||||||||
General, administrative and professional fees | 119 | 176 | — | 295 | ||||||||||
Restricted stock amortization | 9 | 11 | — | 20 | ||||||||||
Depreciation | 738 | 905 | — | 1,643 | ||||||||||
Interest | 207 | 1,316 | — | 1,523 | ||||||||||
Intercompany interest | 58 | 93 | — | 151 | ||||||||||
Total expenses | 1,131 | 2,832 | — | 3,963 | ||||||||||
Net income (loss) | $ | 347 | $ | (160 | ) | $ | 160 | $ | 347 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2005
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | ||||||||||
Revenues: | ||||||||||||||
Rental income | $ | 4,867 | $ | 8,007 | $ | — | $ | 12,874 | ||||||
Interest and other income | 56 | 34 | — | 90 | ||||||||||
Equity loss in affiliates | (329 | ) | — | 329 | — | |||||||||
Total revenues | 4,594 | 8,041 | 329 | 12,964 | ||||||||||
Expenses: | ||||||||||||||
Property-level operating expenses | — | 1,061 | — | 1,061 | ||||||||||
General, administrative and professional fees | 437 | 574 | — | 1,011 | ||||||||||
Restricted stock amortization | 21 | 29 | — | 50 | ||||||||||
Depreciation | 1,743 | 2,375 | — | 4,118 | ||||||||||
Interest | 549 | 3,872 | — | 4,421 | ||||||||||
Intercompany interest | (10 | ) | 459 | — | 449 | |||||||||
Total expenses | 2,740 | 8,370 | — | 11,110 | ||||||||||
Net income (loss) | $ | 1,854 | $ | (329 | ) | $ | 329 | $ | 1,854 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the period from February 5, 2004 through September 30, 2004
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | ||||||||||
Revenues: | ||||||||||||||
Rental income | $ | 4,314 | $ | 7,062 | $ | — | $ | 11,376 | ||||||
Interest and other income | 55 | 28 | — | 83 | ||||||||||
Equity loss in affiliates | (230 | ) | — | 230 | — | |||||||||
Total revenues | $ | 4,139 | $ | 7,090 | $ | 230 | $ | 11,459 | ||||||
Expenses: | ||||||||||||||
Property-level operating expenses | — | 828 | — | 828 | ||||||||||
General, administrative and professional fees | 430 | 475 | — | 905 | ||||||||||
Restricted stock amortization | 22 | 31 | — | 53 | ||||||||||
Depreciation | 1,541 | 2,105 | — | 3,646 | ||||||||||
Interest | 646 | 3,504 | — | 4,150 | ||||||||||
Intercompany interest | (119 | ) | 377 | — | 258 | |||||||||
Total expenses | 2,520 | 7,320 | — | 9,840 | ||||||||||
Net income (loss) | $ | 1,619 | $ | (230 | ) | $ | 230 | $ | 1,619 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ETOP PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the period from January 1, 2004 through February 4, 2004
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | |||||||||
Revenues: | |||||||||||||
Rental income | $ | 507 | $ | 1,005 | $ | — | $ | 1,512 | |||||
Interest and other income | 113 | 10 | (63 | ) | 60 | ||||||||
Equity earnings in affiliates | 66 | — | (66 | ) | — | ||||||||
Total revenues | 686 | 1,015 | (129 | ) | 1,572 | ||||||||
Expenses: | |||||||||||||
Property-level operating expenses | — | 101 | — | 101 | |||||||||
General, administrative and professional fees | 182 | 18 | — | 200 | |||||||||
Depreciation | 192 | 295 | — | 487 | |||||||||
Interest | 40 | 509 | — | 549 | |||||||||
Intercompany interest | 37 | 26 | (63 | ) | — | ||||||||
Loss on sale of fixed assets | 10 | — | — | 10 | |||||||||
Loss on debt extinguishment | 8 | — | — | 8 | |||||||||
Total expenses | 469 | 949 | (63 | ) | 1,355 | ||||||||
Income before discontinued operations | 217 | 66 | (66 | ) | 217 | ||||||||
Discontinued operations | 414 | — | — | 414 | |||||||||
Net income | $ | 631 | $ | 66 | $ | (66 | ) | $ | 631 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ETOP PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2005
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | |||||||||||
Net cash provided by operating activities | $ | 6,372 | $ | 347 | $ | — | $ | 6,719 | |||||||
Net cash used in investing activities | — | (13 | ) | — | (13 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||
Cash distributions from (to) partners | 2,830 | (224 | ) | — | 2,606 | ||||||||||
Repayment of debt | (9,239 | ) | (957 | ) | — | (10,196 | ) | ||||||||
Net cash used in financing activities | (6,409 | ) | (1,181 | ) | — | (7,590 | ) | ||||||||
Net decrease in cash and cash equivalents | (37 | ) | (847 | ) | — | (884 | ) | ||||||||
Cash and cash equivalents at beginning of period | 37 | 1,173 | — | 1,210 | |||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 326 | $ | — | $ | 326 | |||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the period from February 5, 2004 through September 30, 2004
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | |||||||||||
Net cash provided by operating activities | $ | 3,157 | $ | 1,617 | $ | — | $ | 4,774 | |||||||
Net cash used in investing activities | — | (37 | ) | — | (37 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||
Repayment of debt | (3,667 | ) | (698 | ) | — | (4,365 | ) | ||||||||
Proceeds from issuance of note payable to affiliate | 7,500 | — | — | 7,500 | |||||||||||
Cash distributions to partners | (34,109 | ) | (1,067 | ) | — | (35,176 | ) | ||||||||
Net cash used in financing activities | (30,276 | ) | (1,765 | ) | — | (32,041 | ) | ||||||||
Net decrease in cash and cash equivalents | (27,119 | ) | (185 | ) | — | (27,304 | ) | ||||||||
Cash and cash equivalents at beginning of period | 27,152 | 868 | — | 28,020 | |||||||||||
Cash and cash equivalents at end of period | $ | 33 | $ | 683 | $ | — | $ | 716 | |||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ETOP PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the period from January 1, 2004 through February 4, 2004
| (In thousands) | ETOP and ETOP Subsidiary Guarantors | ETOP Non-Guarantor | Consolidated Elimination | Consolidated | |||||||||||
Net cash provided by operating activities | $ | 820 | $ | 260 | $ | — | $ | 1,080 | |||||||
Net cash provided by investing activities | 2,806 | — | — | 2,806 | |||||||||||
Cash flows from financing activities: | |||||||||||||||
Cash distribution to unitholders | (1,293 | ) | — | — | (1,293 | ) | |||||||||
Repayment of debt | (30 | ) | (212 | ) | — | (242 | ) | ||||||||
Net cash used in financing activities | (1,323 | ) | (212 | ) | — | (1,535 | ) | ||||||||
Net increase in cash and cash equivalents | 2,303 | 48 | — | 2,351 | |||||||||||
Cash and cash equivalents at beginning of period | 24,848 | 821 | — | 25,669 | |||||||||||
Cash and cash equivalents at end of period | $ | 27,151 | $ | 869 | $ | — | $ | 28,020 | |||||||
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Unless otherwise indicated or the context otherwise requires, the terms “we,” “us,” “our,” “ETOP” or the “Partnership” refer to ElderTrust Operating Limited Partnership and its consolidated subsidiaries.
All references to periods prior to February 5, 2004, the date on which our general partner, ElderTrust, was acquired by Ventas, Inc. (“Ventas”), contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to the activities of our predecessor (the “ETOP Predecessor”).
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements regarding our expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, projected costs, capital expenditures, competitive positions, growth opportunities, expected lease income, plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from our expectations. We do not undertake a duty to update such forward-looking statements.
Our actual future results and trends may differ materially depending on a variety of factors discussed in our filings with the Securities and Exchange Commission (the “Commission”). Factors that may affect our plans or results include without limitation: (a) the ability and willingness of our tenants and operators, including Genesis Health Ventures, Inc. (“Genesis Health”), its successor, Genesis HealthCare Corporation (“Genesis HealthCare”), and its consolidated subsidiaries and entities which Genesis Health accounts for its investment using the equity method of accounting (collectively, “Genesis Equity Investees” and, together with Genesis Health and Genesis HealthCare, “Genesis”), and Benchmark Assisted Living, L.L.C. (“Benchmark”), to meet and/or perform the obligations under their various contractual arrangements with us; (b) the ability of our tenants and operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities, including without limitation their existing credit facilities; (c) the nature and extent of future competition; (d) the extent of future healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (e) increases in our cost of borrowing; (f) the ability of our operators to deliver high quality care and to attract patients; (g) the results of litigation affecting us; (h) changes in general economic conditions and/or economic conditions in the markets in which we may, from time to time, compete; (i) our ability to pay down, refinance, restructure, and/or extend our indebtedness as it becomes due; (j) the movement of interest rates; (k) the ability and willingness of our tenants to renew their leases with us upon expiration of the leases and our ability to relet our properties on the same or better terms in the event such leases expire and are not renewed by the existing tenants; and (l) the impact on the liquidity, financial condition and results of operations of our operators resulting from increased operating costs and uninsured liabilities for professional liability claims, and the ability of our operators to accurately estimate the magnitude of such liabilities. Many of these factors are beyond our control and the control of our management.
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General
We are a limited partnership organized under the laws of the State of Delaware on July 30, 1997. We invest in seniors housing and other healthcare facilities, primarily skilled nursing facilities, assisted and independent living facilities and medical and other office buildings. ElderTrust, a Maryland real estate investment trust (“ElderTrust”), is our sole general partner. On February 5, 2004, ElderTrust became a wholly owned direct subsidiary of Ventas, a healthcare real estate investment trust based in Louisville, Kentucky, whose common stock is publicly traded on the New York Stock Exchange. See “Note 3—Merger of ElderTrust” of the Notes to Condensed Consolidated Financial Statements.
As of September 30, 2005, our consolidated assets included 18 properties, located in three states, consisting of nine assisted living facilities, one independent living facility, five skilled nursing facilities, two medical office buildings and a financial office building. Except with respect to our office buildings, we lease these facilities to third-party healthcare providers, generally under “triple-net” leases. Triple-net leases dictate that all costs associated with the facilities, including real estate taxes, insurance and utilities, are the responsibility of the tenant.
As of September 30, 2005, approximately 51.8% and 34.0% of our properties, based on their original cost, were operated by Genesis and Benchmark, respectively. Approximately 47.6% and 29.6% of our total rental revenue for the nine months ended September 30, 2005 were derived from leases with Genesis and Benchmark, respectively. As a result of these relationships with Genesis and Benchmark, our revenues and ability to meet our obligations depend, in significant part, upon the ability of Genesis and Benchmark to meet their lease obligations. Any failure of Genesis and/or Benchmark to continue their operations and/or to continue to make lease payments to us could have a significant adverse impact on our operations and cash flows.
On June 7, 2005, Ventas acquired all of the outstanding common shares of Provident Senior Living Trust (together with its subsidiaries, “Provident”) in a transaction valued at $1.2 billion. Provident conducted all of its business through its operating partnership, PSLT OP, L.P. (“PSLT OP”). At the same time, we acquired all of the limited partnership units in PSLT OP that were not owned by Provident. Each unit in PSLT OP was exchanged for 0.8022 units of a new class of our partnership interests (the “Class D limited partnership units”), resulting in the issuance of an aggregate of 345,146 Class D limited partnership units, representing 4.1% of our equity interests. The Class D limited partnership units are redeemable on a one-for-one basis (subject to adjustment upon the occurrence of certain events) into shares of Ventas common stock.Our ownership of PSLT OP is accounted for under the cost method of accounting. We invested $9.0 million in PSLT OP, which is recorded as investment in affiliates in the Condensed Consolidated Balance Sheet as of September 30, 2005.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. We believe that the following critical accounting policies, among others, affect our more significant estimates and judgements used in the preparation of our consolidated financial statements.
Long-Lived Assets
Investments in real estate properties are recorded at cost. We account for acquisitions using the purchase method of accounting. The cost of the properties acquired is allocated among tangible land, buildings and improvements and recognized intangibles based upon estimated fair values in accordance with the provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations.” We estimate fair values of the components of assets acquired as of the acquisition date or engage a third-
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party appraiser as necessary. Recognized intangibles, if any, include the value of acquired lease contracts and related customer relationships.
Our method for determining fair value varies with the categorization of the asset acquired. We estimate the fair value of buildings on an as-if-vacant basis, and amortize the building value over the estimated remaining life of the building. We determine the allocated value of other fixed assets based upon the replacement cost and amortize such value over the estimated remaining useful lives. We determine the value of land either based on real estate tax assessed values in relation to the total value of the asset, internal analyses of recently acquired and existing comparable properties within our portfolio or third party appraisals. The fair value of in-place leases, if any, reflects (i) above and below market leases, if any, determined by discounting the difference between the estimated current market rent and the in-place rentals, the resulting intangible asset of which is amortized to rental revenue over the remaining life of the associated lease plus any fixed rate renewal periods, if applicable, (ii) the estimated value of the cost to obtain tenants, including tenant allowances, tenant improvements and leasing commissions, which is amortized over the remaining life of the associated lease, and (iii) an estimated value of the absorption period to reflect the value of the rents and recovery costs foregone during a reasonable lease-up period, as if the acquired space was vacant, which is amortized over the remaining life of the associated lease. We also estimate the value of tenant or other customer relationships acquired by considering the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with such tenant, such tenant’s credit quality, expectations of lease renewals with such tenant, and the potential for significant, additional future leasing arrangements with such tenant. We amortize such value, if any, over the expected term of the associated arrangements or leases, which would include the remaining lives of the related leases and any expected renewal periods.
Impairment of Long-Lived Assets
We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations and adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future cash flow or sales proceeds is less than book value. An impairment loss is recognized at the time we make any such adjustment. Future events could occur which would cause management to conclude that impairment indicators exist and an impairment loss is warranted.
Revenue Recognition
Certain of our leases provide for periodic and determinable increases in base rent. Base rental revenues under these leases are recognized on a straight-line basis over the term of the applicable lease. Certain of our other leases provide for an annual increase in rental payments only if certain revenue parameters or other contingencies are met. We recognize the increased rental revenue under these leases only if the revenue parameters or other contingencies are met, rather than on a straight-line basis over the term of the applicable lease. We recognize income from rent, lease termination fees and other income once all of the following criteria are met in accordance with the Commission’s Staff Accounting Bulletin 104: (i) the agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) the collectibility is reasonably assured.
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Results of Operations
Three Months Ended September 30, 2005 and 2004
Revenues
Rental income was $4.3 million for both the three months ended September 30, 2005 and 2004. Rental income attributable to Genesis totaled $2.1 million, or 47.7% and 48.0% of total rental revenue for the three months ended September 30, 2005 and 2004, respectively. Rental income attributable to Benchmark totaled $1.3 million, or 29.6% and 29.9% of total rental revenue for the three months ended September 30, 2005 and 2004, respectively.
Expenses
Interest expense was $1.6 million and $1.7 million for the three months ended September 30, 2005 and 2004, respectively, and includes interest from the $7.5 million promissory note entered into on April 26, 2004 with Ventas Realty, Limited Partnership, a wholly owned subsidiary of Ventas (“Ventas Realty”). Substantially all of our outstanding debt bears interest at fixed rates, so interest expense is expected to decrease as principal payments are made. However, we cannot assure you that we will not issue additional debt, and any such additional debt may bear interest at fixed or variable rates.
Nine Months Ended September 30, 2005 and 2004
The results of operations for the nine months ended September 30, 2004 include results of the ETOP Predecessor for the period from January 1, 2004 through February 4, 2004. Results for the period from February 5, 2004 through September 30, 2004 differ from the ETOP Predecessor primarily as a result of the purchase accounting adjustments recorded upon the acquisition of ElderTrust by Ventas. See “Note 3—Merger of ElderTrust” of the Notes to Condensed Consolidated Financial Statements.
Revenues
Rental revenue was $12.9 million for both the nine months ended September 30, 2005 and 2004. Rental income attributable to Genesis totaled $6.2 million, or 47.9% and 48.0% of total rental revenue for the nine months ended September 30, 2005 and 2004, respectively. Rental income attributable to Benchmark totaled $3.8 million, or 29.8% and 30.1% of total rental revenue for the nine months ended September 30, 2005 and 2004, respectively.
Expenses
Interest expense was $4.9 million and $5.0 million for the nine months ended September 30, 2005 and 2004, respectively, and includes interest from the $7.5 million promissory note entered into on April 26, 2004 with Ventas Realty. Substantially all of our outstanding debt bears interest at fixed rates, so interest expense is expected to decrease as principal payments are made. However, we cannot assure you that we will not issue additional debt, and any such additional debt may bear interest at fixed or variable rates.
Discontinued operations for the period from January 1, 2004 through February 4, 2004 represents the operating results of Riverview Ridge, which was sold on January 30, 2004. See “Note 5—Discontinued Operations” of the Notes to Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
During the nine months ended September 30, 2005, our principal source of liquidity was cash flow from operations. We anticipate that cash flows from operations will be sufficient to fund our business operations and distributions to partners for the foreseeable future.
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We had cash and cash equivalents of $0.3 million and escrow deposits and restricted cash of $5.2 million as of September 30, 2005.
Net cash provided by operating activities was $6.7 million and $5.9 million for the nine months ended September 30, 2005 and 2004, respectively. This increase is primarily due to favorable changes in operating assets and liabilities at September 30, 2005.
Net cash provided by investing activities was $2.8 million for the nine months ended September 30, 2004, primarily due to the sale of the Riverview Ridge property during the period from January 1, 2004 through February 4, 2004.
Net cash used in financing activities was $7.6 million and $33.6 million for the nine months ended September 30, 2005 and 2004, respectively. This decrease is primarily the result of cash distributions to partners, subsequent to our acquisition by Ventas.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We receive revenue primarily by leasing our assets under leases that are long-term triple net-leases in which the rental rate is generally fixed with annual escalators, subject to certain limitations. Our bonds payable and substantially all of our mortgage indebtedness bear interest at fixed rates. Accordingly, we do not utilize interest rate swaps or any other type of derivative financial instruments to mitigate interest rate risk. The fair value of the fixed rate debt approximates net carrying value, based on rates offered for similar arrangements for our mortgage indebtedness and notes payable.
For fixed rate debt, changes in interest rates generally affect the fair market value of the underlying indebtedness, but not earnings or cash flows. We generally cannot prepay fixed rate debt prior to maturity without premium. Therefore, 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.
To highlight the sensitivity of the fixed rate debt to changes in interest rates, the following summary shows the effects of a hypothetical instantaneous change of 100 basis points (BPS) in interest rates as of September 30, 2005 and December 31, 2004 (in thousands):
| Fixed Rate Debt | ||||||
| As of September 30, 2005 | As of December 31, | |||||
Book value | $ | 75,361 | $ | 85,535 | ||
Fair value | 74,633 | 85,535 | ||||
Fair value reflecting change in interest rates: | ||||||
-100 BPS | 78,608 | 90,803 | ||||
+100 BPS | 69,645 | 79,580 | ||||
The fair market value of the fixed rate debt is based on information provided by third parties. These sensitivity analyses are limited in that they were performed at a particular point in time and are subject to the accuracy of the various assumptions used.
We may borrow additional money with variable interest rates in the future. Increases in interest rates, therefore, would result in increases in interest expense, which could adversely affect our cash flow and our ability to pay our obligations.
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| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to us is timely communicated to the officers who certify our financial reports and to other members of our management, including ElderTrust’s Board of Trustees.
Based upon their evaluation as of September 30, 2005, the Chief Executive Officer and Chief Financial Officer of ElderTrust, our general partner, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
Changes in Internal Control Over Financial Reporting
During the third quarter of 2005, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 6. | EXHIBITS |
| Exhibit Number | Description of Document | |
| 31.1 | Certification of Debra A. Cafaro, President and Chief Executive Officer of ElderTrust, general partner of the Partnership, pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 31.2 | Certification of Richard A. Schweinhart, Chief Financial Officer of ElderTrust, general partner of the Partnership, pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 32.1 | Certification of Debra A. Cafaro, President and Chief Executive Officer of ElderTrust, general partner of the Partnership, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350. | |
| 32.2 | Certification of Richard A. Schweinhart, Chief Financial Officer of ElderTrust, general partner of the Partnership pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 2005
| ELDERTRUST OPERATING LIMITED PARTNERSHIP | ||
| By: ELDERTRUST, its general partner | ||
| By: | /S/ DEBRA A. CAFARO | |
| Debra A. Cafaro | ||
| President and | ||
| Chief Executive Officer | ||
| By: | /S/ RICHARD A. SCHWEINHART | |
| Richard A. Schweinhart | ||
| Chief Financial Officer | ||
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| Exhibit Number | Description of Document | |
| 31.1 | Certification of Debra A. Cafaro, President and Chief Executive Officer of ElderTrust, general partner of the Partnership, pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 31.2 | Certification of Richard A. Schweinhart, Chief Financial Officer of ElderTrust, general partner of the Partnership, pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 32.1 | Certification of Debra A. Cafaro, President and Chief Executive Officer of ElderTrust, general partner of the Partnership, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350. | |
| 32.2 | Certification of Richard A. Schweinhart, Chief Financial Officer of ElderTrust, general partner of the Partnership pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350. | |
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