ElderTrust Operating Limited Partnership 10-Q 2007 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

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
	333-131342-56
	333-133115-61

ElderTrust Operating Limited Partnership

(Exact Name of Registrant as Specified in Its Charter)

Delaware	23-2915846
(State or Other Jurisdiction of Incorporation or Organization)	(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)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

ELDERTRUST OPERATING LIMITED PARTNERSHIP

FORM 10-Q

INDEX

		Page
PART I—FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31,2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	16
PART II—OTHER INFORMATION		16
Item 6.	Exhibits	16

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ELDERTRUST OPERATING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	March 31, 2007			December 31, 2006
	(Unaudited)			(Audited)
Assets
Real estate investments, at cost	$	140,052		$	140,015
Less-accumulated depreciation		(16,833	)		(15,495	)
Land		15,601			15,601
Net real estate investments		138,820			140,121
Cash and cash equivalents		—			336
Restricted cash		6,876			6,543
Accounts receivable, net of allowance of $0 and $5, respectively		1,940			1,861
Investment in affiliates		9,039			9,039
Other assets		220			317
Total assets	$	156,895		$	158,217
Liabilities and Partners’ Capital
Liabilities:
Debt	$	65,423		$	65,799
Note payable to affiliate		7,500			7,500
Accrued interest		571			525
Accrued dividend		—			23
Accounts payable and other accrued liabilities		3,178			3,197
Total liabilities		76,672			77,044
Commitments and contingencies
Partners’ capital		80,223			81,173
Total liabilities and partners’ capital	$	156,895		$	158,217

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)

(Unaudited)

	For the Three Months Ended March 31,
	2007		2006
Revenues:
Rental income	$	4,143	$	4,111
Interest and other income		42		32
Total revenues		4,185		4,143
Expenses:
Interest		1,396		1,422
Depreciation and amortization		1,340		1,333
Property-level operating expenses		378		331
General, administrative and professional fees		243		296
Total expenses		3,357		3,382
Net income	$	828	$	761
Net income allocated to Class A general partner	$	1	$	1
Net income allocated to Class A limited partners		790		726
Net income allocated to Class C limited partner		3		3
Net income allocated to Class D limited partners		34		31
Net income per Class A general partnership unit	$	0.10	$	0.09
Net income per Class A limited partnership unit		0.10		0.09
Net income per Class C limited partnership unit		0.10		0.09
Net income per Class D limited partnership unit		0.10		0.09
Weighted average number of Class A general partnership units outstanding		8		8
Weighted average number of Class A limited partnership units outstanding		8,041		8,041
Weighted average number of Class C limited partnership units outstanding		31		31
Weighted average number of Class D limited partnership units outstanding		345		345

See notes to condensed consolidated financial statements.

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ELDERTRUST OPERATING LIMITED PARTNERSHIP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net income	$	828		$	761
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,340			1,333
Straight-lining of rental income		(86	)		(131	)
Other		(5	)		(29	)
Changes in operating assets and liabilities:
Increase in restricted cash		(333	)		(125	)
Decrease in accounts receivable and other assets		107			270
Increase in accounts payable and other accrued liabilities		27			4
Net cash provided by operating activities		1,878			2,083
Cash flows from investing activities:
Net investment in real estate properties		(37	)		(128	)
Net cash used in investing activities		(37	)		(128	)
Cash flows from financing activities:
Repayment of debt		(376	)		(350	)
Cash distribution to unitholders		(1,801	)		(1,581	)
Net cash used in financing activities		(2,177	)		(1,931	)
Net (decrease) increase in cash and cash equivalents		(336	)		24
Cash and cash equivalents at beginning of period		336			439
Cash and cash equivalents at end of period	$	—		$	463

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, unless otherwise indicated or except where the context otherwise requires, “we,” “us,” “our,” “ETOP” or the “Partnership”) 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. In February 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.

As of March 31, 2007, our consolidated assets were located in three states and consisted of nine seniors housing communities, five skilled nursing facilities, two medical office buildings and a financial office building. With the exception of the office buildings, we lease these properties to third-party healthcare providers, generally under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses.

NOTE 2—BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 our 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 three months ended March 31, 2007 are not necessarily an indication of the results that may be expected for the year ending December 31, 2007. The Condensed Consolidated Balance Sheet as of December 31, 2006 has been derived from our audited consolidated financial statements for the year ended December 31, 2006. The accompanying Condensed Consolidated Financial 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, 2006. Certain prior year amounts have been reclassified to conform to current year presentation.

We operate through one reportable segment: investment in real estate. Our primary business consists of financing, owning and leasing seniors housing and healthcare-related properties and leasing or subleasing those properties to third parties. With the exception of our office buildings, we do not operate our properties nor do we allocate capital to maintain our properties. Substantially all depreciation and interest expenses reflected in the condensed consolidated statements of income relates to our investment in real estate.

Recently Adopted Accounting Standards

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for income taxes when it is uncertain how an income or expense item should be treated on an income tax return. FIN 48 describes when an uncertain tax item should be recorded in the financial statements and for how much and provides guidance on recording interest and penalties and accounting and reporting for income taxes in interim periods. We adopted FIN 48 on January 1, 2007. The adoption had no impact on our consolidated financial statements.

NOTE 3—CONCENTRATION OF CREDIT RISK

As of March 31, 2007, approximately 53.5% and 35.2% of our properties, based on their original cost, were leased to or managed by Genesis HealthCare Corporation (“Genesis Healthcare”) and certain of its related entities (collectively “Genesis”) and Benchmark Assisted Living, LLC and certain of its related entities (collectively “Benchmark”), respectively. Approximately 50.0% and 30.7% of our total rental revenue for the three months ended March 31, 2007 were derived from leases with Genesis and Benchmark, respectively.

Because we lease a substantial portion of our properties to Genesis and Benchmark and they are each a

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

significant source of our total revenues, their financial condition and ability and willingness to satisfy their obligations under their respective leases and certain other agreements with us will significantly impact our revenues and our ability to service our indebtedness and to make distributions to our partners. We cannot assure you that Genesis or Benchmark will have sufficient assets, income and access to financing to enable it to satisfy its obligations under its respective leases and other agreements with us, and any inability or unwillingness on its part to do so would have a material adverse effect on our business, financial condition, results of operation and liquidity, on our ability to service our indebtedness and on our ability to make distributions to our partners.

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 interim financial information. The information related to Genesis HealthCare contained or referred to in this Quarterly Report on Form 10-Q is derived from filings made by Genesis HealthCare with the Commission or other publicly available information, or has been provided to us by Genesis HealthCare. 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. Genesis HealthCare’s filings with the Commission can be found at the Commission’s website atwww.sec.gov. We are providing this data for informational purposes only, and you are encouraged to obtain Genesis HealthCare’s publicly available filings from the Commission.

On January 16, 2007, Genesis HealthCare announced that it had entered into a definitive agreement to be acquired by a joint venture between affiliates of Formation Capital, LLC and JER Partners. On April 25, 2007, Genesis HealthCare announced that it received a proposal from Fillmore Capital Partners, LLC with a higher acquisition price. Genesis HealthCare’s board of directors is scheduled to meet on May 14, 2007 to review both proposals. If either acquisition is consummated, Genesis HealthCare will be operated as a privately held, independent company controlled by the JER/Formation joint venture or Fillmore Capital Partners, LLC.

NOTE 4—RELATED PARTY TRANSACTIONS

In accordance with the Limited Partnership Agreement, our general partner uses an allocation method for its general, administrative and professional fees and charges these fees to us on a quarterly basis. This allocation method is based on our total revenues in relation to the consolidated revenues of our general partner. We also incur other direct expenses, which are expensed at the time incurred. Approximately 97.1% and 87.2% of our consolidated general, administrative and professional fees for the three months ended March 31, 2007 and 2006, respectively, related to this allocation.

NOTE 5—NOTE PAYABLE TO AFFILIATE

In April 2004, we entered into a promissory note in the amount of $7.5 million with Ventas Realty, Limited Partnership (“Ventas Realty”), a wholly owned subsidiary of Ventas. Under the terms of the note, interest is paid quarterly at an annual rate of 8.0% beginning on July 1, 2004. The note has a maturity date of December 31, 2013, at which time a principal balloon payment equal to the full amount of the note is due. As of March 31, 2007, the note had an outstanding balance of $7.5 million. Accrued interest related to this note was $148,000 as of March 31, 2007.

NOTE 6—CONDENSED CONSOLIDATING INFORMATION

We 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 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, 6 ³/4% Senior Notes due 2010, 9% Senior Notes due 2012, 6 ⁵/8% Senior Notes due 2014, 7 ¹/8% Senior Notes due 2015, 6 ¹/2% Senior Notes due 2016 and 6 ³/4% Senior Notes due 2017 (collectively, the “Senior Notes”) issued by Ventas Realty and Ventas Capital Corporation (collectively, the “Ventas Issuers”), wholly owned subsidiaries of Ventas. The aggregate principal amount of Senior Notes outstanding as of March 31, 2007 was $1.5 billion. In addition, we and the ETOP Subsidiary Guarantors have provided full and unconditional guarantees, on a joint and several basis with certain of Ventas’s direct and indirect wholly owned subsidiaries, of the obligation to pay principal and interest with respect to Ventas’s 3 ⁷/8% Convertible Senior Notes due 2011. Certain of our other subsidiaries (the “ETOP Non-Guarantor Subsidiaries”) have not provided the guarantee of the Senior Notes or the Convertible Senior Notes and therefore are not directly obligated with respect to the Senior Notes or the Convertible Senior Notes.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and the Convertible Senior Notes. Certain of the ETOP Subsidiary Guarantors’ properties are subject to mortgages.

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2007

	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries		Consolidated Elimination			Consolidated
	(in thousands)
Assets
Net real estate investments	$	53,527		$	85,293	$	—		$	138,820
Escrow deposits and restricted cash		—			6,876		—			6,876
Equity in affiliates		79,788			15		(79,803	)		—
Investment in affiliates		9,039			—		—			9,039
Other		675			1,485		—			2,160
Total assets	$	143,029		$	93,669	$	(79,803	)	$	156,895
Liabilities and partners’ capital
Liabilities:
Notes payable and other debt	$	409		$	65,014	$	—		$	65,423
Intercompany		(5,567	)		5,567		—			—
Note payable to affiliate		7,500			—		—			7,500
Accrued interest		151			420		—			571
Accounts payable and other accrued liabilities		103			3,075		—			3,178
Total liabilities		2,596			74,076		—			76,672
Total partners’ capital		140,433			19,593		(79,803	)		80,223
Total liabilities and partners’ capital	$	143,029		$	93,669	$	(79,803	)	$	156,895

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2006

	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination			Consolidated
	(in thousands)
Assets
Net real estate investments	$	54,062		$	86,059		$	—		$	140,121
Cash and cash equivalents		—			336			—			336
Escrow deposits and restricted cash		—			6,543	��		—			6,543
Equity in affiliates		79,705			15			(79,720	)		—
Investment in affiliates		9,039			—			—			9,039
Other		652			1,526			—			2,178
Total assets	$	143,458		$	94,479		$	(79,720	)	$	158,217
Liabilities and partners’ capital
Liabilities:
Notes payable and other debt	$	413		$	65,386		$	—		$	65,799
Intercompany		(5,520	)		5,520			—			—
Note payable to affiliate		7,500			—			—			7,500
Accrued interest		103			422			—			525
Accrued dividend		23			—			—			23
Accounts payable and other accrued liabilities		103			3,094			—			3,197
Total liabilities		2,622			74,422			—			77,044
Total partners’ capital		140,836			20,057			(79,720	)		81,173
Total liabilities and partners’ capital	$	143,458		$	94,479		$	(79,720	)	$	158,217
CONDENSED CONSOLIDATING STATEMENT OF INCOME For the three months ended March 31, 2007
	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination			Consolidated
	(in thousands)
Revenues:
Rental income	$	1,436		$	2,707		$	—		$	4,143
Interest and other income		3			39			—			42
Equity loss in affiliates		(17	)		—			17			—
Total revenues		1,422			2,746			17			4,185
Expenses:
Interest		9			1,239			—			1,248
Depreciation and amortization		537			803			—			1,340
Property-level operating expenses		—			378			—			378
General, administrative and professional fees		95			148			—			243
Intercompany interest		(47	)		195			—			148
Total expenses		594			2,763			—			3,357
Net income (loss)	$	828		$	(17	)	$	17		$	828

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended March 31, 2006

	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
	(in thousands)
Revenues:
Rental income	$	1,422		$	2,689		$	—	$	4,111
Interest and other income		—			32			—		32
Equity loss in affiliates		(22	)		—			22		—
Total revenues		1,400			2,721			22		4,143
Expenses:
Interest		157			1,265			—		1,422
Depreciation and amortization		537			796			—		1,333
Property-level operating expenses		—			331			—		331
General, administrative and professional fees		113			183			—		296
Intercompany interest		(168	)		168			—		—
Total expenses		639			2,743			—		3,382
Net income (loss)	$	761		$	(22	)	$	22	$	761

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2007

	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
	(in thousands)
Net cash provided by operating activities	$	962		$	916		$	—	$	1,878
Net cash used in investing activities		—			(37	)		—		(37	)
Net cash used in financing activities		(962	)		(1,215	)		—		(2,177	)
Net decrease in cash and cash equivalents		—			(336	)		—		(336	)
Cash and cash equivalents at beginning of period		—			336			—		336
Cash and cash equivalents at end of period	$	—		$	—		$	—	$	—

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2006

	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
	(in thousands)
Net cash provided by operating activities	$	579		$	1,504		$	—	$	2,083
Net cash used in investing activities		—			(128	)		—		(128	)
Net cash used in financing activities		(580	)		(1,351	)		—		(1,931	)
Net (decrease) increase in cash and cash equivalents		(1	)		25			—		24
Cash and cash equivalents at beginning of period		1			438			—		439
Cash and cash equivalents at end of period	$	—		$	463		$	—	$	463

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated or except where the context otherwise requires, the terms “we,” “us,” “our,” “ETOP” and the “Partnership” and other similar terms in this Quarterly Report on Form 10-Q refer to ElderTrust Operating Limited Partnership and its consolidated subsidiaries.

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 (the “Securities Act”), 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, which speak only as of the date on which they are made.

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:

• the ability and willingness of our operators and tenants, including Genesis Health Ventures, Inc. (“Genesis Health”), Genesis HealthCare Corporation (“Genesis HealthCare”) and 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”), to meet and/or perform the obligations under their various contractual arrangements with us;

• the ability of our operators and tenants to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities;

• the nature and extent of future competition;

• the extent of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates;

• increases in our cost of borrowing;

• the ability of our operators and tenants to deliver high quality services and to attract residents and patients;

• the results of litigation affecting us;

• changes in general economic conditions and/or economic conditions in the markets in which we may, from time to time, compete;

• our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;

• the movement of interest rates;

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• 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

• the impact on the liquidity, financial condition and results of operations of our operators and tenants resulting from increased operating costs and uninsured liabilities for professional liability claims, and the ability of our operators and tenants to accurately estimate the magnitude of these liabilities.

Many of these factors are beyond our control and the control of our management.

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. In February 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.

As of March 31, 2007, our consolidated assets were located in three states and consisted of nine seniors housing communities, five skilled nursing facilities, two medical office buildings and a financial office building. With the exception of the office buildings, we lease these properties to third-party healthcare providers, generally under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses.

As of March 31, 2007, approximately 53.5% and 35.2% of our properties, based on their original cost, were operated by Genesis and Benchmark, respectively. Approximately 50.0% and 30.7% of our total rental revenue for the three months ended March 31, 2007 were derived from leases with Genesis and Benchmark, respectively. Because we lease a substantial portion of our properties to Genesis and Benchmark and they are each a significant source of our total revenues, their financial condition and ability and willingness to satisfy their obligations under their respective leases and certain other agreements with us will significantly impact our revenues and our ability to service our indebtedness and to make distributions to our partners. We cannot assure you that Genesis or Benchmark will have sufficient assets, income and access to financing to enable it to satisfy its obligations under its respective leases and other agreements with us, and any inability or unwillingness on its part to do so would have a material adverse effect on our business, financial condition, results of operation and liquidity, on our ability to service our indebtedness and on our ability to make distributions to our partners.

Recent Developments Regarding Government Regulation

Medicare Reimbursement; Skilled Nursing Facilities

On May 4, 2007, the Centers for Medicare & Medicaid Services published its proposed rule for the Prospective Payment System (“PPS”) and Consolidated Billing for Skilled Nursing Facilities for the 2008 federal fiscal year (October 1, 2007 through September 30, 2008). The proposed rule would, among other things, update the PPS rates for skilled nursing facilities by increasing the market basket by 3.3%. The proposed rule would also make various other technical changes, the economic effects of which have not yet been analyzed.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles, which requires us to make estimates and judgments that affect the reported amounts in the financial statements and the related disclosures. We believe that the following critical accounting policies, among others, affect our more significant estimates and judgments used in the preparation of our financial statements.

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Long-Lived Assets

Investments in real estate properties are recorded at cost. We account for acquisitions using the purchase method. The cost of the properties acquired is allocated among tangible land, buildings and equipment and recognized intangibles based upon estimated fair values in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” We estimate fair values of the components of assets acquired as of the acquisition date or engage a third 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 depreciate 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 depreciate such value over their 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 our investments in real estate, for impairment indicators in accordance with SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” 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 flows and sales proceeds is less than book value. An impairment loss is recognized at the time we make any such determination. Future events could occur which would cause us to conclude that impairment indicators exist and an impairment loss is warranted. We did not record any impairment charges for the three months ended March 31, 2007 and 2006.

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. Income on our straight-line revenue is recognized when collectibility is reasonably assured. In the event we determine that collectibility of straight-line revenue is not reasonably assured, we establish an allowance for estimated losses. Recognizing rental income on a straight-line basis results in recognized revenue exceeding cash amounts contractually due from our tenants during the first half of the term for leases that have straight-line treatment.

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

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accordance with the Commission 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.

Results of Operations

There was no material change in our revenues or expenses from the first quarter of 2006.

Liquidity and Capital Resources

During the three months ended March 31, 2007, our principal source of liquidity was cash flows from operations. We anticipate that cash flows from operations will be sufficient to fund our business operations and distributions to unit holders for the foreseeable future.

We had restricted cash of $6.9 million as of March 31, 2007.

Net cash provided by operating activities was $1.9 million and $2.1 million for the three months ended March 31, 2007 and 2006, respectively.

Net cash used in financing activities was $2.2 million and $1.9 million for the three months ended March 31, 2007 and 2006, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We receive revenue primarily by leasing our assets under 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. We do not utilize interest rate swaps or any other type of derivative financial instruments to mitigate interest rate risk.

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 March 31, 2007 and December 31, 2006 (in thousands):

	Fixed Rate Debt
	As of March 31, 2007		As of December 31, 2006
Book value	$	72,514	$	72,886
Fair value		76,161		76,445
Fair value reflecting change in interest rates:
-100 BPS		79,900		80,275
+100 BPS		72,818		73,019

The fair market value of our fixed rate debt is based on current interest rates at which similar borrowings could be made by us. 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.

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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.

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 March 31, 2007, 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 first quarter of 2007, 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.

PART II – OTHER INFORMATION

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: May 14, 2007

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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