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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 JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO
___________
COMMISSION FILE NUMBER: 0-26470
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0365417
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
245 FISCHER AVENUE, D-1 COSTA MESA, CA 92626
--------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of the voting units held by non-affiliates of
registrant, computed by reference to the price at which units were sold, was
$18,666,480 (for purposes of calculating the preceding amount only, all
directors, executive officers and shareholders holding 5% or greater of the
registrant's units are assumed to be affiliates). The number of Units
outstanding as of June 30, 2001 was 18,666.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands, except units)
JUNE 30, DECEMBER 31,
2001 2000
-------- --------
ASSETS
Properties, at cost:
Land $ 1,549 $ 1,549
Building and improvements, less accumulated depreciation
of $2,596 and $2,371 in 2001 and 2000, respectively 10,008 10,111
Furniture, fixtures and equipment, less accumulated depreciation of $691
and $609 in 2001 and 2000, respectively 529 510
-------- --------
Net properties 12,086 12,170
Cash 3,100 8,458
Restricted cash 83 168
Loan fees, less accumulated amortization of $309 and $403 in 2001
and 2000, respectively 142 176
Other assets 792 343
-------- --------
$ 16,203 $ 21,315
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable to banks $ 13,804 $ 13,177
Accounts payable 125 65
Accrued expenses 458 550
Amounts payable to affiliates 25 244
Distributions payable to partners 174 5,447
-------- --------
Total liabilities 14,586 19,483
-------- --------
Partners' capital (deficit):
General partners (2) (2)
Special limited partners (139) (138)
Limited partners, 18,666 units outstanding 1,758 1,972
-------- --------
Total partners' capital 1,617 1,832
-------- --------
$ 16,203 $ 21,315
======== ========
See accompanying notes to the unaudited financial statements.
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American Retirement Villas Properties III, L.P.
(a California limited partnership)
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except unit data)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Revenues:
Rent ....................................... $1,514 $1,852 $3,021 $3,759
Assisted living ............................ 185 284 365 551
Interest ................................... 31 34 73 65
Other ...................................... 32 32 74 93
------ ------ ------ ------
Total revenues ...................... 1,762 2,202 3,533 4,468
------ ------ ------ ------
Costs and expenses:
Community property operations .............. 849 1,072 1,719 2,186
Assisted living ............................ 123 149 251 329
General and administrative ................. 71 85 156 171
Depreciation and amortization .............. 211 272 419 542
Property taxes ............................. 46 57 93 114
Advertising ................................ 10 28 27 57
Interest ................................... 308 270 612 653
------ ------ ------ ------
Total operating costs and expenses .......... 1,618 1,933 3,277 4,052
------ ------ ------ ------
Income before income tax expense, minority
interest in income of majority owned
entities and extraordinary loss ............. 144 269 256 416
Income tax expense ............................. 5 3 5 5
------ ------ ------ ------
Income before minority interest in income of
majority owned entities and extraordinary loss 139 266 251 411
Minority interest in income of majority owned
entities ..................................... -- 39 -- 119
------ ------ ------ ------
Income before extraordinary loss ............... 139 227 251 292
Extraordinary loss from extinguishment of
debt .................................... -- -- 66 --
------ ------ ------ ------
Net income ..................................... $ 139 $ 227 $ 185 $ 292
====== ====== ====== ======
Per unit:
Net income per limited partner unit before
extraordinary loss ....................... $ 7.37 $12.09 $13.31 $15.48
Extraordinary loss ............................. -- -- 3.50 --
------ ------ ------ ------
Net income per limited partner unit ............ $ 7.37 $12.09 $ 9.81 $15.48
====== ====== ====== ======
See accompanying notes to the unaudited financial statements.
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American Retirement Villas Properties III, L.P.
(a California limited partnership)
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
2001 2000
------- -------
Cash flows from operating activities:
Net income ....................................................... $ 185 $ 292
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 419 542
Extraordinary loss from extinguishment of debt ............... 66 --
Change in assets and liabilities:
Decrease (increase) in restricted cash .................... 85 (4)
Decrease (increase) in other assets ....................... 60 (138)
(Decrease) increase in account payable and accrued expenses (32) 29
Decrease in amounts payable to affiliate .................. (219) (9)
Increase in minority interest ............................. -- 119
------- -------
Net cash provided by (used in) operating activities .. 564 831
------- -------
Cash flows from investing activities:
Additions to furniture, fixtures and equipment ................. (254) (53)
------- -------
Net cash used in investing activities ................. (254) (53)
------- -------
Cash flows from financing activities:
Principal repayments on notes payable to banks ................. (5,156) (91)
Borrowing under refinancing .................................... 5,783 --
Replenishment reserve under refinancing ........................ (510) --
Loan fees ...................................................... (83) --
Mortgage Insurance ............................................. (29) --
Distributions paid ............................................. (5,673) (348)
------- -------
Net cash used in financing activities ................ (5,668) (439)
------- -------
Net (decrease) increase in cash .................................... (5,358) 339
Cash at beginning of period ........................................ 8,458 2,190
------- -------
Cash at end of period .............................................. $ 3,100 $ 2,529
======= =======
Supplemental schedule of cash flow information -
Cash paid during the period for interest ....................... $ 654 $ 765
======= =======
See accompanying notes to the unaudited financial statements.
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American Retirement Villas Properties III, L.P.
(a California limited partnership)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2001
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
We prepared the accompanying condensed consolidated financial statements of
American Retirement Villas Properties III, L.P. following the requirements of
the Securities and Exchange Commission ("SEC") for interim reporting. As
permitted under those rules, certain footnotes or other financial information
that are normally required by accounting principles generally accepted in the
United States of America can be condensed or omitted.
The financial statements include all normal and recurring adjustments that
we consider necessary for the fair presentation of our financial position and
operating results. To obtain a more detailed understanding of our results, one
should also read the financial statements and notes in our Form 10-K for 2000,
which is on file with the SEC.
The results of operations can vary during each quarter of the year.
Therefore, the results and trends in these interim financial statements may not
be the same as those for the full year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of American Retirement Villas
Properties III, L.P. (the "Partnership" or "ARVPIII") include the accounts of
the Partnership, ARVP III/Bradford Square, L.P. (ARVP III/BS), Retirement Inns
III, LLC and ARV Chandler Villas, L.P. The Retirement Inns III, LLC and ARV
Chandler Villas L.P are 100% owned and therefore consolidated into the
Partnership. Bradford Square was sold on December 31, 2000.
The ARVPIII/BS partnership had ARVPIII as 50% general partner. The
Partnership accounted for ARVPIII/BS L.P. using the principles of accounting
applicable to investment in subsidiaries (consolidation). All inter-company
balances and transactions had been eliminated in consolidation. Minority
interest represented the minority partners' cost to acquire the minority
interest adjusted by their proportionate share of subsequent earnings, losses
and distributions. As a managing general partner, pursuant to the ARVPIII/BS
limited partnership agreement, the general partner had full, exclusive and
complete discretion and authority to control the partnership's business and
affairs as if it were a partnership without limited partners. The limited
partner shall not participate in control of the partnership business and have
only the voting rights provided by the limited partnership agreement as follows:
"Limited Partner shall not have the right or power to (a) withdraw or reduce
their Capital Contribution; (b) bring an action for partition against the
partnership; (c) cause the termination or dissolution of the partnership; (d)
demand or receive property other than cash in return for its Capital." However,
with the written consent of the limited partner, the Partnership, as general
partner, may (a) dissolve or wind up, (b) sell or refinance the project, (c)
change the nature of the partnership's business, or (d) admit new general
partner(s). Management believes that the general partner had control consistent
with the requirements of paragraph 9 of SOP 78-9 and that the rights the limited
partner had are protective rights as discussed in EITF 96-16.
BASIS OF ACCOUNTING
We maintain our records on the accrual method of accounting for financial
reporting and Federal and state tax purposes.
CARRYING VALUE OF REAL ESTATE
Property, furniture and equipment are stated at cost less accumulated
depreciation which is charged to expense on a straight-line basis over the
estimated useful lives of the assets as follows:
Buildings and improvements...................... 27.5 to 35 years
Furniture, fixtures and equipment............... 3 to 7 years
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We review our long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. In reviewing recoverability, we estimate the future cash flows
expected to result from using the assets and eventually disposing of them. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized based upon the asset's fair value.
USE OF ESTIMATES
In the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America, we
have made estimates and assumptions that affect the following:
o reported amounts of assets and liabilities at the date of the
financial statements;
o disclosure of contingent assets and liabilities at the date of the
financial statements; and
o reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
IMPOUND ACCOUNTS
The U.S. Department of Housing and Urban Development ("HUD") finances our
properties. HUD holds our funds in impound accounts for payment of property
taxes, insurance and future property improvements (replacement reserves) on
these properties. We include these impound accounts in other assets.
LOAN FEES
We amortize loan fees using the effective interest method over the term of
the respective note payable.
CAPITAL EXPENDITURES
We capitalize all assets, obtained by purchase, trade or capital lease that
have a useful life of more than one year, and costs exceeding $500, or a group
of similar assets purchased together where the total purchase price exceeds
$1000 and the cost of each asset exceeds $50. Improvements or additions to
existing assets are also capital expenditures when they extend the useful life
of the assets beyond their original life. Refurbishment expenditures are
expensed as incurred.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. We apply
advance deposits to the first month's rent. Revenue is recognized in the month
earned for rent and assisted living services.
NET INCOME PER LIMITED PARTNER UNIT
Net income per limited partner unit was based on the weighted average
number of limited partner units outstanding of 18,666 during the periods ended
June 30, 2001 and 2000.
RECLASSIFICATIONS
We have reclassified certain prior period amounts to conform to the June
30, 2001 presentation.
(2) PROPERTIES
The following table sets forth, as of June 30, 2001, the location of each
our Assisted Living Community ("ALC"), the date on which operations commenced at
each such ALC, the number of units at each ALC, and our interest in each ALC.
COMMENCED
COMMUNITY LOCATION OPERATIONS UNITS
--------- -------- ---------- -----
Chandler Villas Chandler, AZ September 1992 164
Villa Las Posas Camarillo, CA December 1997 123
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(3) SALE OF PROPERTIES
SALE OF PROPERTY - ARVP III/BRADFORD SQUARE LTD.
On December 18, 1990, we entered into a limited partnership, ARVP III/BS,
with an unrelated third party, Bradford Square Ltd. Both partners made an
initial $1,000 cash contribution. We were the Managing General Partner and
Bradford Square Ltd. is the Limited Partner, each with a 50% interest. Pursuant
to the agreement, Bradford Square Ltd. contributed an existing community
(Bradford Square), to ARVP III/BS, and, we contributed cash. Income and loss was
generally allocated to the Managing General Partner and Bradford Square, Ltd.
based on their partnership interests. Since the partnership agreement terminated
in December 2000, we sold Bradford Square L.P. on December 21, 2000 to an
unrelated third party for $8,002,000. The distribution of assets on liquidation
of the partnership was made in accordance with the limited partnership
agreement.
SALE OF PROPERTY - HERITAGE POINTE CLAREMONT
In September 1993, we contracted to sell our then-owned Heritage Pointe
Claremont ALC to Claremont Senior Partners ("CSP") for $12,281,900. ARV Assisted
Living, Inc., our General Partner, is a special limited partner of CSP. The
transaction closed on December 30, 1993. The consideration we received from CSP
in the sale of Heritage Pointe Claremont ALC consisted of both $10,000 in cash
and cash equivalents and $12,271,900 in the form of a promissory note.
The promissory note bears interest at 8.0% and the outstanding balance and
interest are payable from excess cash flows as defined in the CSP partnership
agreement. The promissory note is secured by certain CSP partners' interests in
CSP and matures January 25, 2010.
Upon the receipt of the principal and interest payment from CSP in April
1996 and January 1995, a sufficient investment as defined by Statements of
Financial Accounting Standards Board No. 66 was made and the sale was
recognized. As CSP's excess cash flows do not currently exceed the interest
payment requirements, SFAS 66 requires profit on the sale to be recognized under
the cost recovery method as payments are received on the notes. We received
interest payments on this note totaling $3,000 and $12,000 for the six-month
period ended June 30, 2001 and 2000, respectively.
The remaining balance of the promissory note as of June 30, 2001 is
$3,820,507.
(4) TRANSACTIONS WITH AFFILIATES
We have an agreement with ARV Assisted Living, Inc. ("ARV"), our Managing
General Partner, providing for a property management fee of five percent of
gross revenues. These payments amounted to $173,000 and $220,000 for the
six-month period and $86,000 and $108,000, for the three-month period ended June
30, 2001 and 2000, respectively. Additionally, we pay ARV a partnership
management fee of 10 percent of cash flow before distributions, as defined in
the Partnership Agreement. These payments amounted to $58,000 and $88,000 for
the six-month period and $19,000 and $44,000 for the three-month period ended
June 30, 2001 and 2000, respectively.
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(5) NOTES PAYABLE
At June 30, 2001 and December 31, 2000, notes payable to banks included the
following (in thousands):
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
Note payable to the bank, bearing interest at 9.15%
Monthly principal and interest payment of $69.7,
collateralized by property, mature January 2002 ....... $ 8,031 $13,177
Note payable to the bank, bearing interest at rates 8.06%,
payable in monthly installments of principal and
interest totaling $41.3, collateralized by property,
mature February 2036 .................................. 5,773 --
------- -------
Total notes payable ..................................... $13,804 $13,177
======= =======
The annual principal payments of notes payable as of June 30, 2001 are as
follows (in thousands):
For twelve months ended June 30,
2002 $ 8,063
2003 34
2004 37
2005 41
2006 44
Thereafter 5,585
-------
$13,804
=======
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS) For The Six Months
Ended
--------------------
June 30, June 30, Increase/
2001 2000 (decrease)
-------- -------- ----------
Revenues:
Rent ................................................. $3.02 $3.76 (19.6)%
Assisted living ...................................... 0.36 0.55 (33.8)%
Interest and other revenue ........................... 0.15 0.16 (6.9)%
----- ----- ------
Total revenue ................................ 3.53 4.47 (20.9)%
----- ----- ------
Costs and expenses:
Community property operations ........................ 1.75 2.26 (22.1)%
Assisted living ...................................... 0.25 0.33 (23.7)%
General and administrative ........................... 0.16 0.17 (8.8)%
Depreciation and amortization ........................ 0.42 0.54 (22.7)%
Property taxes ....................................... 0.09 0.11 (18.4)%
Interest ............................................. 0.61 0.65 (6.3)%
----- ----- ------
Total costs and expenses ..................... 3.28 4.06 (19.1)%
----- ----- ------
Income before minority interest and extraordinary loss . 0.25 0.41 (38.9)%
Minority interest in operations ........................ -- 0.12 (100.0)%
----- ----- ------
Income before extraordinary loss ....................... 0.25 0.29 (14.0)%
Extraordinary loss from extinguishment of debt ......... (0.06) -- 100.0%
----- ----- ------
Net income .................................. $0.19 $0.29 (36.6)%
===== ===== ======
The decrease in assisted living community rental revenue of $0.74 million
from $3.76 million for the six-month period ended June 30, 2000 to $3.02 million
for the six-month period ended June 30, 2001, or (19.6)%, is primarily
attributable to:
o the sale of the Bradford Square, L.P in December 2000;
o average occupancy for our remaining assisted living communities
decreased from 97.9% for the six-month period ended June 30, 2000 as
compared with 97.3% the six-month period ended June 30, 2001; offset
by
o an increase in the same store average rental rate per occupied unit to
$1,803 for the six-month period ended June 30, 2001 as compared with
$1,664 for the six-month period ended June 30, 2000.
The decrease in assisted living revenue of $0.19 million from $0.55 million
for the six-month period ended June 30, 2000 to $0.36 million for the six-month
period ended June 30, 2001, or (33.8)%, is primarily attributable to:
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o the sale of the Bradford Square, L.P. in December 2000;
o a decrease in the assisted living rate from $642 per month for the
six-month period ended June 30, 2000 compared to $616 per month for
the six-months ended June 30, 2001; offset by
o an increase in the same store average assisted living residents to 99
residents for the six-month period ended June 30, 2001 as compared
with 80 residents for the six-month period ended June 30, 2000.
The decrease in community property operations and assisted living operating
expenses of $0.59 million from $2.59 million for the six-month period ended June
30, 2000 to $2.00 million for the six-month period ended June 30, 2001, or
(22.3)%, is primarily due to:
o the sale of the Bradford Square, L.P in December 2000; offset by
o an increase in management fees as the result of increase in revenues
of our remaining assisted living communities;
o the staffing requirements related to increased assisted living
services provided; and
o the increased salaries of staff and fringe benefits.
The decrease in general and administrative expense of $0.01 million from
$0.17 million for the six-month period ended June 30, 2000 to $0.16 million for
the six-month period ended June 30, 2001, or (8.8)%, is primarily attributable
to:
o the sale of the Bradford Square, L.P in December 2000; offset by
o the increase in property general liability insurance; and
o the increase in accounting fees and professional fees.
The decrease in property tax expense of $0.02 million from $0.11 million
for the six-month period ended June 30, 2000 to $0.09 million for the six-month
period ended June 30, 2001, or (18.4)%, is primarily due to the sale of the
Bradford Square, L.P. in December 2000.
The decrease in depreciation and amortization of $0.12 million from $0.54
million for the six-month period ended June 30, 2000 to $0.42 million for the
six-month period ended June 30, 2001, or (22.7)%, is primarily due to:
o the sale of the Bradford Square, L.P. in December 2000; and
o a decrease in amortization of loan fees related to the refinancing in
January 2001 of Chandler Villas ALC.
The decrease in interest expense of $0.04 million from $0.65 million for
the six-month period ended June 30, 2000 to $0.61 million for the six-month
period ended June 30, 2001, or (6.3)%, is primarily due to:
o the sale of the Bradford Square, L.P. in December 2000; offset by
o the recovery of $112,000 of the interest rate lock and commitment fees
in June 2000 that related to a failed refinancing of certain notes
payable in 1998.
There is no minority interest for the six-month period ended June 30, 2001
due to the sale of Bradford Square, L.P in December 2000.
The extraordinary loss of $0.06 million is the result of the write off of
loan fees due to the refinancing of Chandler Villas ALC in January 2001.
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(DOLLARS IN MILLIONS) For The Three Months
Ended
--------------------
June 30, June 30, Increase/
2001 2000 (decrease)
-------- -------- ---------
Revenues:
Rent ........................... $1.51 $1.85 (18.3)%
Assisted living ................ 0.18 0.28 (34.9)%
Interest and other revenue ..... 0.07 0.07 (4.5)%
----- ----- ------
Total revenue .......... 1.76 2.20 (20.0)%
----- ----- ------
Costs and expenses:
Community property operations .. 0.86 1.10 (21.7)%
Assisted living ................ 0.12 0.15 (17.4)%
General and administrative ..... 0.07 0.08 (16.5)%
Depreciation and amortization .. 0.21 0.27 (22.4)%
Property taxes ................. 0.05 0.06 (19.3)%
Interest ....................... 0.31 0.27 14.0 %
----- ----- ------
Total costs and expenses 1.62 1.93 (16.2)%
----- ----- ------
Income before minority interest .. 0.14 0.27 (47.7)%
Minority interest in operations .. -- 0.04 (100.0)%
----- ----- ------
Net income ............ $0.14 $0.23 (38.8)%
===== ===== ======
The decrease in assisted living community rental revenue of $0.34 million
from $1.85 million for the three-month period ended June 30, 2000 to $1.51
million for the three-month period ended June 30, 2001, or (18.3)%, is primarily
attributable to:
o the sale of the Bradford Square, L.P in December 2000;
o average occupancy for our remaining assisted living communities
decreased from 96.6% for the three-month period ended June 30, 2000 as
compared with 96.5% the three-month period ended June 30, 2001; offset
by
o an increase in the same store average rental rate per occupied unit to
$1,822 for the three-month period ended June 30, 2001 as compared with
$1,665 for the three-month period ended June 30, 2000.
The decrease in assisted living revenue of $0.10 million from $0.28 million
for the three-month period ended June 30, 2000 to $0.18 million for the
three-month period ended June 30, 2001, or (34.9)%, is primarily attributable
to:
o the sale of the Bradford Square, L.P. in December 2000;
o a decrease in the assisted living rate from $649 per month for the
three-month period ended June 30, 2000 compared to $625 per month for
the three-months ended June 30, 2001; offset by
o an increase in the same store average assisted living residents to 98
residents for the three-month period ended March 31, 2001 as compared
with 81 residents for the three-month period ended June 30, 2000.
The decrease in community property operations and assisted living operating
expenses of $0.27 million from $1.25 million for the three-month period ended
June 30, 2000 to $0.98 million for the three-month period ended June 30, 2001,
or (21.6)%, is primarily attributable to:
o the sale of the Bradford Square, L.P in December 2000; offset by
o the increase in variable expenses and repair and maintenance as a
result of inflation;
o an increase in management fees as the result of increase in revenues
of our remaining assisted living communities;
o the staffing requirements related to increased assisted living
services provided; and
o the increased salaries of staff and fringe benefits.
The decrease in general and administrative expense of $0.01 million from
$0.08 million for the three-month period ended June 30, 2000 to $0.07 million
for the three-month period ended June 30, 2001, or (16.5)%, is primarily
attributable to:
o the sale of the Bradford Square, L.P in December 2000; offset by
o the increase in property general liability insurance;
o the increase in partnership administrative fees paid to our affiliate;
and
o the increase in accounting and professional fees.
The decrease in property tax expense of $0.01 million from $0.06 million
for the three-month period ended June 30, 2000, to $0.05 million for the
three-month period ended June 30, 2001, or (19.3)%, is primarily due to the sale
of the Bradford Square, L.P. in December 2000.
The decrease in depreciation and amortization of $0.06 million from $0.27
million for the three-month period ended June 30, 2000 to $0.21 million for the
three-month period ended June 30, 2001, or (22.4)%, is primarily due to:
o the sale of the Bradford Square, L.P. in December 2000; and
o a decrease in amortization of loan fees related to the refinancing in
January 2001 of one assisted living community.
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The increase in interest expense of $0.04 million from $0.27 million for
the three-month period ended June 30, 2000 to $0.31 million for the three-month
period ended June 30, 2001, or 14.0%, is primarily due to:
o the recovery of $112,000 of the interest rate lock and commitment fees
in June 2000 that related to a failed refinancing of certain notes
payable in 1998; offset by
o the sale of the Bradford Square, L.P. in December 2000.
There is no minority interest for the three-month period ended June 30,
2001 due to the sale of Bradford Square, L.P. in December 2000.
LIQUIDITY AND CAPITAL RESOURCES
We expect that cash generated from the operations of our properties will be
adequate to pay operating expenses, make necessary capital improvements, make
required principal reductions of debt and provide distributions to our partners.
On a long-term basis, our liquidity is sustained primarily from cash flow
provided by operating activities.
For the six-month period ended June 30, 2001, net cash provided by
operating activities was $0.56 million compared to cash provided by operating
activities of $0.83 million for the corresponding period in 2000. The decrease
was due to decrease in operating income before depreciation and amortization,
which related to the lack of income from Bradford Square, L.P that was sold in
December 2000.
During the six-month period ended June 30, 2001, our net cash used in
investing activities was $0.25 million compared to cash used in investing
activities of $0.05 million for the corresponding period in 2000. The increase
was a result of physical improvements at our two assisted living communities.
During the six-month period ended June 30, 2001, our net cash used in
financing activities was $5.67 million compared to cash used in financing
activities of $0.44 million for the corresponding period in 2000. The financing
activities consist of:
o distribution of the sale proceeds from Bradford Square L.P to the
partners;
o principal repayment on notes payable;
o initial deposit to reserve for replenishment and repair escrow that
related to the refinancing of one ALC; and
o loan fees and mortgage insurance related to the refinancing; offset by
o borrowing from the refinancing.
We estimate that we will incur approximately $355,000 for the capital
expenditures during 2001 for physical improvements at our two assisted living
communities. As of June 30, 2001, we have made approximately $254,000 in capital
expenditures. Part of this capital expenditure was required by and funded from
the refinancing in January 2001. The funds for the remaining improvements should
be available from operations.
We are not aware of any trends, other than national economic conditions
which have had, or which may be reasonably expected to have, a material
favorable or unfavorable impact on the revenues or income from the operations or
sale of properties. We believe that if the inflation rate increases we will be
able to pass the subsequent increase in operating expenses to the residents of
the communities by way of higher rental and assisted living rates. The
implementation of price increases is intended to lead to an increase in revenue,
however, those increases may result in an initial or permanent decline in
occupancy and/or a delay in increasing occupancy. If this occurs, revenues may
remain constant or decline.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in the interest
rates on our fixed rate notes payable. With respect to our fixed rate notes
payable, changes in the interest rates affect the fair market value of the notes
payable, but not our earnings or cash flows. We do not have an obligation to
prepay fixed rate debt prior to maturity, and as a result, interest rate risk
and changes in fair market value should not have a significant impact on the
fixed rate debt until the earlier of maturity and any required refinancing of
such debt. We do not currently have any variable interest rate debt and,
therefore, are not subject to interest rate risk associated with
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variable interest rate debt. Currently, we do not utilize interest rate swap or
exchange agreements and, therefore, are not subject to interest rate risk
associated with interest rate swaps.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are from time to time subject to lawsuits and other matters in the
normal course of business. While we cannot predict the results with certainty,
we do not believe that any liability from any such lawsuits or other matters
will have a material effect on our financial position, results of operations, or
liquidity.
ITEM 5. OTHER INFORMATION
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements
(2) Exhibits: None.
(b) Reports on Form 8-K
We did not file any report on Form 8-K for the period ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN RETIREMENT VILLAS PROPERTIES III, A CALIFORNIA LIMITED
PARTNERSHIP, BY THE FOLLOWING PERSONS ON OUR BEHALF.
ARV ASSISTED LIVING, INC.
By: /s/ DOUGLAS M. PASQUALE
--------------------------
Douglas M. Pasquale
Chief Executive
Officer
Date: August 13, 2001
Pursuant to the requirements of the Securities Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DOUGLAS M. PASQUALE Chief Executive Officer August 13, 2001
- ----------------------------------- (Principal Executive Officer)
Douglas M. Pasquale
/s/ ANITA RYAN Vice President, Controller August 13, 2001
- ----------------------------------- (Principal Accounting Officer)
Anita Ryan
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