1
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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, 1996
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: 33-30084
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-365417
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
245 FISCHER AVENUE, D-1 92626
COSTA MESA, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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 No X
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties III
(a California limited partnership)
Balance Sheets
(In thousands, except unit data)
SEPTEMBER 30, 1996 DECEMBER 31, 1995
ASSETS (UNAUDITED) (AUDITED)
------------------ --------------
Properties, at cost (notes 4, 5 and 6)
Land $4,667 $4,667
Buildings and improvements, net 18,568 18,237
Furniture, fixtures and equipment, net 352 394
------------------ ---------------
Net Properties 23,587 23,298
Property under contract for sale (notes 4 and 5) 8,285 8,500
Cash and cash equivalents 940 478
Restricted cash (note 5) 216 130
Pre-opening costs, net 155 155
Loan fees, net 114 141
Other assets (note 3) 150 92
------------------ ---------------
Total Assets $33,447 $32,794
================== ===============
LIABILITIES AND PARTNERS' CAPITAL
Notes Payable (notes 4 and 5) $16,093 $16,272
Loan secured by property under contract for sale
(notes 4 and 5) 4,455 4,474
Deposit under contract for sale (note 4) 4,443 2,969
Accounts payable and accrued expenses 848 472
Amounts payable to affiliates (note 3) 52 113
Distributions payable to Partners (note 2) 46 187
------------------ ---------------
Total Liabilities 25,937 24,487
------------------ ---------------
Partners' capital (deficit) (notes 2 and 3)
General partners' capital (84) (76)
Limited partners' capital, 18,652 units outstanding
at March 31, 1996 7,594 8,383
----------------- --------------
Total liabilities and partners' capital $33,447 $32,794
================= =============
See accompanying notes to financial statements (unaudited).
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American Retirement Villas Properties III
(a California limited partnership)
Statements of Operations
(Unaudited)
(In thousands, except unit data)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
REVENUES:
Rent . . . . . . . . . . . . . $1,395 $1,274 $4,029 $3,780
Assisted living . . . . . . . . 110 79 300 259
Interest . . . . . . . . . . . 84 3 282 8
Other . . . . . . . . . . . . . 24 54 76 162
---------------- ----------------- ------------- ------------
Total revenues 1,613 1,410 4,687 4,209
COSTS AND EXPENSES:
Rental property operations (note 591 570 1,719 1,651
3) . . . . . . . . . . . . . .
Assisted living (Note 3) . . . 53 42 147 127
Depreciation and amortization . 299 325 896 975
Interest (note 5) . . . . . . . 472 471 1,425 1,393
General and administrative (note 183 171 530 516
3) . . . . . . . . . . . . . .
Property taxes . . . . . . . . 73 71 235 211
Advertising . . . . . . . . . . 6 9 21 34
Minority interest in operations
(note 4) 21 (9) 39 5
---------------- ------------------ -------------- --------------
Total costs and
expenses . . . . . . 1,698 1,650 5,012 4,912
Net loss . . . . . . . . . . . (85) (240) (325) (703)
---------------- ------------------ -------------- --------------
Net loss to General Partner . . (1) (2) (3) (7)
Net loss to Limited Partner . . ($84) ($238) ($322) ($696)
================ ================== ============== ==============
Net loss per Limited Partner
unit . . . . . . . . . . . . ($4.50) ($12.76) ($17.26) ($37.32)
================ ================== ============== ==============
See accompanying notes to financial statements (unaudited).
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American Retirement Villas Properties III
(a California limited partnership)
Statements of Cash Flow
(Unaudited)
(In thousands)
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . ($325) ($704)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization . . . . . 896 975
Change in assets and liabilities:
Decrease (increase) in loan fees . . 0 100
Increase in other assets . . . . . . (58) 28
Increase in accounts payable and
accrued expenses 376 498
Increase (decrease) in amounts payable
to affiliates. . . . . . . . . . . (61) 2
---------- --------
Net cash provided by operating activities . . . 828 899
---------- --------
Cash flows used in investing activities:
(Increase) decrease in restricted cash . . (86) 121
Capital expenditures . . . . . . . . . . . (76) (91)
Construction on land/building . . . . . . . (867) (182)
Increase in deposit on property under
contract for sale. . . . . . . . . . . . . 1,474 1,145
---------- ---------
Net cash provided by investing activities . . . 445 993
---------- ---------
Cash flows from financing activities
Principal payments of long term debt . . . (198) (186)
Borrowings from revolving credit line . . . 0 (350)
Decrease in amounts receivable from
affiliates . . . . . . . . . . . . . . . . . . 0 2
Distributions paid . . . . . . . . . . . . (613) (2,349)
---------- ---------
Net cash used by financing activities . . . . . (811) (2,883)
---------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . 462 (991)
Cash & cash equivalents at beginning of period 478 1,486
---------- ---------
Cash & cash equivalents at end of period . . . $940 $495
========== =========
See accompanying notes to financial statements (unaudited).
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
American Retirement Villas Properties III
(a California limited partnership)
Notes to Financial Statements (Unaudited) (Continued)
September 30, 1996
(1) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10K is incorporated by this reference.
BASIS OF ACCOUNTING
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
CARRYING VALUE OF REAL ESTATE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
ORGANIZATION COSTS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
PRE-OPENING COSTS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
LOAN FEES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
RENTAL INCOME
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
INCOME TAXES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
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NET INCOME (LOSS) PER LIMITED PARTNER UNIT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
CASH AND CASH EQUIVALENTS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
RECLASSIFICATIONS
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(3) TRANSACTIONS WITH AFFILIATES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference, except for the following
additional comments. For the three months ended September 30, 1996, property
management fees and partnership administration fees of $77,000 and $32,000,
respectively, were paid or accrued to the Managing General Partner.
(4) PROPERTIES
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(5) NOTES PAYABLE
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
(6) GRANT INCOME
Pursuant to Regulation S-X Rule 10-1(5), the material stated in the December
31, 1995 Form 10-K is incorporated by this reference.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) LIQUIDITY
The General Partners expect that the cash to be generated from operations of
all the Registrant's properties will be adequate to pay operating expenses,
make necessary capital improvements, make required principal reductions, and
provide distributions to the Partners. On a long-term basis, the Registrant's
liquidity is sustained primarily from cash flow provided by operating
activities. During the nine months ended September 30, 1996, cash provided by
operating activities was $828,000 compared to cash provided by operating
activities of $899,000 for the nine months ended September 30, 1995.
During the nine months ended September 30, 1996, investing activities provided
the Registrant net cash of $445,000 compared to $993,000 for the nine months
ended September 30, 1995. The Registrant's investing activities consisted of
capital improvements made on its six operating properties, construction on its
property in development and an increase in deposits received on a property under
contract for sale.
During the nine months ended September 30, 1996, the Registrant used net cash
in financing activities of $811,000 compared to $2.9 million for the nine
months ended September 30, 1995. The Registrant's financing activities
consisted of principal reduction on long-term debt and distributions paid to
the Partners.
The General Partners 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. The General Partners believe that if the
inflation rate increases they will be able to pass the subsequent increase in
operating expenses onto the residents of the facilities by way of higher rental
and assisted living rates. The Registrant has long term debt of $20.5 million
as of September 30, 1996, $3.9 million is due February 1, 1999 and the balance
is due through regularly scheduled payments of principal and interest
(primarily on mortgage debt) through January 2025.
(2) CAPITAL RESOURCES
The Registrant contemplates spending approximately $200,000 for capital
expenditures during 1996 for physical improvements at its six facilities and
$1 million for construction costs for its development project. The funds for
these improvements should be available from operations and cash reserves.
There are no known material trends, favorable or unfavorable, in the
Registrant's capital resources, and there is no expected change in the mix of
such resources.
(3) RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995.
Revenue for the three month periods ended September 30, 1996 and the three
months ended September 30, 1995 includes rental income from all six properties,
assisted living income, interest earned on cash balances and other revenue.
Total revenues for the three months ended September 30, 1996 were $1.6 million
compared to revenues of $1.4 million for the three months ended September 30,
1995.
The largest component of revenue, rent, increased by $121,000 from the three
months ended September 30, 1995 to the three months ended September 30, 1996.
The increase in rent was due to higher occupancy rates at the facilities as well
as increased rental rates of approximately 2%.
8
Revenue from assisted living increased from $79,000 to $110,000 for the three
months ended September 30, 1995 compared to the three months ended September 30,
1996. The increase in assisted living revenue was due to the full
implementation of an assisted living services program in the Partnership
facilities.
Interest income increased from $3,000 to $84,000 for the three months ended
September 30, 1995 compared to the three months ended September 30, 1996 due to
interest income earned on notes associated with the Claremont property. Other
income decreased to $24,000 for the three month period ended September 30, 1996
from $54,000 for the same period ended September 30, 1995. This is due to a
one-time holdback fee received from the City of Azusa for rehabilition work on
Villa Azusa during the period ended September 30, 1995.
Sources of revenue for the three months ended September 30, 1996 and September
30, 1995 are summarized as follows:
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(In thousands)
Rent $1,395 $1,274
Assisted Living 110 79
Interest 84 3
Other 24 54
------------- ---------------
Total Revenue $1,613 $1,410
============= ===============
Total costs and expenses for the three months ended September 30, 1996
were $1.7 million, compared to $1.65 million for the three months ended
September 30, 1995.
The largest component of expenses, rental property operations, consists
primarily of property managements costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operations
expenses for the three months ended September 30, 1996 increased from $591,000
compared to $570,000 for the three months ended September 30, 1995.
Assisted living expenses consist primarily of related payroll expense. Assisted
living expenses increased by $11,000 from the three months ended September 30,
1995 to the three months ended September 30, 1996. Assisted living expenses
increased due to increased levels of staffing required to providing assisted
living services commensurate with the increase in assisted living revenue.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt, data processing, investor
relations, insurance and professional services. General and administrative
expenses increased from $171,000 for the three months ended September 30, 1995
to $183,000 for the three months ended September 30, 1996 due to higher
partnership expenses.
Depreciation and amortization expense incurred during the three months ended
September 30, 1996 decreased by $26,000 over the three months ended September
30, 1995. The decrease is due to a portion of fixed assets becoming fully
depreciated.
Interest expense was approximately $472,000 for the three months ended
September 30, 1996 and the three month period ended September 30, 1995.
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Selected costs and expenses for the three months ended September 30, 1996 and
September 30, 1995 are summarized as follows:
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(In thousands)
Rental Property Operations $591 $570
Assisted Living 53 42
General and Administrative 183 171
Depreciation and amortization 299 325
Property Taxes 73 71
Interest Expense 472 471
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995.
Revenue for the nine months ended September 30, 1996 and 1995 includes rental
income (from all six facilities), assisted living revenue, interest income and
other revenue. Total revenue for the nine months ended September 30, 1996 was
$4.7 million compared to revenue of $4.2 million for the nine months ended
September 30, 1995.
The largest component of revenue, rent, increased to $4.0 million during the
nine months ended September 30, 1996 compared to rental income of $3.8 million
earned during the nine months ended September 30, 1995. This increase is
attributable to both higher occupancy rates and to increased rent rates at the
facilities.
During the nine month period ended September 30, 1996, assisted living revenue
increased $41,000 to $300,000 compared to $259,000 recorded during the nine
months ended September 30, 1995. The increase in assisted living revenue was
due to the full implementation of a tiered assisted living services program in
conjunction with an aggressive marketing campaign within the facilities.
Interest income for the nine month period ended September 30, 1996 increased to
$282,000 over $8,000 for the same period in 1995 while other income decreased
$86,000 to $76,000 when compared to the nine month period ended September 30,
1995. The increase of interest income reflects the interest earned on notes
held by Claremont Villas. Other revenue was lower during the nine month period
ended September 30, 1996 in comparison to the nine month period ended September
30, 1995. The decrease was due to a one-time hold back fee by the City of Azusa
for rehabilitation work received by the partnership in the period ended
September 30, 1995.
Sources of revenue for the nine months ended September 30, 1996 and September
30, 1995 are summarized as follows:
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(In thousands)
Rent $4,029 $3,780
Assisted Living 300 259
Interest 282 8
Other Income 76 162
------------------- -----------------
TOTAL REVENUE $4,687 $4,209
=================== =================
Total costs and expenses for the nine months ended September 30, 1996 were $5.0
million as compared to $4.9 million for the nine months ended September 30,
1995.
The largest component of expenses, rental property operations, consists
primarily of property management costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operations expense
increase by $68,000 to $1.7 million for the nine months ended September 30, 1996
over the
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comparable nine month period ended September 30, 1995. The increase in rental
property operating expenses is primarily due to an increase in both
payroll-related and maintenance and supplies expenses.
Assisted living expenses consist mainly of the related payroll expense. Assisted
living expenses incurred for the nine months ended September 30, 1996 increased
to $147,000 from $127,000 for the nine months ended September 30, 1995. The
increase corresponds directly to the increase in assisted living services
revenue in the current year and the staffing required to provide these services.
General and administrative expenses are comprised of, but not limited to, costs
for accounting, partnership administration, bad debt, data processing, investor
relations, insurance, and professional services. General and administrative
expenses increased $14,000 to $530,000 for the nine months ended September 30,
1996 due primarily to higher partnership expenses.
Depreciation and amortization expense decreased to $896,000 for the nine
months ended September 30, 1996 from $975,000 for the nine months ended
September 30, 1995. Depreciation and amortization expense decreased due to the
full depreciation of certain fixed assets.
Interest expense increased by $32,000 for the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995.
Selected costs and expenses for the nine months ended September 30, 1996 and
September 30, 1995 are as follows:
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(In thousands)
Rental Property Operations $1,719 $1,651
Assisted Living 147 127
General & Administrative 530 516
Depreciation & Amortization 896 975
Property Taxes 235 211
Interest Expense 1,425 1,393
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule
B. None
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN RETIREMENT VILLAS PROPERTIES III
A CALIFORNIA LIMITED PARTNERSHIP
By: ARV Assisted Living, Inc.
(Managing General Partner)
By: /s/ Gary L. Davidson
----------------------------
Gary L. Davidson
Chairman of the Board
Date: November 14, 1996
By: /s/ Graham P. Espley-Jones
----------------------------
Graham P. Espley-Jones
Chief Financial Officer
Date: November 14, 1996