SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934
FOR QUARTER ENDED MARCH 31, 1997
COMMISSION FILE NUMBER: 1-9302
FORUM RETIREMENT PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ORGANIZED IN DELAWARE I.R.S. NO.35-1686799
10400 FERNWOOD ROAD
BETHESDA, MD 20817
TELEPHONE: (301) 380-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Preferred Depository Units Representing American Stock Exchange
Preferred Limited Partners' Interests
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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
INDEX
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets --
March 31, 1997 and December 31, 1996 3
Condensed consolidated statements of operations --
Three months ended March 31, 1997 and 1996 5
Condensed consolidated statement of partners' equity --
March 31, 1997 and December 31, 1996 6
Condensed consolidated statements of cash flows --
Three months ended March 31, 1997 and 1996 7
Notes to condensed consolidated financial statements --
March 31, 1997 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Exhibit 99 E-99
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
--------- ------------
(in thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 5,271 6,199
Accounts receivable, less allowances for doubtful 4,565 3,210
accounts of $501,000 and $420,000, respectively
Other receivables 419 419
Restricted cash (note C) 3,499 2,663
Estimated third-party settlements --- 684
Inventory and prepaid expenses 252 229
Other current assets 93 86
--------- -------
TOTAL CURRENT ASSETS 14,099 13,490
--------- -------
Property and equipment:
Land and land improvements 14,966 14,871
Buildings 103,648 103,496
Furniture and equipment 10,066 9,955
Construction in progress 1,408 941
--------- -------
130,088 129,263
Less accumulated depreciation 32,667 31,723
--------- -------
Net Property and Equipment 97,421 97,540
--------- -------
Deferred financing costs, net of accumulated
amortization of $1,217,000 and
$1,125,000, respectively 1,436 1,528
--------- -------
TOTAL ASSETS $ 112,956 112,558
========= =======
See Notes to Condensed Consolidated Financial Statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
---------- ------------
(in thousands)
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current Liabilities:
Current portion of long-term debt $ 1,158 1,129
Accounts payable and accrued expenses 2,143 3,476
Amounts due to parent of general partner and its affiliates (note D) 5,755 4,242
Resident deposits 1,190 1,232
---------- ------------
TOTAL CURRENT LIABILITIES 10,246 10,079
Long-term debt, less current portion 46,554 46,855
Deferred management fees due to parent of
general partner 15,780 15,780
---------- ------------
TOTAL LIABILITIES 72,580 72,714
---------- ------------
General partner's equity in subsidiary partnership 241 236
Partners' equity:
General partner 507 502
Limited partners (15,285 units issued
and outstanding) 39,628 39,106
---------- ------------
TOTAL PARTNERS' EQUITY 40,135 39,608
---------- ------------
Commitments and contingencies (note E)
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 112,956 112,558
========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1997 1996
--------- --------
(in thousands, except
per unit amounts)
Revenues:
Routine revenue $ 12,396 11,430
Ancillary revenue 1,874 1,689
Other income 41 51
--------- --------
TOTAL REVENUES 14,311 13,170
--------- --------
Costs and expenses:
Routine expenses 8,749 7,868
Ancillary costs 1,538 1,290
Management fees to parent of general partner 1,138 1,041
General and administrative 101 221
Litigation 37 114
Depreciation 944 948
Interest, including amounts to parent of general partner of
$5,000 and $6,000, respectively 1,272 1,311
-------- --------
TOTAL COSTS AND EXPENSES 13,779 12,793
-------- --------
Income before general partner's interest in income of
subsidiary partnership 532 377
-------- --------
General partner's interest in income of subsidiary partnership 5 3
-------- --------
NET INCOME $ 527 374
======== ========
General partner's interest in net income $ 5 4
======== ========
Limited partners' interest in net income $ 522 370
======== ========
Average number of units outstanding 15,285 15,285
======== ========
Net income per limited partner unit $ 0.03 0.02
======== ========
See Notes to Condensed Consolidated Financial Statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(Unaudited)
General Limited
Partner Partners
------- --------
(in thousands)
Balances at January 1, 1997 $ 502 39,106
Net Income 5 522
------ -------
Balances at March 31, 1997 $ 507 39,628
====== =======
Accumulated balances:
Capital contributions $1,173 $116,279
Offering costs (4) (6,715)
Cash distributions (255) (29,679)
Accumulated losses (407) (40,257)
------ --------
Balances at March 31, 1997 $ 507 $ 39,628
====== ========
See Notes to Condensed Consolidated Financial Statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1997 1996
------- ------
(in thousands)
Cash flows from operating activities:
Net income $ 527 374
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation of property and equipment 944 948
Amortization of deferred financing costs 92 92
Amounts due to parent of general partner and its affiliates 1,525 (162)
Accrued revenues and expenses, net (2,683) 197
Other 612 436
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,017 1,885
------- ------
NET CASH USED IN INVESTING ACTIVITIES -
Additions to property and equipment (825) (1,116)
------- ------
Cash flows from financing activities:
Reduction of long-term debt (272) (247)
Payments on note payable to parent of general partner (12) (8)
Net increase in restricted cash (836) (508)
------- ------
NET CASH USED IN FINANCING ACTIVITIES (1,120) (763)
------- ------
Net increase (decrease) in cash and cash equivalents (928) 6
Cash and cash equivalents at beginning of period 6,199 2,960
------- ------
Cash and cash equivalents at end of period 5,271 2,966
======= ======
See Notes to Condensed Consolidated Financial Statements
7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The financial statements have been prepared using the
accounting policies described in the consolidated financial statements of Forum
Retirement Partners, L.P. and Subsidiary Partnership (the "Partnership")
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "Annual Report"). The unaudited condensed consolidated
financial statements include all adjustments which are necessary, in the opinion
of management, to reflect fairly, in all material respects, the Partnership's
financial position and results of operations for the applicable periods. Certain
amounts in the 1996 consolidated financial statements have been reclassified to
conform to the 1997 presentation. Operating results for the three month period
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997 and these financial statements
should be read in conjunction with the Partnership's Annual Report.
NOTE B - OWNERSHIP INTEREST OF THE GENERAL PARTNER AND ITS AFFILIATES
- ---------------------------------------------------------------------
Forum Retirement, Inc., a wholly-owned subsidiary of Forum Group, Inc. ("Forum
Group"), is the general partner of the Partnership (the "General Partner") and
owns a one percent interest in the Partnership and a one percent interest in a
subsidiary operating partnership in which the Partnership owns a ninety-nine
percent interest. The General Partner's interest in the subsidiary operating
partnership is reflected in the statements of operations as a reduction of the
income or loss of the Partnership. Forum Group beneficially owns approximately
79.0% of the outstanding Preferred Depository Units (the "Units") representing
preferred limited partner's interests in the Partnership.
On March 18, 1997, Marriott International, Inc. ("Marriott"), which owns Forum
Group, and Host Marriott Corporation, announced that they had entered into a
letter of intent providing for the sale of Forum Group to Host Marriott
Corporation, and for the transfer of the management of the Forum Group
retirement communities (including those owned by the Partnership) to a Marriott
International subsidiary, subject to receipt of required consents. The parties
announced that the sale is expected to be completed by the second quarter of
1997, but is subject to customary due diligence, documentation, approval by the
Boards of Directors of Marriott International and Host Marriott Corporation, and
expiration or termination of the Hart-Scott-Rodino Antitrust Act waiting period
requirements.
NOTE C- RESTRICTED CASH
- -----------------------
Restricted cash is summarized as follows:
March 31, 1997 December 31, 1996
---------------- -----------------
Debt service reserve fund $ 487,000 487,000
Fixed asset reserve fund 379,000 246,000
Real estate tax reserve fund 854,000 510,000
Insurance reserve fund 321,000 ---
---------------- -----------------
2,041,000 1,243,000
Resident security deposits 1,458,000 1,420,000
---------------- -----------------
$3,499,000 2,663,000
================ =================
The debt service, fixed asset, insurance and real estate tax reserve funds
consist of monies transferred into segregated escrow accounts out of revenues
generated by the Partnership, pursuant to the Partnership's secured loan
facility. These funds are periodically disbursed by the collateral agent to pay
for debt service, capital expenditures, insurance premiums and real estate taxes
8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
March 31, 1997
relating to the secured property. Resident security deposits are amounts paid
by retirement community residents that are repayable to the resident upon
departure from the retirement community. In some cases, to ensure prompt
payment, the Partnership utilizes its unrestricted cash to pay for capital
expenditures, insurance premiums, real estate taxes, and resident security
deposits and is thereafter reimbursed for such payments out of funds held in the
appropriate escrow account.
The liabilities corresponding to the uses of restricted cash are payable
within one year or, in the case of resident security deposits, are payable on
demand upon departure of the resident from the retirement community.
NOTE D - AMOUNTS DUE TO PARENT OF GENERAL PARTNER AND ITS AFFILIATES
- --------------------------------------------------------------------
Pursuant to the terms of the Management Agreement in effect since the
Partnership's formation in 1986, management fees (based on the Partnership's
gross operating revenues) payable to Forum Group for all periods prior to 1994
have been deferred. Fees occurring after January 1, 1994 are paid quarterly, in
arrears.
In March 1996, a subsidiary of Marriott acquired Forum Group. Beginning in
July 1996, Marriott has funded certain operating expenses and expansion and
renovation costs of the Partnership on behalf of Forum Group. All such fundings
are to be reimbursed to Marriott by the Partnership on a current basis out of
the Partnership's cash flow.
Amounts due to the parent of the General Partner and its affiliates is
summarized as follows:
March 31, 1997 December 31, 1996
---------------- -----------------
Due to Forum Group:
Management fees $1,285,000 1,130,000
Other 192,000 512,000
---------------- -----------------
1,477,000 1,642,000
---------------- -----------------
Due to Marriott:
Accounts payable 1,045,000 1,313,000
Payroll 2,393,000 1,246,000
Expansion and renovation costs 588,000 ---
Other 252,000 41,000
---------------- -----------------
4,278,000 2,600,000
---------------- -----------------
$5,755,000 4,242,000
================ =================
NOTE E - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
On January 24, 1994, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint (the "Iowa Complaint") in the United States District Court for
the Northern District of Iowa (the "Iowa Court") against the General Partner
alleging breach of the Partnership Agreement, breach of fiduciary duty, fraud,
insider trading, and civil conspiracy/aiding and abetting. The Plaintiff
subsequently amended the Iowa Complaint, adding Forum Group as a defendant. The
Iowa Complaint is a derivative action seeking recovery of damages and other
relief on behalf of, and not from, the Partnership. The Iowa Complaint alleged,
among other things, that the Plaintiff holds a substantial number of Units, that
the Board of Directors of the General Partner is not comprised of a majority of
independent directors as required by the Partnership Agreement and as allegedly
represented in the Partnership's 1986 Prospectus for its initial public
offering, and that the General Partner's Board of Directors has approved and/or
acquiesced to an 8% management fee charged by Forum Group under the Management
9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
March 31, 1997
Agreement. The Iowa Complaint further alleged that the "industry standard" for
such fees is 4%, thereby resulting in an "overcharge" to the Partnership
estimated by the Plaintiff at $1.8 million per annum beginning in 1994. The
Plaintiff sought the restoration of certain former directors to the Board of
Directors of the General Partner and the removal of certain other directors from
the Board, an injunction prohibiting the payment of an 8% management fee, and
unspecified compensatory and punitive damages. On April 3, 1995, the Iowa Court
entered an order dismissing the Iowa Complaint on jurisdictional grounds.
Although the Plaintiff filed a notice of appeal of the Iowa Court's ruling, it
subsequently dismissed this appeal.
On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint")
in the United States District Court for the Southern District of Indiana (the
"Indiana Court") against the General Partner and Forum Group seeking essentially
the same relief. The defendants moved to dismiss the Indiana Complaint for
failure to state a claim for which relief could be granted and, in response, on
December 11, 1995 the Plaintiff amended the Indiana Complaint. The defendants
moved to dismiss the amended complaint on similar grounds, and on May 17, 1996,
the Indiana Court ruled on the defendant's motion by dismissing without
prejudice two of the four counts contained in the amended complaint, namely the
counts for alleged insider trading and civil conspiracy/aiding and abetting.
The litigation continues to be in the discovery phase, and both the plaintiff
and the defendant filed motions for summary judgment. The court has changed the
scheduled trial date from May 5, 1997 to December 8, 1997. The General Partner
intends to vigorously defend against this litigation.
10
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
March 31, 1997
FORWARD-LOOKING STATEMENTS
- --------------------------
When used throughout this report, the words "believes", "anticipates", and
"expects", and similar expressions, are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties
which could cause actual results to differ materially from those projected,
including: competition with other retirement communities, the balance between
supply of and demand for retirement communities, the Partnership's ability to
timely effect its planned expansion program on current and anticipated terms,
including sufficiency of cash flow from operations to finance the expansion (or
the availability of borrowings if necessary) and timely receipt of zoning and
other governmental approvals, potential changes in Medicaid and/or Medicare
reimbursement levels or criteria, potential changes in the regulatory
environment applicable to retirement communities and related healthcare services
and the effect of national and regional economic conditions, and other risks
described from time to time in the Partnership's filings with the Securities and
Exchange Commission, including Exhibit 99 to this report. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Partnership also undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 1997 and 1996. As of March 31, 1997 and 1996,
-------------------------------------------
the Partnership owned nine retirement communities ("RCs"), all of which were
managed by Forum Group. The Partnership reported net income of $527,000 for the
three month period ended March 31, 1997 compared to net income of $374,000 for
the same period in 1996. Total revenues for the three month period ended March
31, 1997 increased $1,141,000, or 8.7%, to $14,311,000 compared to the same
period last year. Total revenues consist primarily of routine service and
ancillary service revenues. Routine service revenues are generated from monthly
charges for independent living units and daily charges for assisted living
suites and nursing beds which are recognized monthly based on the terms of the
residents' agreements. Ancillary service revenues are generated on a "fee for
service" basis for supplementary items requested by residents and are recognized
as the services are provided. Combined average occupancy (calculated based on
the number of units occupied during the respective period) at the nine RCs was
93.3% for the three month period ended March 31, 1997, a decrease of
approximately 0.4% points compared to the same period in 1996. The decrease in
occupancy is primarily attributable to the effect of three expansion projects
which opened in April 1996, June 1996, and October 1996, and which, as of March
31, 1997, were not fully leased. Occupancy has also been negatively impacted by
two RCs which are expected to open expansion units in the third and fourth
quarters of 1997, due to the temporary inability to lease certain existing units
during construction. These decreases in occupancy were partially offset by an RC
which experienced an occupancy increase of 7.3%, primarily in the assisted
living and nursing components.
The combined average monthly rental rate per occupied unit (calculated
using revenue generated from the respective rental components and excluding non-
rental revenues and prior period adjustments) increased 6.0% for the three month
period ended March 31, 1997 compared to the same period in 1996, with each of
the nine communities experiencing increases.
Routine and ancillary revenues for the three month period ended March 31,
1997 increased $1,151,000, or 8.8%, to $14,270,000 over the comparable period in
1996. The revenue increase is primarily the result of increases in residency
fees and charges in the independent living, assisted living and nursing
components, the favorable impact of recently opened expansion units at three RCs
(one located in New Mexico, which added twenty assisted living units in April
1996; one located in South Carolina which increased its healthcare capacity by
nineteen units in June 1996; and one located in Delaware, which added fifteen
assisted living units in October 1996), increases in the provision of therapy
and other ancillary healthcare services and a significant occupancy increase
experienced at one RC. Two RCs experienced decreases in routine and ancillary
revenues due to declines in occupancy relating to expansion unit construction
as described above, while the remaining seven RCs experienced increases in
routine and ancillary revenues.
Routine expenses and ancillary costs for the three month period ended March
31, 1997 increased $1,129,000, or 12.3%, to $10,287,000 compared to the same
period in 1996. The increased costs and expenses resulted primarily from a
generally higher level of nursing and therapy healthcare staffing, the increased
11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
March 31, 1997
provision of therapy and other ancillary healthcare services and normal
inflationary and other operational increases in other expenses. The recently
opened expansion units at three RCs and a significant occupancy increase
experienced at one RC principally impacted the costs associated with the higher
level of nursing, therapy, housekeeping and dining services required by the
residents at the RCs. Net Operating Income ("NOI") calculated as routine and
ancillary revenues ("operating revenues") less routine and ancillary expenses
("operating expenses") and management fees decreased $75,000, or 2.6%, to
$2,845,000 and the operating margin (operating revenues less operating expenses)
as a percentage of operating revenues decreased from 30.2% for the three month
period ended March 31, 1996 to 27.9% for the comparable period in 1997. NOI and
operating margin were negatively impacted by the recently opened expansion units
at three RCs. These RCs all incurred significant start-up costs relating to the
opening and lease-up of the expansion units, and at March 31, 1997, the
expansion units were not fully leased. In addition, occupancy declines at two
RCs due to expansion unit construction , described above, negatively impacted
NOI and operating margin.
Management fees increased as a function of revenue. Total interest expense
for the three months ended March 31, 1997 decreased by $39,000 compared to total
interest expense for the same period in 1996 due primarily to a reduction in the
principal amount of long-term debt.
Pursuant to the terms of the Management Agreement in effect since the
Partnership's formation in 1986, management fees (based on the Partnership's
gross operating revenues) payable to Forum Group for all periods prior to 1994
have been deferred. Fees occurring after January 1, 1994 are paid on a current
basis. The deferred management fees were expensed in the Partnership's
statements of operations and reflected on a deferred basis in the Partnership's
balance sheets for the relevant periods. Accordingly, except for changes in
management fees payable resulting from variations in revenue levels, the current
payment of such fees for periods after January 1, 1994 had a comparable impact
on the Partnership's operating and net income as compared to prior periods,
although it did affect the Partnership's cash position commencing in 1994.
Income Taxes. The Omnibus Budget Reconciliation Act of 1987 provides that
certain publicly traded partnerships will be treated as corporations for federal
income tax purposes. A grandfather provision delays corporate tax status until
1998 for publicly traded partnerships in existence prior to December 18, 1987.
On August 8, 1988 the General Partner was authorized by the limited partners to
do all things deemed necessary or desirable to insure that the Partnership is
not treated as a corporation for federal income tax purposes. Alternatives
available to avoid corporate taxation after 1998 include: (i) selling or
otherwise disposing of all or substantially all of the Partnership's assets
pursuant to a plan of liquidation and (ii) converting the Partnership into a
real estate investment trust or other type of legal entity. Such actions are
prohibited or restricted under the Partnership's current financing and may
require the granting of a waiver by the lender thereunder. There can be no
assurance that any such waiver would be granted. There can be no assurance that
the Partnership will avoid being taxed as a corporation for federal income tax
purposes.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources. At March 31, 1997, the Partnership had cash
and cash equivalents of $5,271,000, accounts receivable of $4,565,000, remaining
current assets of $4,263,000 and current liabilities of $10,246,000. The
Partnership believes that it has adequate liquidity to meet its foreseeable
working capital requirements.
The Partnership has initiated an expansion program relating to certain of its
properties in an effort to further improve the Partnership's results of
operations. Currently, four expansion projects have been completed, five
expansion projects are under construction and another four expansion projects
are in certain stages of active development or design. Three of the four
projects currently in development or design are expected to begin construction
by the end of 1997. The four completed projects increased the number of living
and nursing units owned by the Partnership by approximately 4% at a capital cost
of $3.8 million. The nine projects which are either under construction or are in
certain stages of active development or design are expected to increase the
number of living and nursing units owned by the Partnership by approximately 15%
at a budgeted capital cost of $16.8 million. A tenth project previously in the
design phase is being re-evaluated and may be reduced in scope or discontinued.
12
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
March 31, 1997
The expansions are designed to modify the uses of or add capacity to existing
facilities without incurring substantial land acquisition and common area build-
out costs. Certain expansions will require additional regulatory approvals.
The Partnership presently intends to finance this expansion program from the
Partnership's cash flow from operations. If cash flow from operations is
insufficient to complete such expansion on a timely basis, the expansion may be
delayed, reduced in scope or discontinued. The terms of the Partnership's
current long-term debt agreement restrict the Partnership from incurring
additional third-party financing (other than $1 million of equipment financing)
and prohibit the imposition of liens on the Partnership's assets. There can be
no assurance that a waiver can be obtained from the lender to permit any third-
party financing, or whether, when and on what terms any such financing may be
available. As a result of the capital required to fund the expansion program,
the Partnership does not expect to make distributions in respect of limited
partner units in the foreseeable future.
The implementation of the expansion program and its impact on the value of an
investment in the Partnership is subject to a number of variables, including
without limitation the cost and availability of any required financing, the
timing with respect to obtaining any such financing, the ability to obtain
required zoning variances and permits from local governmental authorities and
the timing thereof, whether development and construction costs are higher or
lower than anticipated, whether construction is completed faster or slower than
anticipated, whether newly added living units are occupied faster or slower than
anticipated and whether operating costs are higher or lower than anticipated.
The management fee payable to Forum Group of $15,780,000 for all periods from
the formation of the Partnership in 1986 to December 31, 1993 was deferred.
Management fees for periods after December 31, 1993 are paid quarterly, in
arrears. Deferred management fees are payable to Forum Group out of proceeds of
sales and refinancing after making distributions of those proceeds in an amount
sufficient to (i) meet limited partners' tax liabilities, (ii) repay limited
partners' capital contributions, and (iii) pay a 12% cumulative, simple annual
return on limited partners' unrecovered capital contributions. Deferred
management fees become immediately due and payable in the event that the
Management Agreement is terminated, which may occur under certain conditions
including, but not limited to, if Forum Retirement, Inc. is removed as the
General Partner and 80% in interest of the limited partners vote to terminate
such agreement. The Partnership is unable to predict when or if management fees
deferred prior to January 1, 1994 will become payable.
Operating activities provided $868,000 less cash during the three months ended
March 31, 1997 than during the comparable period in 1996 due principally to an
increase in accounts receivable and a decrease in certain accounts payable and
accrued expenses, partially offset by an increase in amounts due to parent of
General Partner and its affiliates for the funding of payroll, certain expansion
and renovation costs and certain other accounts payable. The amounts due to
parent of General Partner and its affiliates are to be reimbursed on a current
basis.
Investing activities used $291,000 less cash during the three months ended March
31, 1997 than during the comparable period in 1996 due principally to a decrease
in expansion and renovation costs incurred in the current year. This decrease
is primarily a function of the timing of payments of the expansion and
renovation costs at several of the RCs and is not reflective of a decrease in
the scope of the expansion activity.
Financing activities used $357,000 more cash during the three months ended March
31, 1997 than during 1996 due principally to an increase in restricted cash.
Inflation. Management does not believe that inflation has had a material effect
on net income. To the extent possible, increased costs are recovered through
increased residency fees and charges.
13
PART II. Other Information
---------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
March 31, 1997
ITEM 1. LEGAL PROCEEDINGS
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On January 24, 1994, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint (the "Iowa Complaint") in the United States District Court for
the Northern District of Iowa (the "Iowa Court") against the General Partner
alleging breach of the Partnership Agreement, breach of fiduciary duty, fraud,
insider trading, and civil conspiracy/aiding and abetting. The Plaintiff
subsequently amended the Iowa Complaint, adding Forum Group as a defendant. The
Iowa Complaint alleged, among other things, that the Plaintiff holds a
substantial number of Units, that the Board of Directors of the General Partner
is not comprised of a majority of independent directors as required by the
Partnership Agreement and as allegedly represented in the Partnership's 1986
Prospectus for its initial public offering, and that the General Partner's Board
of Directors has approved and/or acquiesced to an 8% management fee charged by
Forum Group under the Management Agreement. The Iowa Complaint further alleged
that the "industry standard" for such fees is 4%, thereby resulting in an
"overcharge" to the Partnership estimated by the Plaintiff at $1.8 million per
annum beginning in 1994. The Plaintiff sought the restoration of certain former
directors to the Board of Directors of the General Partner and the removal of
certain other Directors from the Board, an injunction prohibiting the payment of
an 8% management fee, and unspecified compensatory and punitive damages. On
April 3, 1995, the Iowa Court entered an order dismissing the Iowa Complaint on
jurisdictional grounds. Although the Plaintiff filed a notice of appeal of the
Iowa Court's ruling, it subsequently dismissed this appeal.
On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint") in
the United States District Court for the Southern District of Indiana (the
"Indiana Court") against the General Partner and Forum Group seeking essentially
the same relief. The defendants moved to dismiss the Indiana Complaint for
failure to state a claim for which relief could be granted and, in response, on
December 11, 1995 the Plaintiff amended the Indiana Complaint. The defendants
moved to dismiss the amended complaint on similar grounds, and on May 17, 1996,
the Indiana Court ruled on the defendant's motion by dismissing without
prejudice two of the four counts contained in the amended complaint, namely the
counts for alleged insider trading and civil conspiracy/aiding and abetting.
The litigation continues to be in the discovery phase, and both the plaintiff
and the defendant filed motions for summary judgment. The court has changed the
scheduled trial date from May 5, 1997 to December 8, 1997. The General Partner
intends to vigorously defend against this litigation.
ITEM 2. CHANGES IN SECURITIES
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None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
ITEM 5. OTHER INFORMATION
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None.
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PART II. Other Information (continued)
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FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
March 31, 1997
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
Exhibit No. Description
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99 Forward-Looking Statements
(b) Reports on Form 8-K
None.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FORUM RETIREMENT PARTNERS, L.P.,
A Delaware limited partnership
BY: FORUM RETIREMENT, INC., GENERAL PARTNER
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Date: May 15, 1997 By: /s/ Paul E. Johnson, Jr.
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PAUL E. JOHNSON, JR.
PRESIDENT AND CHAIRMAN OF THE BOARD
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