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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES CHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1996
Commission file number: 000-26572
NHP INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 52-1445137
- -------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1225 EYE STREET, N.W., WASHINGTON, D.C. 20005-3945
- --------------------------------------- ----------
Address of principal executive offices Zip Code
Registrant's telephone number including area code (202) 347-6247
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
--- ---
At April 30, 1996, there were 12,474,675 shares of common stock
outstanding.
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NHP INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations
- Three Months Ended March 31, 1996 and 1995.............1
Consolidated Balance Sheets
- March 31, 1996 and December 31, 1995...................2
Consolidated Statements of Cash Flows
- Three Months ended March 31, 1996 and 1995.............3
Notes to Unaudited Consolidated Financial Statements.....4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................6
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................13
SIGNATURES.........................................................14
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Revenue, substantially all from related parties
Property management services $13,283 $11,319
On-Site personnel, general and administrative
cost reimbursement 30,532 28,704
Administrative and reporting fees 942 924
Buyers Access fees 646 601
Tax credit investment fees 131 186
Insurance advisory fees 271 268
------- -------
Total revenue 45,805 42,002
Expenses
Salaries and benefits
On-Site employees 29,875 27,483
Off-Site employees 6,019 5,617
Other general and administrative 3,101 2,650
Costs charged to the Real Estate Companies 657 1,221
Amortization of purchased management contracts 879 701
Depreciation and amortization 194 154
Other non-recurring expenses - 471
------- -------
Total expenses 40,725 38,297
Operating income 5,080 3,705
Interest income 148 92
Interest expense (557) (1,915)
------- -------
Income from continuing operations before
income taxes 4,671 1,882
Provision for income taxes (1,868) -
------- -------
Income from continuing operations 2,803 1,882
Loss from discontinued real estate
operations, net of income taxes - (2,557)
------- -------
Net income (loss) $ 2,803 $ (675)
======= =======
Net income (loss) per common share:
Continuing operations .22 .24
Discontinued operations - (.32)
------- -------
Net income (loss) $ .22 $ (.08)
======= =======
Weighted average common and equivalent
shares outstanding (in thousands) 12,563 7,987
======= =======
The accompanying Notes to Unaudited Consolidated Financial
Statements are an integral part of these statements.
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NHP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
March 31,
1996 December 31,
(Unaudited) 1995
----------- ------------
Cash and cash equivalents $ 18,428 $ 5,996
Receivables, substantially all from related
parties, net of allowance for doubtful
accounts of $2,113 and $1,613 in 1996 and
1995, respectively 14,450 12,809
On-Site cost reimbursement receivable,
substantially all from related parties 4,104 2,747
Other current assets 273 277
Current portion of net deferred tax asset 6,038 5,916
-------- --------
Total current assets 43,293 27,745
Purchased management contracts, net of
accumulated amortization of $8,694 and
$8,409 in 1996 and 1995, respectively 37,701 34,568
Property and equipment, net of accumulated
depreciation of $1,827 and $1,666 in 1996
and 1995, respectively 1,990 1,995
Capitalized software, net of accumulated
amortization of $145 and $114 in 1996 and
1995, respectively 1,989 1,528
Deferred costs and other 3,864 4,483
Net deferred tax asset 12,725 14,451
-------- --------
$101,562 $ 84,770
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt, including
amounts payable to related parties of $356
in 1996 and 1995 $ 654 $ 412
Accounts payable 3,874 4,545
Accrued expenses, including amounts associated
with related parties of $2,010 and $3,365 in
1996 and 1995, respectively 7,401 9,552
Accrued on-site salaries and benefits 4,104 2,747
Deferred revenues 2,759 2,199
-------- --------
Total current liabilities 18,792 19,455
Notes payable to banks 37,000 23,000
Notes payable - other, including amounts
payable to related parties of $139 in 1996
and 1995 880 278
Other long-term liabilities 2,933 2,883
-------- --------
Total liabilities 59,605 45,616
Commitments and contingencies (Note 4)
Shareholders' equity (deficit)
Common stock, $0.01 par value, 25,000,000
shares authorized; 12,264,675 shares
issued and outstanding in both 1996
and 1995 123 123
Additional paid-in capital 126,293 126,293
Accumulated deficit (84,459) (87,262)
-------- --------
Total shareholders' equity 41,957 39,154
-------- --------
$101,562 $ 84,770
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The accompanying Notes to Unaudited Consolidated Financial
Statements are an integral part of these statements.
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NHP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Cash Flows From Operating Activities:
Net income (loss) $ 2,803 $ (675)
Discontinued operations, net of income taxes - 2,557
------- --------
Income from continuing operations 2,803 1,882
Depreciation and amortization 1,073 855
Amortization of deferred financing costs 55 135
Income taxes 1,688 -
Provision for doubtful accounts 500 -
Increase in receivables, substantially all
from related parties (3,497) (2,218)
Increase in deferred costs and other (992) (482)
Decrease in accounts payable and accrued
expenses (1,270) (781)
Increase in deferred revenues 485 683
Other 16 583
------- --------
Net cash provided by continuing operations 861 657
Net cash used in discontinued operations - (6,263)
------- --------
Net cash provided by (used in) operating
activities 861 (5,606)
------- --------
Cash Flows From Investing Activities:
Purchase of management contracts (1,479) (10,495)
Purchase of fixed assets and software (655) (719)
------- --------
Net cash used in investing activities (2,134) (11,214)
------- --------
Cash Flows From Financing Activities:
Bank borrowings 21,000 7,207
Repayments of bank borrowings (7,000) -
Repayments of notes payable - other (15) -
Payment of financing, offering and
disposition costs (280) (253)
------- --------
Net cash provided by financing activities 13,705 6,954
------- --------
Increase (decrease) in cash and cash equivalents 12,432 (9,866)
Cash and Cash Equivalents, beginning of period 5,996 12,090
------- --------
Cash and Cash Equivalents, end of period $18,428 $ 2,224
======= ========
Supplemental Disclosures of Cash Flow Information:
Cash interest payments $ 487 $ 1,148
Cash income tax payments $ 180 $ 17
Non-cash item:
Note payable given as consideration for
the purchase of property management rights $ 848 $ -
The accompanying Notes to Unaudited Consolidated Financial
Statements are an integral part of these statements.
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(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and include the accounts of NHP
Incorporated (the "Company") and its wholly-owned subsidiaries.
Although certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, the Company
believes that the disclosures included herein are adequate to make
the information presented not misleading. Operating results for
the three months ended March 31, 1996, are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. These unaudited consolidated financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. In the
opinion of the Company, the unaudited consolidated financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the
results for the three month periods ended March 31, 1996 and 1995.
On August 18, 1995, the Company sold those of its
subsidiaries which held all of the Company's direct and indirect
interests in property-owning partnerships, along with its captive
insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the
two controlling shareholders of the Company, Demeter Holdings
Corporation ("Demeter") and Capricorn Investors, L.P.
("Capricorn"), and J. Roderick Heller, III, the Chairman,
President and CEO of the Company ("Mr. Heller"). The financial
statements include the accounts of the Real Estate Companies
through August 18, 1995, presented as discontinued operations. The
Company continues to provide services to the Real Estate Companies
and, therefore, intercompany revenues and expenses between the
Company and the Real Estate Companies have not been eliminated
from the Company's revenues and expenses in the accompanying
unaudited consolidated financial statements. All other material
intercompany accounts and transactions have been eliminated in
consolidation.
(2) ACQUISITION OF WMF HOLDINGS LTD.
As of April 1, 1996, NHP Incorporated closed the acquisition
of all of the outstanding capital stock of WMF Holdings Ltd. ("WMF
Holdings"), for consideration of approximately $21 million in the
form of $16.8 million in cash and 210,000 shares of the Company's
common stock. WMF Holdings is the owner of Washington Mortgage
Financial Group, Ltd. ("Washington Mortgage Financial") of Fairfax
County, Virginia, one of the nation's leading multifamily mortgage
originators and servicers. Included in Washington Mortgage
Financial is WMF/Huntoon, Paige Associates Limited ("WMF/Huntoon,
Paige"), a leading FHA mortgage originator and servicer located in
Edison, New Jersey. The transaction will be accounted for under
the purchase method of accounting. Operating results of
Washington Mortgage Financial will be included with those of the
Company from the closing date.
(3) NOTES PAYABLE
As a result of the acquisition of WMF Holdings described in
Note 2 above, the Company had additional borrowings under its
credit facility as of March 31, 1996, of approximately $16.8
million with a corresponding increase in its cash and equivalents
balance. These funds were utilized to complete the WMF Holdings
acquisition in April 1996.
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NHP INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(4) COMMITMENTS AND CONTINGENCIES
As of March 31, 1996, the Company was committed to
performance guarantees, loan guarantees and other guarantees
totaling $8.6 million, which largely relate to transactions
consummated by the Real Estate Companies prior to their sale in
August 1995. The Real Estate Companies have indemnified the
Company for any costs which might be incurred by the Company
related to these guarantees. In the opinion of management, future
calls, if any, on these guarantees are not expected to have a
material adverse effect on the Company's financial position or
results of operations.
(5) NET INCOME PER SHARE
On August 18, 1995, the Company completed an initial public
offering ("IPO") of 4.3 million shares of its common stock for net
proceeds of approximately $52.0 million. Although application of
the proceeds of the offering reduced interest expense, net income
per share subsequent to the IPO decreased due to the increase in
shares outstanding.
(6) SUBSEQUENT EVENTS
On February 14, 1996, the Company agreed to acquire 13
multifamily properties containing 3,145 apartment units, including
the right to manage the units on a long-term basis, from
affiliates of Great Atlantic Management, Inc. for consideration of
$84.4 million, approximately $15.7 million of which will be funded
by additional borrowings under the Company's Credit Facility. The
Company intends to hold this investment in real estate only until
such time as a third-party investor acquires the ownership
interests in the properties. Upon disposition of its ownership
interests, the Company intends to retain the long-term rights to
manage the properties. The transaction is expected to close in mid-
May of 1996.
On May 7, 1996, WMF/Huntoon, Paige, a subsidiary of the
Company, agreed to purchase the loan production system and
pipeline, as well a certain other assets, of American Capital
Resource, Inc. The transaction is expected to close by mid-May of
1996, at which time WMF/Huntoon, Paige will become the nation's
largest FHA-insured multifamily loan originator. WMF/Huntoon,
Paige is a wholly-owned subsidiary of Washington Mortgage
Financial, which was acquired by the Company as of April 1, 1996
(see Note 2 above).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
On August 18, 1995, NHP Incorporated (the "Company")
completed an initial public offering (the "IPO") of 4.3 million
shares of its common stock for net proceeds of approximately $52.0
million. Prior to that date the Company had been owned by various
private investors. Concurrently with the closing of the IPO, the
Company sold those of its subsidiaries which held all of the
Company's direct and indirect interest in property-owning
partnerships, along with its captive insurance subsidiary and
certain other related assets (collectively referred to as the
"Real Estate Companies") to the two controlling shareholders of
the Company, Demeter Holdings Corporation ("Demeter") and
Capricorn Investors, L.P. ("Capricorn"), and J. Roderick Heller,
III, the Chairman, President and Chief Executive Officer of the
Company ("Mr. Heller"). Accordingly, operating results and cash
flows attributable to the Real Estate Companies have been
presented as discontinued operations in the accompanying financial
statements in conformity with generally accepted accounting
principles. The following discussion, except where specifically
stated otherwise, relates only to the Company's continuing
operations.
ACQUISITIONS AND NEW BUSINESSES
As of April 1, 1996, the Company closed the acquisition of
all of the outstanding capital stock of WMF Holdings, Ltd. for
consideration of approximately $21 million, in the form of $16.8
million in cash and 210,000 shares of the Company's common stock
(the "Washington Mortgage Acquisition"). WMF Holdings Ltd. is the
owner of Washington Mortgage Financial Group, Ltd. ("Washington
Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and
servicers. Washington Mortgage Financial had mortgage servicing
contracts aggregating approximately $4.5 billion as of February
29, 1996 and originated approximately $805 million in multifamily
and other commercial mortgages in 1995. Included in Washington
Mortgage Financial is WMF/Huntoon, Paige Associates Limited
("WMF/Huntoon, Paige"), a leading FHA mortgage originator and
servicer located in Edison, New Jersey.
On February 14, 1996, the Company agreed to acquire 13
multifamily properties containing 3,145 apartment units, including
the right to manage the units on a long-term basis, from
affiliates of Great Atlantic Management, Inc. for consideration of
$84.4 million (the "Great Atlantic Acquisition"), approximately
$15.7 million of which will be funded by additional borrowings
under the Company's Credit Facility. The Company intends to hold
this investment in real estate only until such time as a third-
party investor acquires the ownership interests in the properties.
Upon disposition of its ownership interests, the Company intends
to retain the long-term rights to manage the properties. The
transaction is expected to close in mid-May of 1996.
On February 29, 1996, the Company entered into a three-year
contract with CRI, Inc., a Rockville, Maryland-based real estate
investment firm, to provide asset management, refinancing and
disposition services for 286 affordable multifamily communities
containing over 35,000 apartment units, which are owned by 129 of
CRI's public and private real estate partnerships. The transaction
increased the Company's total asset management portfolio by over
50% to approximately 840 multifamily properties.
On May 7, 1996, WMF/Huntoon, Paige, a subsidiary of the
Company, agreed to purchase the loan production system and
pipeline, as well a certain other assets, of American Capital
Resource, Inc. (the "American Capital Acquisition"). The
transaction is expected to close by mid-May of 1996, at which time
WMF/Huntoon, Paige will become the nation's largest FHA-insured
multifamily loan originator. WMF/Huntoon, Paige is a wholly-owned
subsidiary of Washington Mortgage Financial, which was acquired by
the Company as of April 1, 1996.
On a going-forward basis, to the extent that the Company is
successful in acquiring new management contract rights or
completing other acquisitions (such as the Washington Mortgage
Acquisition described above), the Company will experience
increased expenses associated with the amortization of the cost of
the acquired rights and, if the acquisitions are financed by
additional indebtedness, an increase in interest expense.
Accordingly, acquisitions may result in a decrease in income from
continuing operations. However, the Company intends to pursue
acquisitions of property management rights and other acquisitions
that result in an increase in income from continuing operations
before interest expense, income taxes, depreciation and
amortization ("EBITDA") after all transition costs relating to the
acquisition are absorbed. EBITDA is widely used in the industry as
a measure of a company's operating
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performance, but should not be considered as an alternative either
(i) to income from continuing operations (determined in accordance
with generally accepted accounting principles) as a measure of
profitability or (ii) to cash flows from operating activities
(determined in accordance with generally accepted accounting
principles). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is
not necessarily indicative of amounts that may be available for
discretionary uses.
RESULTS OF OPERATIONS
Table 1 below sets forth the percentage of the Company's
total revenue represented by each operating statement line
presented. This table is presented as supplemental information to
enable the reader to better analyze the Company's change in
revenues and expenses during the three months ended March 31, 1996
versus the same period of 1995. The percent of revenue comparison
is intended to make the periods more comparable by removing the
absolute effect of growth in revenues and expenses which results
from the Company's additional property management contracts. Such
a presentation would also reflect economies in the Company's
operating expenses, to the extent they exist.
TABLE 1 - SUMMARY FINANCIAL OPERATIONAL DATA - REVENUE AND EXPENSES
AS A PERCENTAGE OF TOTAL REVENUE
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Revenue
Property management services 29.0% 27.0%
On-site personnel, general and administrative
cost reimbursement 66.6 68.4
Administrative and reporting fees 2.1 2.2
Buyers Access fees 1.4 1.4
Tax credit investment fees 0.3 0.4
Insurance advisory fees 0.6 0.6
----- -----
Total revenue 100.0 100.0
Expenses
Salaries and benefits
On-site employees 65.2 65.4
Off-site employees 13.1 13.4
Other general and administrative 6.8 6.3
Costs charged to the Real Estate Companies 1.5 2.9
Amortization of purchased management contracts 1.9 1.7
Depreciation and amortization 0.4 0.4
Other non-recurring expenses - 1.1
----- -----
Total expenses 88.9 91.2
----- -----
Operating income 11.1 8.8
Interest income 0.3 0.2
Interest expense (1.2) (4.5)
----- -----
Income from continuing operations before
income taxes 10.2 4.5
Provision for income taxes (4.1) -
----- -----
Income from continuing operations 6.1% 4.5%
===== =====
The Company's expenses include salaries and benefits with
respect to employees working at managed properties, that are fully
reimbursed by the property-owning partnerships, and certain
general and administrative costs that are fully reimbursed by the
Real Estate Companies. The reimbursements, recorded as revenue
under "On-site personnel, general and administrative cost
reimbursement," fully offset the corresponding expenses, with no
impact on the Company's net income. Therefore, reimbursed expenses
and related revenue are not analyzed in any detail below. Table 2
below shows the Company's adjusted revenue and expenses, which
exclude on-site personnel, general and administrative cost
reimbursements, and related expenses.
Table 3 below sets forth the percentage of the Company's
total revenue excluding on-site personnel, general and
administrative cost reimbursement ("adjusted revenue") represented
by each operating statement line presented. See discussion
regarding Table 1 above.
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TABLE 2 - SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED REVENUE AND
ADJUSTED OPERATING EXPENSES (IN THOUSANDS)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Revenue
Property management services $13,283 $11,319
Administrative and reporting fees 942 924
Buyers Access fees 646 601
Tax credit investment fees 131 186
Insurance advisory fees 271 268
------- -------
Adjusted revenue (1) 15,273 13,298
Expenses
Salaries and benefits
Off-site employees 6,019 5,617
Other general and administrative 3,101 2,650
Amortization of purchased management contracts 879 701
Depreciation and amortization 194 154
Other non-recurring expenses - 471
------- -------
Adjusted operating expenses (2) 10,193 9,593
------ ------
Operating income 5,080 3,705
Interest income 148 92
Interest expense (557) (1,915)
------- -------
Income from continuing operations before
income taxes 4,671 1,882
Provision for income taxes (1,868) -
------ -------
Income from continuing operations $ 2,803 $ 1,882
======= =======
TABLE 3 - SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED REVENUE AND
ADJUSTED OPERATING EXPENSES AS A PERCENTAGE OF ADJUSTED REVENUE
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Revenue
Property management services 86.9% 85.1%
Administrative and reporting fees 6.2 7.0
Buyers Access fees 4.2 4.5
Tax credit investment fees 0.9 1.4
Insurance advisory fees 1.8 2.0
----- -----
Adjusted revenue (1) 100.0 100.0
Expenses
Salaries and benefits
Off-site employees 39.4 42.2
Other general and administrative 20.3 19.9
Amortization of purchased management contracts 5.7 5.3
Depreciation and amortization 1.3 1.2
Other non-recurring expenses - 3.5
----- -----
Adjusted operating expenses (2) 66.7 72.1
----- -----
Operating income 33.3 27.9
Interest income 0.9 0.7
Interest expense (3.6) (14.4)
----- -----
Income from continuing operations before
income taxes 30.6 14.2
Provision for income taxes (12.2) -
----- -----
Income from continuing operations 18.4% 14.2%
===== =====
- ------------------
(1) Adjusted revenue excludes On-site personnel, general and administrative
cost reimbursement.
(2) Adjusted operating expenses exclude salaries and benefits for On-site
employees and costs charged to the Real Estate Companies.
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RESULTS OF OPERATIONS - FIRST QUARTER 1996 COMPARED WITH FIRST
QUARTER 1995
For the quarter ended March 31, 1996, the Company recorded
pre-tax income of $4.7 million compared with $1.9 million for the
same period of 1995, an improvement of $2.8 million. Both
revenues and expenses of the Company show increases in the first
quarter of 1996 over the first quarter of 1995, primarily as a
result of the acquisition of additional property management
contracts. The Company's earnings from continuing operations
before interest expense, income taxes, depreciation and
amortization (EBITDA) was $6.3 million for the first quarter of
1996 compared with $4.7 million, including $0.5 million in non-
recurring expenses, for the first quarter of 1995, an improvement
of $1.6 million, or 35.4%. EBITDA is widely used in the industry
as a measure of a company's operating performance, but should not
be construed as an alternative either (i) to income from
continuing operations (determined in accordance with generally
accepted accounting principles) as a measure of profitability or
(ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles). EBITDA
does not take into account the Company's debt service requirements
and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary
uses.
Net income for the first quarter of 1996 was $2.8 million,
including a $1.9 million provision for income taxes, compared with
a net loss of $0.7 million in the first quarter of 1995. No tax
provision was recorded in the first quarter of 1995 due to NOLs
generated by the Real Estate Companies in prior years. Net income
for 1995 included $2.6 million in losses from discontinued
operations and $0.5 million of non-recurring compensation expense
related to the extension of the exercise term of certain employee
stock options.
REVENUE
Total revenue of the Company consists of property management
services fees, administrative and reporting fees, Buyers Access
fees, tax credit investment fees, insurance advisory fees and
on-site personnel, general and administrative cost reimbursement.
Adjusted revenue equals total revenue less on-site personnel,
general and administrative cost reimbursement. The Company's total
revenue increased $3.8 million, or 9.1%, to $45.8 million in the
first quarter of 1996 from $42.0 million in the first quarter of
1995. Adjusted revenue increased $2.0 million, or 14.9%, to $15.3
million in the first quarter of 1996 from $13.3 million in first
quarter of 1995. The reasons for these changes are set forth
below.
PROPERTY MANAGEMENT SERVICES revenue increased $2.0 million,
or 17.4%, during the first quarter of 1996 versus 1995. As a
percentage of total revenue, property management revenue increased
to 29.0% from 27.0%. As a percentage of adjusted revenue, property
management revenue increased to 86.9% from 85.1%. The increase in
absolute terms and as a percentage of total and adjusted revenue
resulted primarily from an increase in the average number of units
managed due primarily to the acquisition of additional property
management rights.
ADMINISTRATIVE AND REPORTING FEES increased $0.02 million, or
1.9%, during the first quarter of 1996 versus 1995. As a
percentage of total revenue, administrative and reporting fees
revenue remained essentially the same. As a percentage of adjusted
revenue, administrative and reporting fees revenue decreased to
6.2% from 7.0%. This revenue is subject to fluctuations from year
to year and is recorded on an estimated basis throughout the year,
subject to adjustment depending on actual fees received during the
year. The Company expects administrative and reporting fees to
continue to decline as a percentage of adjusted revenue because
these fees generally are not received with respect to
newly-acquired management contracts and as the properties which
have administrative and reporting fees are lost due to sale or
other reasons.
BUYERS ACCESS FEES increased $0.05 million, or 7.5%, during
the first quarter of 1996 versus 1995. As a percentage of total
revenue, Buyers Access fees remained essentially the same. As a
percentage of adjusted revenue, Buyers Access fees revenue
decreased to 4.2% from 4.5%. The increase in absolute terms
resulted from an increase in the average number of units enrolled
in the Buyers Access program.
TAX CREDIT INVESTMENT FEES decreased $0.06 million, or 29.6%,
during the first quarter of 1996 versus 1995. As a percentage of
total revenue, tax credit investment fees remained essentially the
same. As a percentage of adjusted revenue, tax credit investment
fees revenue decreased to 0.9% from 1.4%. The decrease in absolute
terms and as a
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percentage of adjusted revenue is the result of fewer tax credit
investment transactions being completed during the first quarter
of 1996 as compared with 1995.
EXPENSES
Total expenses of the Company consist of salaries and
benefits for on-site and off-site employees, other general and
administrative expenses, costs charged to the Real Estate
Companies, depreciation and amortization, amortization of
purchased management contracts and other non-recurring expenses.
Adjusted operating expenses equal total expenses less salaries and
benefits for on-site employees and costs charged to the Real
Estate Companies. Total expenses increased $2.4 million, or 6.3%,
to $40.7 million in the first quarter of 1996 from $38.3 million
in the first quarter of 1995. Total expenses as a percentage of
total revenue decreased to 88.9% in the first quarter of 1996 from
91.2% in the first quarter of 1995. Adjusted operating expenses
increased $0.6 million, or 6.3%, to $10.2 million in the first
quarter of 1996 from $9.6 million in the first quarter of 1995.
Adjusted operating expenses as a percentage of adjusted revenue
decreased to 66.7% from 72.1%. The reasons for these changes are
set forth below.
SALARIES AND BENEFITS - OFF-SITE EMPLOYEES expenses increased
$0.4 million, or 7.2%, in the first quarter of 1996 versus 1995.
As a percentage of total revenue, salary and benefits - off-site
employees decreased to 13.1% from 13.4%. As a percentage of
adjusted revenue, salary and benefits - off-site employees
expenses decreased to 39.4% from 42.2%. The increase in absolute
terms resulted primarily from additional personnel cost incurred
related to management of additional properties. The decrease as a
percentage of adjusted revenues reflects a lower average cost per
unit.
OTHER GENERAL AND ADMINISTRATIVE expenses increased $0.5
million, or 17.0%, in the first quarter of 1996 versus 1995. As a
percentage of total revenue, other general and administrative
expenses increased to 6.8% from 6.3%. As a percentage of adjusted
revenue, other general and administrative expenses increased to
20.3% from 19.9%. The increase in absolute terms and as a
percentage of total and adjusted revenues resulted primarily from
a $0.5 million increase in the allowance for doubtful accounts in
the first quarter of 1996.
AMORTIZATION OF PURCHASED MANAGEMENT CONTRACTS increased $0.2
million, or 25.4%, in the first quarter of 1996 versus 1995. As a
percentage of total revenue, amortization of purchased management
contracts increased to 1.9% from 1.7%. As a percentage of adjusted
revenue, amortization of purchased management contracts increased
to 5.7% from 5.3%. The increase in absolute terms and as a
percentage of total and adjusted revenues resulted primarily from
acquisitions of additional management contracts.
DEPRECIATION AND AMORTIZATION expense increased $0.04
million, or 26.0%, in the first quarter of 1996 versus 1995. As a
percentage of total revenue and adjusted revenue, depreciation and
amortization remained essentially the same. The increase in
absolute terms resulted primarily from increased depreciation on
computer hardware purchased in connection with the Company's move
from mainframe to client-server based technology.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased $0.06 million, or 60.9%, to
$0.15 million in the first quarter of 1996 from $0.09 million in
the first quarter of 1995. As a percentage of total revenue,
interest income was essentially the same. As a percentage of
adjusted revenue, interest income increased to 0.9% from 0.7%.
The increases are due primarily to a higher average cash balance
and interest earned on amounts due from the Real Estate Companies.
Prior to the sale of the Real Estate Companies in August of 1995,
no interest was charged on amounts due from the Real Estate
Companies since they were part of NHP Incorporated.
Interest expense decreased $1.3 million, or 70.9%, to
$0.6 million in the first quarter of 1996 from $1.9 million in the
first quarter of 1995. As a percentage of total revenue, interest
expense decreased to 1.2% from 4.5%. As a percentage of adjusted
revenue, interest expense decreased to 3.6% from 14.4%. The
decreases are due to a lower level of debt during the first
quarter of 1996 following the application of the proceeds from the
Company's IPO to repay debt in August of 1995. Going forward,
interest expense is expected to increase somewhat as a result of
additional borrowings related to the previously discussed
acquisitions.
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PROVISION FOR INCOME TAXES
The Company recorded a $1.9 million provision for income
taxes in the first quarter of 1996 versus none in the first
quarter of 1995. The Company files a consolidated Federal income
tax return and prior to the third quarter of 1995 had recognized
no provision or benefit for income taxes primarily because of net
operating losses generated in prior years by the discontinued real
estate operations. Prior to the sale of the Real Estate Companies,
losses from discontinued operations typically caused the Company
to report no taxable income, making realization of net operating
loss carryforwards ("NOLs") uncertain. As a result, historically,
the Company had established a valuation allowance for the full
amount of the NOLs. Subsequent to the sale of the Real Estate
Companies, the Company reduced its valuation allowance, resulting
in the recognition of a net deferred tax asset and, therefore, a
tax provision.
LIQUIDITY AND CAPITAL RESOURCES
Continuing operations, particularly property management
operations, have historically provided a steady, noncyclical
source of cash flow to the Company. Net cash provided by
continuing operations for the first quarter of 1996 was $0.9
million compared with $0.7 million for the first quarter of 1995.
On March 31, 1996, cash and cash equivalents totaled $18.4
million. In addition the Company had $38 million of available
borrowings under its revolving credit facility with a group of
banks (the "Credit Facility"). In April 1996, the Company used
approximately $16.8 million of its available cash balance, along
with 210,000 newly issued shares of the Company's common stock, to
purchase WMF Holdings.
For the first quarter of 1996, net cash used in investing
activities was $2.1 million, primarily reflecting additional
payments on the acquisition of property management rights and cash
used to purchase and develop software related to the Company's
move from mainframe technology to client-server based technology.
Net cash used in investing activities in the first quarter of 1995
of $11.2 million primarily reflects payments for acquisition of
property management rights.
For the first quarter of 1996, net cash provided by financing
activities was $13.7 million, primarily reflecting borrowings on
the Credit Facility to purchase WMF Holdings, net of repayments on
the Credit Facility. In the first quarter of 1995, net cash
provided by financing activities was $7.0 million, primarily
reflecting borrowings in connection with the acquisition of
property management rights.
The Company's future capital expenditures are expected to
consist largely of funds required in connection with the
acquisition of property management rights and other acquisitions.
The Company intends to finance such acquisitions primarily out of
operating cash flow and bank or other borrowings, including
borrowings under the Credit Facility. The Company may also issue
additional common stock, either for cash to be used in connection
with, or as consideration for, acquisitions. The Company believes
that it can repay indebtedness out of operating cash flow or
additional equity offerings.
Future capital expenditures are also expected to include
costs to acquire additional computer hardware and software in
connection with the Company's move from mainframe technology to
client-server based technology to serve its information systems
needs. As of March 31, 1996, the client-server software and
related hardware had been purchased with funds from operating cash
flow. The Company currently has no material commitments for
capital expenditures other than the Great Atlantic and American
Capital acquisitions previously discussed.
The Company has substantial unused NOLs for Federal tax
purposes. In addition, the Company estimates that, based on
current projections, it has sufficient Federal alternative minimum
tax NOLs to offset the allowable limit of Federal alternative
minimum taxable income at least through 1996. Therefore, the
Company expects its combined Federal and state cash income tax
rate to be approximately 10% for 1996.
The Company has provided working capital advances to the Real
Estate Companies. These advances, which are included in
receivables and totaled $4.8 million as of March 31, 1996, are
payable on demand and incur interest at the rate equal to prime
plus 1%. The Real Estate Companies expect to be able to repay this
amount upon completion of certain transactions in 1996.
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DISCONTINUED OPERATIONS
No cash was used by discontinued operations in the first
quarter of 1996. Net cash used in discontinued operations for the
first quarter of 1995 was $6.3 million, primarily due to the
acquisition of interests in real estate assets by the Real Estate
Companies.
NET INCOME PER SHARE
As previously discussed, on August 18, 1995, the Company
completed an IPO of 4.3 million shares of its common stock for net
proceeds of approximately $52.0 million. Although application of
the proceeds of the offering reduced interest expense, net income
per share subsequent to the IPO decreased due to the increase in
shares outstanding. In addition, as of April 1, 1996, the Company
issued 210,000 shares of common stock in connection with the
purchase of WMF Holdings. This transaction will impact both
earnings and net income per share beginning with the second
quarter of 1996.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
10.1 Sublease Agreement by and between NHP Management
Company and Columbia Gas Systems Service
Corporation.
11.0 Statement regarding computation of per share
earnings.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
On March 20, 1996, the Company reported to the
Securities and Exchange Commission (SEC) under Item 5, Other
Events, that on that day, the Company and Commonwealth Overseas
Trading Company Limited ("Commonwealth") entered into a Stock
Purchase Agreement providing for the purchase from Commonwealth of
all of the issued and outstanding common stock of WMF Holding,
Ltd. for consideration of approximately $21 million in the form of
$16.8 million in cash and 210,000 shares of the Company's common
stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NHP Incorporated
----------------
(Registrant)
May 13, 1996 By: /s/ Ann Torre Grant
-----------------------------------------------
Ann Torre Grant
Executive Vice President, Chief Financial Officer,
and Treasurer (Authorized Officer and Principal
Financial Officer)
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